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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 October 2, 1999 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 30, 1999 was $75,403,751(A). As
of November 30, 1999, 7,434,506 shares of Registrant's Common Stock were
outstanding.
(A) Based upon the closing sale price of the Common Stock on November 30, 1999
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 30, 1999.
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 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission is
incorporated by reference into Part III, Items 10., 11., 12. and 13. of this
report.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business..............................................
Item 2. Properties...........................................
Item 3. Legal Proceedings....................................
Item 4. Submission of Matters to a Vote of Security Holders..
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters..........................
Item 6. Selected Financial Data..............................
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........
Item 8. Financial Statements and Supplementary Data..........
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...............
PART III
Item 10. Directors and Executive Officers
of the Registrant....................................
Item 11. Executive Compensation...............................
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................
Item 13. Certain Relationships and Related Transactions.......
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..............................
Signatures .....................................................
<PAGE>
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. When used herein, the words, "intend," "anticipate,"
"believe," "estimate" and "expect" and similar expressions as they
relate to the Company are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements
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 Form 10 "General Form for Registration of Securities,"
as amended (the "Form 10"), dated September 23, 1997, filed with the
Securities Exchange Commission.
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 (discontinued in August,
1998) consisted of the rocket manufacturing 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 and subsystems based on proprietary
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
complementary products. The Company targets technology-based 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) continued
commercialization of the quartz "yaw" sensor for the automotive industry
(as described below); (b) development and commercialization of other
internally developed technologies that have broad industrial and
commercial applications for motion control, pressure, rate and position
sensing; and (c) expansion of the product line through synergistic
acquisitions of complementary technologies.
A key feature of the Company's strategy is to be recognized worldwide
as the most capable source for the sensor categories it has selected. The
Company's traditional emphasis has been producing highly engineered motion
sensing components and assemblies. The Company believes it differentiates
itself by offering (a) superior technology to solve a customer problem
(including innovative proprietary technology); (b) quality service; and
(c) engineering expertise in recommending and prescribing technical
solutions for its customers' applications. The Company's products are not
sold as commodities. Its strategy is to provide technical solutions 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.
(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 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, by incorporating a linear encoder, 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, aviation, 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 7,000 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 three-fourths 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 12% of the Company's net sales in fiscal 1999, 17% in fiscal
1998 and 22% in fiscal 1997. One customer accounted for approximately 20%
of net sales in fiscal year 1999 and no single customer accounted for more
than 10% of net sales in fiscal 1998 or 1997. The Company sold
approximately 28 of its products in international markets.
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
telecommunications antennae has led to it exploring the market for a
proprietary stabilized platform 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, scanner
assemblies, electronic servo control systems 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.
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 steer-by-wire off-road
transportation programs.
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.
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.
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.
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 systems in the
automotive industry. Sensors & Systems' miniature, solid state rate
sensors and accelerometers 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 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 spinout prevention systems for automobiles
(the automotive quartz rate sensor or "AQRS"). 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 rate sensors.
Pressure Sensors. Pressure sensors measure absolute or differential
pressure from vacuum to 10,000 psi. Various sensing technologies are used
including silicon micromachined systems used for commercial and industrial
markets. The Company provides standard products as well as application
specific solutions to pressure measurement requirements.
Micro-Electromechanical Systems ("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 Technologies.
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"). 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 ensure 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.
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 ensure that the scanner
delivers jitter-free, well-resolved images.
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 control panels), 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.
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.
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 and night vision
pilotage systems.
Backlog
Backlog of the Company's continuing business, conducted by Sensors &
Systems, at October 2, 1999 and at October 3, 1998, was $62,469,000 and
$58,854,000, 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 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, for 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 91% of the backlog as of October 2, 1999 is
scheduled for shipment during fiscal 2000; all of the remainder of the
backlog is scheduled for shipment during fiscal 2001.
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, Danaher Corp., Honeywell, Litton, Rockwell International,
Delphi Automotive Systems Corp., Mannesmann Group, and Panasonic. There
are smaller or product-specific companies, some of whose products compete
with those of the Company, including Sensor Systems LLC, CTS Corp.,
Dynamics Research Corp., Heidenhain, Kollmorgen, Kulite Semiconductor,
Servo Magnetics Corp., Bourns, Inc. and Druck Holdings, P.L.C.
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. 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 GyroChip units. Special high
throughput automated or semi-automated equipment is used for the
production of GyroChip assemblies, brushless motors and potentiometers.
Some parts are fabricated under clean room conditions.
The Company's production of automotive yaw sensors requires continued
scaling-up its production to the quantities required by the automobile
market. The Company is continuing to implement production engineering
measures to support the fabrication, assembly, and testing of new sensors
in the appropriate quantities. There can be no assurance that the Company
will be able to produce the required quantities on time or in sufficient
amounts to satisfy demand. Failure to do so would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business - Risk Factors -- Limited Manufacturing
Experience; Scale-Up Risk; Product Recall Risk."
Research and Development
The Company's 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 while maintaining the required quality for the
automotive market. Other development has focused on expanding
applications of existing sensors and utilizing the Company's various
complementary products to create the capability to electronically
stabilize platforms.
The Company has developed products for the future and continues to
produce prototypes incorporating silicon 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 $6.6
million, $6.4 million and $4.9 million in fiscal 1999, 1998 and 1997,
respectively. In addition, customer funded research and development
expenditures charged to cost of sales were $0.4 million, $0.9 million and
$1.1 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 moved from the
development stage to production, there has been a corresponding decrease
in customer funded research and development expenditures.
Employees
As of October 2, 1999, the units comprising Technologies had 1,113
employees, including 120 in research, development and engineering, 58 in
administration, 54 in marketing and sales, and 881 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 77 U.S. patents and 86 foreign patents with expiration
dates ranging from November 1999 to August 2017. 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.
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, and that the cost
of such compliance has not had a material effect on the Company's capital
expenditures, earnings or competitive position, and is not expected to
have a material adverse effect in the foreseeable future.
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 1999, 1998 and
1997 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 to foreign
customers constituted approximately 28%, 14% and 12% of revenues for
fiscal 1999, 1998 and 1997, 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 continuing the process of scaling up production of its
automotive yaw rate sensors for the quantities required by the automobile
market. The Company has relatively recent experience in large-scale
manufacturing. The Company currently manufactures moderate quantities of
only its automotive quartz rate sensor in the Concord, California facility
which supplied sensors to approximately 1% of automobiles sold in the
North American and European markets in fiscal 1999. The Company
previously encountered difficulties in scaling up production of the
GyroChip sensors, including problems involving production yields,
component supplies and shortages of qualified personnel. 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 to maintain the Company's
favorable reputation in the markets in which it competes and allow the
Company to keep pace with technological developments in such 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, financial condition 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 also
depends 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 the Company's specifications. Such components include quartz, supplied
by Sawyer Research Products, Inc.; scanner motors, supplied by Litton
Industries, Inc.; four types of ASIC's, supplied by National Semiconductor
Corporation, Orbit Semiconductor, Honeywell Inc. and Semtech Corp.; and
two types of LED's, supplied by Optek Technology, Inc. and Opto Diode
Corp. The Company currently relies on single suppliers for these
components. 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.
Dependence Upon Key Customers
Approximately 20% of the net sales of the Company in fiscal 1999 were
to Continental Teves for the automotive quartz rate sensor product used
in automobile stability control systems. Continental Teves integrates the
sensor product into independently developed products and markets the
integrated systems to various customers in the automobile industry. This
concentration is expected to expand in fiscal 2000 and beyond. The
Company continues to increase production of the GyroChip sensors (see
"Business - Risk Factors - Limited Manufacturing Experience; Scale-Up
Risk; Product Recall Risk") to meet the requirements of its contracts with
Continental Teves. In addition, the Company is in discussion with
Continental Teves and other automotive customers that could lead to
extensions of existing contracts and to new contracts. There can be no
assurance that the Company will be able to retain or extend its contracts
with Continental Teves or other automotive customers, or obtain new
contracts, or that the product will continue to achieve continuing growth
beyond the end of the current contracts, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Contracting with the U.S. Government
Approximately 12%, 17% and 22% of the net sales of Technologies in
fiscal 1999, 1998 and 1997, respectively, were derived from contracts with
the U.S. Government or under subcontract to other prime contractors to the
U.S. Government. Because a significant portion of Technologies' business
is derived from contracts with the Department of Defense or other agencies
of the U.S. Government, the Company's business is sensitive to changes in
U.S. Government spending policies which can have significant variations
from year to year. At various times, 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 U.S. Government procurement policies
or reductions in U.S. Government expenditures for products furnished by
the Company.
Under applicable regulations, various audit agencies of the U.S.
Government conduct regular audits of contractors' compliance with a
variety of U.S. Government regulations. The U.S. Government also has the
right to review retroactively the cost records under most U.S. Government
contracts. Contract prices may be adjusted in the event the U.S.
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 U.S. Government are competitive fixed price or negotiated fixed
price contracts, although cost-plus-fixed-fee contracts provided
approximately 2.5% of the Company's net sales in fiscal 1999. 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 U.S. Government contracts contain termination clauses that allow
the contract to be terminated either for contractor default or for the
convenience of the U.S. 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 U.S.
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.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as of
December 1, 1999 are as follows:
Name Age Position
- ----------------------------------- ------ ----------------------------------
Charles Crocker................. 60 President, Chief Executive Officer
and Chairman of the Board of
Directors
Gary D. Wrench.................. 66 Senior Vice President, Chief
Financial Officer and Director
Dr. Asad Madni.................. 52 Vice President and Director
Richard M. Brooks(1)(2)......... 71 Director
George S. Brown(2).............. 78 Director
C. Joseph Giroir, Jr.(1)(2)..... 60 Director
Dr. William G. Howard, Jr.(1)... 58 Director
Dr. Robert Mehrabian(1)......... 58 Director
Dr. Lawrence A. Wan............. 60 Vice President, Chief Technical
Officer
Robert R. Corr.................. 53 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 resulting 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 (now named BEI Medical
Systems Company, Inc.) 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 a M.B.A. from the University of California, Berkeley.
Mr. Wrench began serving as a Director in June 1997 prior to the
Distribution and resulting 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 (now named BEI Medical Systems
Company, Inc.) 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. Mr. Wrench holds a
B.A. from Pomona College and a 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 resulting spin-off of
the Company from Electronics in September 1997. Dr. Madni was appointed
President of Sensors & Systems Company, Inc. in October 1993, which was
formed by the consolidation of BEI Motion Systems Company and the BEI
Sensors & Controls Group, of which Dr. Madni had been President since
October 1992. Prior to joining BEI Electronics 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 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 also a graduate of the Program for
Senior Executives from the Massachusetts Institute of Technology, Sloan
School of Management. He is a Chartered Engineer and Fellow of the
Institute of Electrical and Electronics Engineers and the Institution of
Electrical Engineers.
Mr. Brooks is currently an independent financial consultant. He began
serving as a Director in June 1997 prior to the Distribution and resulting
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, Inc. and the
Western Farm Credit Bank, a private company. Mr. Brooks holds a B.S. from
Yale University and a M.B.A. from the University of California, Berkeley.
Mr. Brown began serving as a Director in June 1997 prior to the
Distribution and resulting 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 resulting 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 of counsel to the
law firm of Giroir, Gregory, Holmes & Hoover, PLC. Mr. Giroir is also
President of Arkansas International Development Corporation II, LLC and
Chairman of the Board of Directors for Clinical Study Centers, LLC. 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 resulting 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 Chairman of Credence Systems, Inc.
and a director of RAMTRON International Corp., Thunderbird Technologies,
Inc., and Xilinx, Inc. Dr. Howard holds a B.S.E.E. and a 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 resulting 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 Chief Executive
Officer and President of Teledyne Technologies, Inc. From 1997 to
November 1999, he held a number of senior executive positions at Allegheny
Teledyne, Inc., including Chief Executive Officer and President of
Aeronautics and Electronics segment of the company that spun-out into a
separate public company, Teledyne Technologies, 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 Teledyne Technolgies, Inc., Mellon Financial
Corporation., and PPG Industries, Inc. Dr. Mehrabian holds B.S. and Sc.D.
degrees from Massachusetts Institute of Technology.
Staggered Board of Directors
The Company has a staggered 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 Class III directors to expire at the 2000 annual meeting of
stockholders, the term of office of the Class I directors to expire at
the 2001 annual meeting of stockholders and the term of office of the
Class II directors to expire at the 2002 annual meeting of stockholders.
Class III consists of Mr. Brooks, Dr. Howard and Dr. Mehrabian; Class I
consists of Mr. Brown and Mr. Crocker; and Class II consists of Mr.
Giroir, Dr. Madni and Mr. Wrench. 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 meetings 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 from 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 (now named BEI Medical Systems Company, Inc.).
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.
<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 2003. The Company owns
or operates nine 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 Owns 50,000 square foot manufacturing,
engineering, administrative and research and
development facility.
Concord, California Owns 101,000 square foot manufacturing,
engineering and administrative facilities.
Sylmar, California Leases 74,000 square foot manufacturing,
engineering and administrative facility.
Tustin, California Leases 80,000 square foot manufacturing,
engineering and administrative facility.
San Marcos, California Leases 35,000 square foot manufacturing,
engineering and administrative facilities.
Goleta, California Owns 22,000 square foot manufacturing,
engineering and administrative facility.
Campbell, California Leases 5,000 square foot manufacturing,
administrative and research and development
facility.
Hayward, California Leases 2,330 square foot engineering facility.
Strasbourg, France Leases and subleases 20,000 square foot
manufacturing, engineering and administrative
facility.
<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, 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. Set
forth below are the high and low closing sale prices on the National
Market System for the periods indicated. Such quotations do not reflect
retail mark-ups, markdowns or commissions.
<TABLE>
1999 Fiscal Year High Low Cash
(ended 10/02/99) Dividend
Declared
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fourth Quarter $13.50 $9.88 $0.02
Third Quarter $12.88 $8.50 $0.02
Second Quarter $14.50 $7.25 $0.02
First Quarter $12.75 $5.75 $0.02
</TABLE>
As of November 30, 1999, there were approximately 1,200 holders of record
of the Company's common stock. The Board of Directors declared and the
Company paid cash dividends of $0.02 per share of common stock in each
fiscal quarter of 1999. 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended
-----------------------------------------------------------------------
October 2, October 3, September 27, September 28, September 30,
1999 1998 1997 1996 1995
- -------------------------------- ------------ ------------- ------------- ------------- ------------
(amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales....................... $159,403 $124,264 $101,539 $96,746 $90,475
Income from continuing
operations (before
extraordinary item)......... 5,339 2,515 2,997 2,873 (964)
Diluted income(loss) from
continuing operations
(before extraordinary item). 0.74 0.35 0.42 0.41 (0.14)
Shares used in computing
diluted income per share
(before extraordinary item). 7,254 7,274 7,067 6,978 6,759
Balance Sheet Data:
Working capital................. $37,937 $36,124 $26,967 $27,775 $29,774
Total assets.................... 123,360 109,515 94,855 92,171 92,418
Long-term debt (excluding
current portion)............ 36,705 37,157 27,508 24,137 29,765
Stockholders' equity............ 45,843 40,194 36,617 33,246 28,863
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<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."
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 cover 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.
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 2, October 3, September 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0%
Cost of sales....................... 69.7% 68.9% 64.3%
------------ ------------ ------------
Gross margin........................ 30.3% 31.1% 35.7%
Operating expenses:
Selling, general and
administrative expenses......... 18.8% 20.5% 24.6%
Research, development and
related expenses................ 4.1% 5.1% 4.8%
------------ ------------ ------------
Income from operations.............. 7.3% 5.5% 6.3%
Other income........................ 0.2% 0.4% 0.3%
Interest expense.................... -1.9% -2.4% -1.9%
------------ ------------ ------------
Income before income taxes.......... 5.6% 3.5% 4.7%
Income taxes........................ 2.3% 1.5% 1.8%
------------ ------------ ------------
Income from continuing
operations........................ 3.3% 2.0% 2.9%
Income from discontinued
operations, net of income
taxes............................. --% 0.1% 1.6%
------------ ------------ ------------
Income before extraordinary item.... 3.3% 2.1% 4.5%
Extraordinary item, net of income
taxes............................ (0.2) -- --
------------ ------------ ------------
Net income........................... 3.1% 2.1% 4.5%
============ ============ ============
</TABLE>
Continuing Operations
Net Sales
During fiscal 1999, net sales increased 28.3% to $159.4 million from
$124.3 in fiscal 1998, reflecting continuing increases in sales due to the
automotive industry's growing demand for the Company's GyroChip sensors
used in automotive stability systems. Sales to the automotive industry,
including the GyroChip sales, increased 170.0% to $54.5 million from $20.2
million in fiscal 1998. Other Commercial sales increased $2.8 million to
$85.8 million from $83.0 million during fiscal 1999 and sales to the
government decreased $1.8 million to $19.2 from $21.0 during fiscal 1999.
In fiscal 1998, net sales increased 22.4% to $124.3 million from $101.5
million in fiscal 1997, reflecting increases in sales of GyroChip Sensors
and traditional motion control products, primarily potentiometers and
actuators.
The Company's sales to international customers were approximately 28%,
14%, and 12% of the Company's net sales for fiscal 1999, 1998 and 1997,
respectively. The increase in international sales results from the
Company's GyroChip sensors and the acquisition in August, 1998 of
Ideacod, S.A., a sensor manufacturer located in Strasbourg, France.
Cost of Sales and Gross Profit
In fiscal 1999, cost of sales as a percentage of net sales increased
0.8 percentage points due to increased shipments of products having higher
average cost. Management believes that technological initiatives, efforts
to increase efficiency in the factory and maintaining close relationships
with vendors and customers will lead to reductions in costs thereby
increasing margins.
In fiscal 1998, cost of sales as a percentage of net sales increased
4.6 percentage points due primarily to start up costs associated with
increased production needs for GyroChip Sensors. Based upon projections
of future demand for the GyroChip Sensors product provided by customers,
the Company incurred significant hiring, training, test production and
qualification costs in the second half of fiscal 1998 associated with
increasing the Company's GyroChip Sensors manufacturing capacity in the
fourth quarter of fiscal 1998. In addition, the shut down and start up of
GyroChip Sensors production caused by the General Motors strike and a
resultant decrease in deliveries for six weeks of the fourth quarter 1998
had a negative impact on the quarter.
Selling, General and Administrative Expenses
Fiscal 1999 selling, general and administrative expenses increased $4.5
million from $25.5 million in fiscal 1998 to $30.0 million as a result of
increased costs incurred to support the increase in sales during fiscal
1999.
Fiscal 1998 selling, general and administrative expenses increased $0.5
million from $25.0 million in fiscal 1997 to $25.5 million due primarily
to spending to support all growing product areas, primarily GyroChip
sensors and precision potentiometers.
Research, Development and Related Expenses
Research and development expenses in fiscal 1999 increased 3.0% to
$6.6 million from $6.4 million in fiscal 1998. Spending to develop
micro-electromechanical systems ("MEMS") for a variety of markets was
the principal focus.
Research and development expenses in fiscal 1998 increased 31.7%
reflecting the Company's emphasis on developing new products for
commercial markets. Product programs included work on silicon MEMS,
stabilized platforms, and sensors for stability control systems.
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 expenses associated with such efforts 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 $3.0 million, $2.9 million and $1.9 million in
fiscal 1999, 1998 and 1997, respectively. In fiscal 1999, interest
expense primarily related to the Company's Senior Note debt which incurred
a lower average interest rate than in the prior year due to restructuring
of debt in fiscal 1999 (see Note 5 to the Consolidated Financial
Statements). The average debt balance increased in fiscal year 1999 to
fund capital expenditures. In fiscal 1998, interest expense primarily
related to the line of credit and in fiscal 1997, interest expense related
to the Senior Note debt assumed by Technologies from Electronics in the
Distribution.
Other income in fiscal 1999, 1998 and 1997 was comprised of royalty
income and interest income earned on highly liquid investments. Other
income as a percentage of sales was approximately 0.2% in fiscal 1999, a
decrease of $0.1 million from fiscal 1998.
Income Taxes
The Company's effective tax rate was 40.4%, 41.8% and 37.4% for fiscal
1999, 1998 and 1997, respectively. The effective tax rate primarily
reflects the statutory federal tax rate and the weighted average tax rate
of the states in which the Company conducts business. The decrease of 1.4
percentage points in the tax rate in fiscal 1999 from fiscal 1998 results
primarily from an increase in federal and state tax credits during fiscal
1999. The fiscal 1998 rate increased from the fiscal 1997 tax rate
primarily due to an increase in the Company's state taxes subsequent to
its spin-off from Electronics.
Deferred Income Taxes
At October 2, 1999, the Company had net current deferred income tax
assets of $4.6 million and net non-current deferred income tax assets of
$1.7 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
There was no income for Defense Systems in fiscal 1999. Income in
fiscal 1998 and 1997 was $0.1 million and $1.6 million, respectively. The
fiscal 1998 income reflects the wind-down of rocket operations as a result
of discontinuing these activities. The fiscal 1997 income reflects
follow-on orders for electronics products to support customers'
requirements. (See Note 2 to the Consolidated Financial Statements.)
Liquidity and Capital Resources
During fiscal 1999, operations provided $10.2 million in cash. Net
income of $5.0 million plus non-cash charges for depreciation and
amortization of $6.2 million and $2.0 million, respectively, and net
increases in accounts payable, accrued expenses and other liabilities of
$7.1 million were partially offset by increases in trade receivables of
$6.2 million, inventories of $1.7 million and other current assets of $1.9
million.
Investing activities in fiscal 1999 consisted primarily of the purchase
of $10.6 million in capital equipment to support new commercial product
production, primarily the production of automotive sensors.
Fiscal 1999 financing activities included proceeds of $35.0 million
from newly issued senior notes and $5.3 million from the line of credit.
Offsetting these proceeds were repayments of $13.4 million of the old
senior notes and $26.8 million on the bank line of credit (see Note 5 to
the Consolidated Financial Statements).
In connection with the Distribution in fiscal 1997, 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 on a short-term line of credit which it
transferred to Electronics prior to the Distribution to repay a portion of
amounts payable to Electronics. Subsequent to the Distribution, early in
fiscal 1998, 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 make a scheduled payment on the
Senior Notes. In December, 1998, the Company established a new $12.0
million, two-year line of credit with a bank and terminated the borrowings
under the $25.0 million line referred to above (see Note 5 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.
Year 2000 Compliance: Modification of Management Information Systems
The Company has evaluated the potential impact of what is commonly
referred to as the "Year 2000" issue, concerning the possible inability
of certain products or information systems to properly recognize and
process dates beginning with January 1, 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 Company's Board of Directors. Where necessary,
the requirements for upgraded hardware and software were implemented by
all operating units and completed as of October 2, 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
ensure 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>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the form of changes in
foreign exchange rates and changes in the prices of marketable equity
securities held as part of a deferred compensation plan (a "Rabbi"
trust).
The Company has approximately $1,700,000 (translated from French
francs at October 2, 1999) permanently invested in the assets of Ideacod,
S.A., located in Strasbourg, France. The potential loss in fair value
resulting from a hypothetical 10% adverse change in the foreign currency
exchange rate amounts to $170,000, which would not be material to the
consolidated financial statements.
The Rabbi trust assets, consisting of cash equivalents and debt and
equity securities, are offset by an equivalent deferred compensation
liability to the trust participants. The liability fluctuates equally
with changes in the value of the assets. Because the liability completely
offsets the assets of the trust, changes in asset value have no effect on
the Company's results of operations or financial position.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 2, October 3,
dollars in thousands except share amounts 1999 1998
- ------------------------------------------------------ ----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................. $3,181 $3,557
Investments........................................... 6,467 5,419
Trade receivables:
Commercial customers, less allowance for
doubtful accounts (1999--$597; 1998--$509)...... 24,660 18,201
United States Government........................... 4,895 5,274
----------- ------------
29,555 23,475
Inventories--Note 3................................... 31,036 29,623
Deferred income taxes--Note 6......................... 4,646 4,757
Other current assets.................................. 2,547 1,078
----------- ------------
Total current assets.................................. 77,432 67,909
----------- ------------
Property, plant and equipment--Notes 5 and 10
Land.................................................. 4,567 4,588
Structures............................................ 14,167 13,290
Equipment............................................. 57,747 50,386
Leasehold improvements................................ 1,547 1,316
----------- ------------
78,028 69,580
Less allowances for depreciation and amortization..... 42,906 38,961
----------- ------------
35,122 30,619
----------- ------------
Other assets
Tradenames, patents and related assets, less
amortization (1999--$2,890; 1998--$2,700)........... 1,402 1,583
Technology acquired under license agreements,
less amortization (1999--$6,154;
1998--$5,192)....................................... 4,054 5,015
Goodwill, less amortization (1999--$510; 1998--$458).. 2,436 1,876
Deferred income taxes, non-current.................... 1,680 993
Other................................................. 1,234 1,520
----------- ------------
10,806 10,987
----------- ------------
$123,360 $109,515
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 2, October 3,
dollars in thousands except share amounts 1999 1998
- ------------------------------------------------------ ----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable................................ $15,484 $13,014
Accrued expenses and other liabilities--Note 4........ 17,424 13,125
Deferred compensation liability....................... 6,467 5,419
Current portion of long-term debt--Note 5............. 120 227
----------- ------------
Total current liabilities............................. 39,495 31,785
Long-term debt, less current portion--Note 5.......... 36,705 37,157
Other liabilities..................................... 1317 379
Commitments and contingencies--Notes 10 and 11........ -- --
Stockholders' equity--Notes 7 and 8
Preferred stock
($.001 par value; authorized 2,000,000 shares;
none issued)..................................... -- --
Common stock
($.001 par value; authorized 20,000,000
shares; issued and outstanding;
1999--7,474,788; 1998--7,366,556).................. 3,731 2,132
Retained earnings..................................... 44,498 40,080
Accumulated other comprehensive income................ (106) 39
----------- ------------
48,123 42,251
Less: Unearned restricted stock--Note 8.............. (2,280) (2,057)
----------- ------------
Total stockholders' equity............................ 45,843 40,194
----------- ------------
$123,360 $109,515
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended
- --------------------------------------------------------------------------------
dollars in thousands except share October 2, October 3, September 27,
and per share amounts 1999 1998 1997
- ---------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net sales -- Note 2................. $159,403 $124,264 $101,539
Cost of sales -- Note 2............. 111,180 85,562 65,291
------------ ------------ ------------
Gross profit........................ 48,223 38,702 36,248
------------ ------------ ------------
Selling, general and
administrative expenses......... 30,044 25,491 24,959
Research, development and
related expenses................ 6,605 6,410 4,866
------------ ------------ ------------
36,649 31,901 29,825
------------ ------------ ------------
Income from operations.............. 11,574 6,801 6,423
Other income........................ 360 445 304
Interest expense.................... (2,974) (2,924) (1,942)
------------ ------------ ------------
Income before income taxes.......... 8,960 4,322 4,785
Income taxes -- Note 6.............. 3,621 1,807 1,788
------------ ------------ ------------
Income from continuing
operations........................ 5,339 2,515 2,997
Income from discontinued
operations, net of income
taxes -- Note 2................... -- 142 1,586
------------ ------------ ------------
Income before extraordinary item 5,339 2,657 4,583
Extraordinary item, net of
income taxes -- Note 5............ (326) -- --
------------ ------------ ------------
Net income ......................... $5,013 $2,657 $4,583
============ ============ ============
Basic Income Per Share -- Note 15
Income from continuing
operations per common share...... $0.75 $0.36 $0.44
Income from discontinued
operations per common share...... -- 0.02 0.23
------------ ------------ ------------
Income before extraordinary item per
common share..................... $0.75 $0.38 $0.67
Extraordinary item per common
share............................ ($0.05) -- --
------------ ------------ ------------
Net income per common share......... $0.70 $0.38 $0.67
============ ============ ============
Shares used in computing basic income
per share -- Note 7.............. 7,157,945 7,012,250 6,816,286
============ ============ ============
Diluted Income Per Share -- Note 15
Income from continuing operations
per common share and common
equivalent share -- Notes 7 & 8.. $0.74 $0.35 $0.42
Income from discontinued
operations per common and common
equivalent share -- Notes 7 & 8.. -- 0.02 0.22
------------ ------------ ------------
Income before extraordinary item
per common and common
eqivalent share.................. 0.74 0.37 0.64
Extraordinary item per common
and common equivalent
share............................ (0.05) -- --
------------ ------------ ------------
Net income per common and common
equivalent share................. $0.69 $0.37 $0.64
============ ============ ============
Shares used in computing diluted
income per common and common
equivalent share................. 7,254,484 7,274,035 7,066,560
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------
October 3, October 3, September 27,
dollars in thousands 1999 1998 1997
- ---------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................ $5,013 $2,657 $4,583
Adjustments to reconcile net
income to net cash provided
by operating activities:
Discontinued operations................ -- 1,111 3,513
Depreciation........................... 6,220 4,537 4,304
Amortization........................... 2,013 1,789 1,636
Deferred income taxes.................. (576) (1,171) (2,727)
Other.................................. 164 84 (672)
Changes in operating assets and
liabilities:
Trade receivables...................... (6,244) (4,383) (604)
Inventories............................ (1,657) (5,190) (3,455)
Other current assets................... (1,863) 98 886
Trade accounts payable, accrued
expenses and other liabilities..... 7,125 3,260 (1,744)
----------- ------------ ------------
Net cash provided by operating
activities......................... 10,195 2,792 5,720
----------- ------------ ------------
Cash flows from investing activities:
Acquisition of a business, net of cash
acquired............................ -- (1,627) --
Purchase of property, plant and
equipment........................... (10,597) (6,890) (6,761)
Other.................................. 10 (128) 28
----------- ------------ ------------
Net cash used by investing activities.. (10,587) (8,645) (6,733)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from debt 40,300 22,017 9,000
Principal payments on debt and
other liabilities.................. (40,457) (18,093) (26)
Proceeds from issuance of common stock 55 768 --
Tax benefit from exercised stock options 726 264 --
Repurchase of stock (13) -- --
Payment of cash dividends (595) (580) --
Decrease in payable to BEI
Electronics, Inc................... -- -- (11,128)
----------- ------------ ------------
Net cash provided (used) by
financing activities............... 16 4,376 (2,154)
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... (376) (1,477) (3,167)
Cash and cash equivalents at beginning
of year............................ 3,557 5,034 8,201
----------- ------------ ------------
Cash and cash equivalents at end
of year............................ $3,181 $3,557 $5,034
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------- ------------ ------------ ---------------------
Accumulated
Other Unearned
Common Retained ComprehensiveComprehensiveRestricted
dollars in thousands Stock Earnings Income Income Stock Total
- ----------------------------------- --------- ----------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
Comprehensive Income:
Net income for 1998............. 2,657 2,657 2,657
Other comprehensive income......
Foreign currency translation
gain, net of income tax of $27 39 39 39
------------
Comprehensive income $2,696
============
Restricted Stock Plan--Note 8....... 1,093 (664) 429
Stock options exercised -- Note 8 768 768
Tax benefit from exercised stock....
options -- Note 8............... 264 264
Cash dividends (580) (580)
--------- ----------- ------------ ----------- ---------
Balances at October 3, 1998......... $2,132 $40,080 $39 ($2,057) $40,194
Comprehensive Income:
Net income for 1999............. 5,013 5,013 5,013
Other comprehensive income......
Foreign currency translation
gain, net of income tax of $96 (145) (145) (145)
------------
Comprehensive income $4,868
============
Restricted Stock Plan--Note 8....... 818 (223) 595
Stock options exercised -- Note 8 55 55
Tax benefit from exercised stock....
options -- Note 8............... 726 726
Cash dividends (595) (595)
--------- ----------- ------------ ----------- ---------
Balances at October 2, 1999......... $3,731 $44,498 ($106) ($2,280) $45,843
========= =========== ============ =========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
BEI Technologies, Inc. and Subsidiaries
October 2, 1999
Note 1--Summary of Significant Accounting Policies
Basis of Presentation: BEI Technologies, Inc. ("Technologies" or the
"Company") was incorporated on June 30, 1997 in the State of Delaware, as
wholly-owned subsidiaries. The financial position and results of
operations of Sensors & Systems and Defense Systems, former subsidiaries
of Electronics and predecessor entities to the Company, are presented on
a combined basis for all dates and periods prior to the Distribution. All
intercompany accounts and transactions have been eliminated. The results
of operations of the Sensors & Systems business segment are presented as
continuing operations and those of the Defense Systems business segment
through the end of the third quarter of fiscal 1998 are presented as
discontinued operations.
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 year 1999 contained 52 weeks, fiscal year 1998
contained 53 weeks and fiscal year 1997 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. Fixed price contracts with the Federal Government are accounted
for using the percentage of completion method. Progress toward completion
is measured based on the number of units shipped as compared to total
units to be delivered.
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.
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 121) "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Off." 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: As of December 27, 1997, the
Company adopted Statement of Financial Accounting Standards No. 128 (FAS
128), "Earnings per Share." All prior earnings per share data have been
restated to conform to the provisions of this statement. The impact on
the calculation if earnings per share in prior periods was not material.
As of October 3, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income."
FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Company's net income. FAS 130 requires
disclosure of other comprehensive income which includes foreign currency
translation adjustments.
As of October 2, 1999 the Company adopted Statement of Financial
Accounting Standards No. 131 (FAS 131) "Disclosure about Segments of an
Enterprise and Related Information." FAS 131 requires disclosure of
certain information regarding operating segments, products and services,
geographic areas of operation and major customers. As the Company
operates in one segment. the adoption of this statement had no impact on
the Company's net income or shareholders' equity.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments ("FAS 133"), effective for financial statements
for periods beginning after December 15, 1998. FAS 133 establishes
accounting and reporting standards for derivative instruments and for
hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments
at fair market value. Under certain circumstances, a portion of the
derivative's gain or loss is initially reported as a component of income
when the transaction affects earnings. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the
period of change. Presently, the Company does not use derivative
instruments either in hedging activities or as investments. Accordingly,
the company believes that adoption of FAS 133 has no impact on its
financial position or results of operations.
Net Income (loss) Per Share: Basic income per share is computed
using the weighted average number of shares outstanding. Diluted income
per share is computed using the weighted average number of shares
outstanding, adjusted for the incremental shares attributed to unvested
stock and outstanding options to purchase common stock calculated using
the treasury stock method. For periods prior to the Distribution, income
per share calculations were based on the distribution of one share of
Technologies common stock for each share of Electronics common stock.
Acquisition: On August 7, 1998, Sensors & Systems acquired Ideacod,
S.A., a sensor manufacturer located in Strasbourg, France, for $1,627,000
in cash and the assumption of $3,735,000 in liabilities, in a transaction
accounted for as a purchase. The results of Ideacod since the date of
acquisition are included in the accompanying consolidated financial
statements. The impact of the acquisition was not material in relation to
the Company's results of operations, therefore, no pro forma information
is presented.
The financial statements of Ideacod, S.A. have been translated into
U.S. dollars on the acquisition date and at fiscal year-end, using the
exchange rates on those dates for assets and liabilities and the average
exchange rates during the period for income and expenses. The resulting
unrealized translation adjustments are recorded as a component of other
comprehensive income.
Reclassification: Certain reclassifications have been made to the
1998 and 1997 consolidated financial statements to conform with current
year presentations.
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.
At the end of fiscal 1998, all inventory and equipment of the rocket
business had been written off or disposed of and the operations of the
Defense Systems segment had been shut down. Net sales of the Defense
Systems segment were $3,192,000 and $9,059,000 in fiscal 1998 and 1997,
respectively.
Note 3--Inventories
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
------------ ------------
<S> <C> <C>
Finished products ................................. $1,521 $1,460
Work in process ................................... 10,165 10,183
Materials ......................................... 17,848 16,051
Costs incurred under long-term contracts,
including U.S. Government contracts ............ 1,746 1,929
Unliquidated progress payments..................... (244) --
------------ ------------
Inventories ....................................... $31,036 $29,623
============ ============
</TABLE>
Note 4--Accrued Expenses and Other Liabilities
<TABLE>
<CAPTION>
October23, October 3,
1999 1998
------------ ------------
(dollars in thousands)
<S> <C> <C>
Employee compensation .............................. $2,603 $2,255
Vacation ........................................... 2,145 2,003
Accrued taxes ...................................... 3,163 1,454
Contract costs ..................................... 724 1,153
Accrued professional fees .......................... 827 1,003
Insurance .......................................... 909 954
Royalties and related costs ........................ 2,167 950
Customer advances................................... 446 893
Commissions ........................................ 549 614
Other .............................................. 3,891 1,846
------------ ------------
Total accrued expenses and other liabilities ....... $17,424 $13,125
============ ============
</TABLE>
Note 5--Long-Term Debt
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
------------ ------------
(dollars in thousands)
<S> <C> <C>
6.70% Senior Notes, due in annual installments
of $7,000 from November 16, 2001 through
November 16, 2005................................ $35,000 --
7.23% Series A Senior Notes; due in annual
installments of $3,360 from October 1, 1996
through October 1, 2000 ......................... -- $6,720
7.23% Series B Senior Notes; due in annual
installments of $2,240 from November 15,
1996 through November 15, 2000 .................. -- 6,720
Borrowings under bank line of credit ............... -- 22,000
Mortgage note payable with interest at 6.87%;
due in monthly installments of principal
and interest of $14 until December, 2003
when the remaining balance of approximately
$1,400 is due; collateralized by certain
real property ................................... 1,681 1,708
Capitalized equipment lease obligations............. 144 236
------------ ------------
36,825 37,384
Less current portion ............................... 120 227
------------ ------------
$36,705 $37,157
============ ============
</TABLE>
On November 16, 1998, the Company sold $35.0 million of senior notes
in a private placement. The note agreement contains covenants
regarding certain operating ratios, limitations on debt, dividend
payments and minimum net worth. The proceeds from the senior
notes were used to repay the pre-existing senior notes and pay down
outstanding borrowings on the Company's line of credit as they matured.
The prepayment penalty and the remaining unamortized loan fees of
$326,000, net of the related tax benefit, were charged to the first
quarter of fiscal 1999 as an extraordinary loss on the early
extinguishment of the debt.
On December 16, 1998, the Company established a new $12.0 million two
year line of credit with a bank and terminated the $25.0 million facility
in place at the end of fiscal 1998. Outstanding borrowings of $13,440
under the previous line of credit were repaid with proceeds from the
senior notes. No borrowings were outstanding under the new line of credit
at October 2, 1999. On December 13, 1998, the mortgage note payable was
refinanced with the original lender and the due date extended from fiscal
1999 to 2003.
Maturities of long-term debt, adjusted for the effect of the new senior
notes and the mortgage refinancing and excluding capitalized equipment
lease obligation (see Note 10), are as follows: 2000 $54,000; 2001
$7,058,000; 2002 $7,062,000; 2003 $7,067,000; 2004 $8,440,000; thereafter-
- -$7,000,000.
Interest of approximately $2,354,000, $2,535,000 and $1,942,000 was
paid during fiscal years 1999, 1998 and 1997, respectively.
Note 6 Income Taxes
The Company 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, the Company is no longer
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.
The provision for income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
October 2, October 3, September 27,
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Current
Federal ................... $3,365 $2,581 $4,688
State ..................... 832 496 799
----------- ------------ ------------
Total Current ........ 4,197 3,077 5,487
----------- ------------ ------------
Deferred
Federal ................... (437) (1,038) (2,330)
State ..................... (139) (133) (397)
----------- ------------ ------------
Total Deferred ....... (576) (1,171) (2,727)
----------- ------------ ------------
Total income tax provision $3,621 $1,906 $2,760
=========== ============ ============
Income tax expense
attributable to continuing
operations ................... $3,621 $1,807 $1,788
Income tax expense
attributable to discontinued
operations ................... -- 99 972
----------- ------------ ------------
Total income taxes ........... $3,621 $1,906 $2,760
=========== ============ ============
</TABLE>
Significant components of the Company's net deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets
Accrued expenses ................................... $4,846 $4,033
Inventory valuation ................................ 2,520 2,807
Contract reserves .................................. 461 455
Other .............................................. 525 390
------------ ------------
Total deferred tax assets .................. $8,352 $7,685
------------ ------------
Deferred tax liabilities
Depreciation and property basis difference ......... $1,495 $1,448
Other .............................................. 531 487
------------ ------------
Total deferred tax liabilities ................ 2,026 1,935
------------ ------------
Net deferred tax assets ....................... $6,326 $5,750
============ ============
</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):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
October 2, October 3, September 27,
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Income tax at the statutory
rate of 34% ......................... $3,046 $1,551 $2,497
State income tax, net of
federal tax ......................... 457 240 265
Other ................................. 118 115 (2)
----------- ------------ ------------
Total income taxes .................... $3,621 $1,906 $2,760
=========== ============ ============
</TABLE>
Pursuant to the tax sharing agreement with Electronics, the Company's
income taxes prior to fiscal year 1998 were paid by Electronics. Cash
paid for income taxes in fiscal year 1999 and 1998 was $2,171,000 and
$3,613,000, respectively.
Realization of the net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years to obtain
benefit from the reversal of the underlying temporary differences.
Note 7 Stockholder' Equity
The authorized capital stock of Technologies consists of 2,000,000
shares of preferred stock ($.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 Plans
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.
The Company's 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. The Company has reserved 1,139,445 shares of common stock for
issuance under the Incentive Plan which included shares for substitute
options granted to the option holders of Electronics in connection with
the Distribution.
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
the Company's common stock in the Distribution. Unexercised vested and
unvested Electronics stock options were converted to options to purchase
the Company's 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.
Option activity under the Electronics' 1987 Incentive Stock Option Plan
prior to the Distribution and option activity under the Technologies
Incentive Plan subsequent to the Distribution are summarized below:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Common Price
Shares Per Share
------------ ------------
<S> <C> <C>
Electronics options outstanding at September 28, 1996 456,962 $5.36
Exercised ............................ (137,200) $5.33
Terminated ........................... (3,500) $7.95
------------ ------------
Electronics options outstanding at September 27, 1997
prior to the Distribution ....................... 316,262 $5.35
Distribution adjustment ............................. 23,183 --
------------ ------------
Technologies adjusted options outstanding
at September 27,1997............................ 339,445 $4.98
Granted .............................. 2,000 $16.69
Exercised ............................ (168,293) $4.33
------------ ------------
Technologies options outstanding at October 3, 1998 173,152 $5.61
Granted .............................. 84,000 $8.04
Exercised ............................ (14,964) $11.45
Terminated............................ (75,147) $4.11
------------ ------------
Technologies options outstanding at October 2, 1999 167,041 $7.64
============ ============
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Remaining Exercise
Number Contractual Price
Exercise Prices Outstanding Life (Years) Per Share
- ----------------- ----------- ------------ ------------
<S> <C> <C> <C>
$4.66 ................................. 13,772 5.14 $4.66
$5.71 ................................. 1,073 4.37 $5.71
$5.94 ................................. 15,792 3.65 $5.94
$6.75 ................................. 2,147 2.90 $6.75
$7.00 ................................. 65,200 9.01 $7.00
$7.92 ................................. 39,396 1.62 $7.92
$8.50 ................................. 9,661 2.61 $8.50
$10.50................................. 3,000 9.85 $10.50
$12.00................................. 11,000 9.45 $12.00
$12.44................................. 4,000 9.97 $12.44
$16.69................................. 2,000 8.53 $16.69
----------- ------------ ------------
$4.08 - $16.69 ......................... 167,041 6.02 $7.08
=========== ============ ============
</TABLE>
As of October 2, 1999, options for 82,507 shares were vested and
exercisable at a weighted average exercise price of $7.08.
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 October
2, 1999, 610,726 shares had been granted, of which 530,333 shares are
outstanding, and 235,098 shares have fully vested. Compensation expense
of $595,000, $429,000 and $274,000 was recorded in fiscal years 1999, 1998
and 1997, respectively.
The impact on the calculation of proforma results of operations and
income (loss) per share required by FAS 123 was determined to be
immaterial for fiscal years 1999, 1998 and 1997.
Note 9 Employee Benefit Plan
The Company has a defined contribution retirement plan for the benefit
of all eligible employees. Matching non-discretionary contributions are
based on a percentage of employee contributions. Contributions to the
plan by the Company for the benefit of its employees for fiscal years
1999, 1998 and 1997 were approximately $911,000, $780,000, and $626,000
respectively.
The Company has a grantor trust to fund deferred compensation for
certain employees (a "Rabbi Trust".) The assets in the trust, consisting
of cash equivalents and debt and equity securities, are quoted at current
market process as determined by the trustee, principally based upon
national exchange and over-the-counter markets, and are available to
satisfy claims of the Company's general creditors in the event of its
bankruptcy. The trust's assets and the corresponding deferred
compensation obligation are included in the accompanying balance sheets at
October 2, 1999 and October 3, 1998.
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 valuat the date of exercise of the option. Capital leases were assumed
as part of the acquisition of a business. Assets recorded under capital
leases consist of land, buildings and equipment of $875,000, net of
accumulated amortization of $40,000. The future minimum payments for
operating and capital leases consist of the following at October 2, 1999
October 2, 1999 (in thousands):
Capital Operating
Leases Leases
Fiscal Year ----------- ------------
2000............................ $85 $2,795
2001............................ 75 2,287
2002............................ 20 1,570
2003............................ -- 1,396
2004............................ -- 1,256
Thereafter...................... -- 2,970
----------- ------------
Total minimum lease payments 180 $12,274
Less amounts representing interest 36 ============
-----------
Amounts included in long-term debt $144
===========
Total rental expense amounted to approximately $2,187,000,
$1,694,000,and $1,616,000 for fiscal years 1999, 1998 and 1997,
respectively.
Note 11 Contingencies and Litigation
Claim against U.S. Government
The Company believes that its subsidiary, Defense Systems Company
(DSC), suffered substantial monetary damages due to actions of the U.S.
Government in connection with the parties' H70 contract in effect during
the 1992-1996 timeframe. As a result, DSC filed a substantial claim
against the U.S. Government in 1996. Following attempts to negotiate a
settlement, DSC filed an appeal of its claim that is now being adjudicated
before the Armed Services Board of Contract Appeals. Due to the
uncertainties inherent in the formal claims process, the Company has not
recorded any recovery of these 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 and Major Customers
The Company's operations are conducted within one business segment, the
production, manufacturing and sale of a full line of electronic devices
that provide vital sensory input for the control systems of advanced
machinery for the automotive, government, and other commercial industries.
The sales to major industries are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
October 2, October 3, September 27,
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Commercial automotive sensor sales. $54,459 $20,170 $11,801
Government......................... 19,172 21,046 22,479
Other commecial sales.............. 85,772 83,048 67,259
----------- ------------ ------------
Total sales from continuing operations 159,403 124,264 101,539
=========== ============ ============
Although the Company is directly affected by the economic well being of the
above industries, management does not believe significant credit risk exists at
October 2, 1999.
The Company's foreign opertaions are conducted throughout Europe. A summary
of foreign vs. domestic sales follows (in thousands):
Year Ended
--------------------------------------
October 2, October 3, September 27,
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Domestic Sales.................... $114,766 $106,872 $89,541
Foreign........................... 44,637 17,392 11,998
----------- ------------ ------------
Total sales from continuing operations 159,403 124,264 101,539
=========== ============ ============
</TABLE>
Foreign sales accounted for approximately 28%, 14%, and 12% of total sales
for fiscal 1999, 1998 and 1997, respectively.
In fiscal 1999, one customer accounted for 20% of the Company's net sales
and in fiscal 1998and 1997, no one customer accounted for more than 10% of
the Company's net sales.
Note 13--Quarterly Results of Operations (Unaudited)
[CAPTION]
The tables below present unaudited quarterly financial information for
fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
Continuing Operations
Three months ended
----------------------------------------------------
January 2, April 3, July 3, October 2,
1999 1999 1999 1999
------------ ----------- ----------- ------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales .................................... $36,743 $39,047 $41,175 $42,438
Gross profit ................................. 11,463 12,316 12,194 12,250
Income before extraordinary item ............. 1,054 1,159 1,170 1,956
Extraordinary item, net of
income taxes............................... (326) -- -- --
Net income ................................... $728 $1,159 $1,170 $1,956
Basic Income Per Share
Income per share ............................. $0.16 $0.16 $0.16 $0.27
Extraordinary item ........................... ($0.05) -- -- --
Net income per share - basic ................. $0.11 $0.16 $0.16 $0.27
Diluted Income Per Share
Income per common and common
equivalent share............................ $0.15 $0.16 $0.16 $0.27
Extraordinary item ........................... ($0.05) -- -- --
net income per share - diluted ............... $0.10 $0.16 $0.16 $0.27
December 27, April 4, July 4, October 3,
1997 1998 1998 1998
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales .................................... $28,256 $30,488 $29,897 $35,263
Gross profit ................................. 9,622 9,918 9,403 9,759
Incomfrom continuing operations .............. 878 779 704 154
Income from discontinued operations .......... 81 10 50 --
Net income ................................... $959 $789 $754 $154
Basic Income Per Share
Income from continuing operations
per share................................... $0.13 $0.11 $0.10 $0.02
Income from discontinued operations
per share................................... $0.01 -- $0.01 --
Net income per share - basic.................. $0.14 $0.11 $0.11 $0.02
Diluted Income Per Share
Income from continuing operations per common
and common equivalent share................. $0.12 $0.11 $0.10 $0.02
Income from discontinued operations per
common and common equivalent share.......... $0.01 -- $0.01 --
Net income per share - diluted................ $0.13 $0.11 $0.11 $0.02
</TABLE>
Note 14 Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (FAS 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. FAS 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments as of
October 2, 1999 and as of October 3, 1998.
Cash, Cash Equivalents and Investments: The carrying amounts
reported in the balance sheet for cash, cash equivalents and investments
approximate those assets' fair values.
Long-Term Debt: The fair value of long-term debt has been estimated
based upon their 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 $35,300,000 and $31,001,000
compared with the carrying amounts of $36,705,000 and $37,157,000 at
October 2, 1999 and October 3, 1998, respectively.
Note 15--Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
common share from continuing operations:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 2, October 3, September 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands except per share amounts)
Numerator
Income from continuing operations
before extraordinary item,
net of income taxes. $5,339 $2,515 $2,997
============ ============ ============
Denominator
Denominator for basic earnings
per share --
Weighted average shares, net
of nonvested shares
(FY 1999 -- 295 shares;
FY 1998 -- 251 shares;
FY 1997 -- 223 shares)........ 7,158 7,012 6,816
Effect of dilutive securities:
Nonvested shares................ 17 108 86
Employee stock options.......... 79 154 165
------------ ------------ ------------
Denominator for diluted
earnings per share............. 7,254 7,274 7,067
============ ============ ============
</TABLE>
<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 October 2, 1999 and October 3, 1998, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended October 2,
1999. 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 October 2, 1999 and October 3, 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the
period ended October 2, 1999 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
San Francisco, California
November 4, 1999
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 2000 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 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 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The following documents are filed as part of this Form 10-K.
(a)(1) Index to Consolidated Financial Statements.
-------------------------------------------
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
Consolidated Balance Sheets -
October 2, 1999 and Ocotber 3, 1998
Consolidated Statements of Operations -
Years ended October 2, 1999, October 3, 1998
and September 27, 1997
Consolidated Statements of Cash Flows -
Years ended October 2, 1999, October 3, 1998
and September 27, 1997
Consolidated Statements of Stockholders' Equity -
Years ended October 2, 1999, October 3, 1998
and September 27, 1997
Notes to Consolidated Financial Statements -
October 2, 1999
(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
October 2, 1999 is filed as part of this Form 10-K:
Schedule II Valuation and Qualifying Accounts
Report of Ernst & Young LLP, Independent Auditors
as to Schedule
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.
<PAGE>
(a)(3) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Numbers Description Footnote
- -------- --------------------------------------------------------- --------
<S> <C> <C>
2.1 Distribution Agreement between BEI Electronics, Inc.
and BEI Technologies, Inc. i
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
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. i
10.5 Note Purchase Agreement dated November 16, 1998 by
and between BEI Technologies, Inc., BEI Sensors &
Systems Company, Inc., Connecticut General Life
Insurance Company and Allstate Life Insurance Company. ii
10.6 Amendment to Tax Allocation and Indemnity Agreement
between BEI Electronics, inc. and BEI Technlogies, Inc. ii
10.7 Credit Agreement dated December 16, 1998, by and
BEI Technologies, Inc., BEI Sensors & Systems Company,
Inc., and Wells Fargo Bank, National Association ii
21.1 Subsidiaries of the Registrant
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.
(ii) Incorporated by reference. Previously filed as an exhibit to the
Form 10-K (File No. 0-22799) as filed on December 29, 1998.
* 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.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
October 2, 1999.
</FN>
</TABLE>
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
December 20, 1999
<PAGE>
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Charles Crocker President, Chief Executive December 20, 1999
- --------------------------- Officer and Chairman of the Board of
(Charles Crocker) Directors (Principal Executive Officer)
BEI TECHNOLOGIES, INC.
/s/ Richard M. Brooks Director December 20, 1999
- ---------------------------
(Richard M. Brooks)
/s/ George S. Brown Director December 20, 1999
- ---------------------------
(George S. Brown)
/s/ C. Joseph Giroir, Jr. Director December 20, 1999
- ---------------------------
(C. Joseph Giroir, Jr.)
/s/ William G. Howard, Jr. Director December 20, 1999
- ---------------------------
(William G. Howard, Jr.)
/s/ Asad M. Madni Director December 20, 1999
- ---------------------------
(Asad M. Madni)
/s/ Robert Mehrabian Director December 20, 1999
- ---------------------------
(Robert Mehrabian)
/s/ Gary D. Wrench Senior Vice President, Chief December 20, 1999
- --------------------------- Financial Officer and Director
(Gary D. Wrench)
</TABLE>
SCHEDULE II
BEI TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------- ---------- --------------------- --------- ---------
Additions
---------------------
Charged to
Balance at Charged to Other Balance at
Description Beginning Costs and Accounts Deductions End of
of Period Expenses Describe Describe Period
---------- ----------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended October 2, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts ........ $509 $187 $-- $99 (B) $597
========== =========== ========= ========= =========
Year ended October 3, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts ........ $363 $101 $98 (C) $53 (B) $509
========== =========== ========= ========= =========
Year ended September 27, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts ........ $607 $75 $-- $319 (B) $363
Valuation allowance for deferred
tax assets .......................... 94 -- (94)(A) -- --
---------- ----------- --------- --------- ---------
Total ............................. $701 $75 ($94) $319 $363
========== =========== ========= ========= =========
<FN>
(A) Adjustment based on the evaluation of uncertainties in the realization of
state net operating loss carryovers
(B) Write-offs of uncollectible accounts
(C) Acquired as part of an acquisition
</FN>
</TABLE>
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 October 2, 1999 and October 3, 1998, and for each of the
three years in the period ended October 2, 1999, and have issued our
report thereon dated November 4, 1999. 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 4, 1999,
S-2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
EXHIBIT 21.1
<TABLE>
<CAPTION>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
Jurisdiction Doing Business As
Name of Subsidiary of Incorporation (If Different)
<S> <C> <C>
BEI Sensors & Systems Delaware BEI Sensors & Systems
Company, Inc. Company, Inc.
BEI International, Inc. Delaware
BEI Export Sales Company, Inc. U.S. Virgin Islands
BEI Properties, Inc. Arkansas
SiTek, Inc., a BEI Company Delaware
BEI Sensors, S.A.S. France
BEI Tactical Defense Systems, Inc. Delaware
Micro Polymer Systems, Inc. Delaware
BEI Ideacod, S.A.S. France
</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 4,
1999, with respect to the consolidated financial statements and
and schedule of BEI Technologies, Inc., included in the Annual Report
Report (Form 10-K) for the year ended October 2, 1999.
Ernst & Young LLP
San Francisco, California
December 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED OCTOBER 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1000
<S> <C>
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> OCT-02-1999
<PERIOD-TYPE> 12-MOS
<CASH> 3,181
<SECURITIES> 0
<RECEIVABLES> 30,152
<ALLOWANCES> 597
<INVENTORY> 31,036
<CURRENT-ASSETS> 77,432
<PP&E> 78,028
<DEPRECIATION> 42,906
<TOTAL-ASSETS> 123,360
<CURRENT-LIABILITIES> 39,495
<BONDS> 0
0
0
<COMMON> 3,731
<OTHER-SE> 42,112
<TOTAL-LIABILITY-AND-EQUITY> 123,360
<SALES> 159,403
<TOTAL-REVENUES> 159,403
<CGS> 111,180
<TOTAL-COSTS> 111,180
<OTHER-EXPENSES> 36,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,974
<INCOME-PRETAX> 8,960
<INCOME-TAX> 3,621
<INCOME-CONTINUING> 5,339
<DISCONTINUED> 0
<EXTRAORDINARY> 326
<CHANGES> 0
<NET-INCOME> 5,013
<EPS-BASIC> $0.70
<EPS-DILUTED> $0.69
</TABLE>
