==========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 3, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________
to _____________.
Commission file number 0-22799
B E I T E C H N O L O G I E S, I N C.
(Exact name of Registrant as specified in its charter)
Delaware 94-3274498
- ------------------------------- ----------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
----------------------------------------
(Address of principal executive offices)
(415) 956-4477
----------------------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 7,476,778 shares as of August 2, 1999
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--July 3, 1999
and October 3, 1998
Condensed Consolidated Statements of Operations--Quarter
and Nine Months ended July 3, 1999 and July 4, 1998
Condensed Consolidated Statements of Cash Flows--Nine
Months ended July 3, 1999 and July 4, 1998
Notes to Condensed Consolidated Financial Statements--
July 3, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 3, October 3,
1999 1998
----------- ------------
(Unaudited) (See note
below)
(dollars in thousands)
- ------------------------------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $3,936 $3,557
Investments............................................. 5,795 5,419
Trade receivables, net.................................. 24,553 23,475
Inventories, net -- Note 2.............................. 30,682 29,623
Other current assets.................................... 6,809 5,835
----------- ------------
Total current assets.............................. 71,775 67,909
Property, plant and equipment, net...................... 33,066 30,619
Acquired technology..................................... 4,295 5,015
Goodwill................................................ 2,483 1,876
Other assets, net....................................... 3,301 4,096
----------- ------------
$114,920 $109,515
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable.................................. $10,535 $13,014
Accrued expenses and other liabilities.................. 14,049 13,125
Deferred compensation liability......................... 5,795 5,419
Current portion of long-term debt....................... 66 227
----------- ------------
Total current liabilities......................... 30,445 31,785
Long-term debt, less current portion.................... 39,776 37,157
Other liabilities....................................... 1,612 379
Stockholders' equity.................................... 43,087 40,194
----------- ------------
$114,920 $109,515
=========== ============
<FN>
See notes to condensed consolidated financial statements.
Note: The balance sheet at September 27, 1997 has been derived from the
audited consolidated balance sheet at that date.
</FN>
</TABLE>
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(dollars in thousands except per share amounts)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales.......................... $41,175 $29,897 $116,965 $89,001
Cost of sales...................... 28,981 20,494 80,992 60,058
---------- ---------- ---------- ----------
12,194 9,403 35,973 28,943
Selling, general and
administrative expenses......... 7,891 6,016 23,143 18,396
Research, development and
related expenses................ 1,855 1,509 5,188 4,701
---------- ---------- ---------- ----------
Income from operations...... 2,448 1,878 7,642 5,846
Interest expense................... 730 755 2,266 2,102
Other income....................... 234 70 327 319
---------- ---------- ---------- ----------
Income from continuing
operations before income taxes.. 1,952 1,193 5,703 4,063
Provision for
income taxes.................... 782 489 2,320 1,702
---------- ---------- ---------- ----------
Income from continuing
operations...................... 1,170 704 3,383 2,361
Income from discontinued
operations, net of income taxes -- 50 -- 142
---------- ---------- ---------- ----------
Income before extraordinary item 1,170 754 3,383 2,503
Loss from extraordinary item,
net of income taxes............. -- -- (326) --
---------- ---------- ---------- ----------
Net income $1,170 $754 $3,057 $2,503
========== ========== ========== ==========
Earnings per Common Share -- Note 4
Basic Earnings per Common Share
Income from continuing operations,
net of income taxes............. $0.16 $0.10 $0.48 $0.34
Income from discontinued
operations, net of income taxes. -- 0.01 -- 0.02
---------- ---------- ---------- ----------
Income before extraordinary item 0.16 0.11 0.48 0.36
Loss from extraordinary item,
net of income taxes............. -- -- (0.05) --
---------- ---------- ---------- ----------
Net income per common share........ $0.16 $0.11 $0.43 $0.36
========== ========== ========== ==========
Diluted Earnings per Common and Common Equivalent Share
Income from continuing operations,
net of income taxes............. $0.16 $0.10 $0.47 $0.33
Income from discontinued
operations, net of income taxes -- -- -- 0.02
---------- ---------- ---------- ----------
Income before extraordinary item 0.16 0.10 0.47 0.35
Loss from extraordinary item,
net of income taxes............. -- -- (0.05) --
---------- ---------- ---------- ----------
Net income per common and common
equivalent share................ $0.16 $0.10 $0.42 $0.35
========== ========== ========== ==========
Dividends per common share......... $0.02 $0.02 $0.06 $0.06
========== ========== ========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
July 3, July 4,
1999 1998
---------- ----------
(dollars in thousands)
- ------------------------------------------------------------------------
<S> <C> <C>
Net cash provided (used) by operating activities. $5,105 ($1,836)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment... (6,868) (4,927)
Increase in other assets..................... (28) (34)
---------- ----------
Net cash used in investing activities............ (6,896) (4,961)
Cash flows from financing activities:
Proceeds from issuance of long-term debt..... 39,000 13,000
Proceeds from short-term borrowings (net).... 99 --
Payments on long-term debt................... (36,539) (5,620)
Proceeds from issuance of common stock....... 55 919
Payment of cash dividends.................... (445) (433)
---------- ----------
Net cash provided by financing activities........ 2,170 7,866
---------- ----------
Net increase in cash and cash equivalents........ 379 1,069
Cash and cash equivalents at beginning of period 3,557 5,034
---------- ----------
Cash and cash equivalents at end of period....... $3,936 $6,103
========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending October
2, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's annual report on Form
10-K for the year ended October 3, 1998.
BEI Technologies, Inc. ("Technologies") was incorporated on June 30, 1997
in the State of Delaware as a wholly owned subsidiary of BEI Electronics,
Inc., subsequently renamed BEI Medical Systems Company, Inc.
("Electronics"). On September 27, 1997, Electronics distributed to
holders of Electronics common stock one share of common stock of the
Company for each share of Electronics common stock held on September 24,
1997 (the "Distribution"). In connection with the Distribution,
Electronics transferred to Technologies all of the assets, liabilities and
operations of its BEI Sensors & Systems Company, Inc. ("Sensors &
Systems") and Defense Systems Company, Inc. ("Defense Systems") business
segments. The operations of Defense Systems were discontinued during the
third quarter of fiscal year 1998. The financial position and results of
operations of Sensors & Systems are presented as continuing operations and
those of Defense Systems are presented as discontinued operations in the
applicable periods of the condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported results of operations
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 -- INVENTORIES
July 3, October 3,
1999 1998
(dollars in thousands)
--------------------------
Finished products......................... $4,406 $1,460
Work in process........................... 9,410 10,183
Materials................................. 17,099 16,051
Costs incurred under long-term contracts,
including U.S. Government contracts.... 11 1,929
Unapplied progress payments (244) --
------------ ------------
Net inventories........................... $30,682 $29,623
============ ============
NOTE 3 -- DISCONTINUED OPERATIONS
On June 30, 1997, the Board of Directors of Electronics announced
a formal plan to discontinue the operations of the Defense Systems
segment. Accordingly, the results of operations of the segment have
been presented as discontinued operations for all periods prior to the
final disposition of the segment in the third quarter of fiscal 1998
NOTE 4--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share from continuing operations:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Numerator
Income from continuing operations,
before extraordinary item $1,170 $704 $3,383 $2,361
========== ========== ========== ==========
Denominator
Denominator for basic earnings
per share --
Weighted average shares, net
of unvested contingently
issuable shares
(FY 1999 -- 305 shares;
FY 1998 -- 256 shares)......... 7,169 7,069 7,120 6,978
Weighted average continently
issuable shares granted, net.... 22 -- 7 --
Effect of dilutive securities:
Contingently issuable shares.... 28 144 37 110
Employee stock options.......... 67 136 85 162
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share.............. 7,286 7,349 7,249 7,250
========== ========== ========== ==========
Basic earnings per share from
continuing operations before
extraordinary item............. $0.16 $0.10 $0.48 $0.34
========== ========== ========== ==========
Diluted earnings per share from
continuing operations before
extraordinary item............. $0.16 $0.10 $0.47 $0.33
========== ========== ========== ==========
</TABLE>
NOTE 5--CONTINGENCIES AND LITIGATION
The Company has pending various legal actions arising in the normal course
of business. None of these legal actions is expected to have a material
effect on the Company's operating results or financial condition.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this
section, and those discussed in the Company's Form 10-K for the year ended
October 3, 1998.
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 70.4 68.5 69.2 67.5
---------- ---------- ---------- ----------
Gross margin....................... 29.6 31.5 30.8 32.5
Operating expenses
Selling, general and
administrative expenses......... 19.2 20.2 19.8 20.6
Research, development and
related expenses................ 4.5 5.0 4.5 5.3
---------- ---------- ---------- ----------
Income from operations...... 5.9 6.3 6.5 6.6
Interest expense................... 1.7 2.5 1.9 2.4
Other income....................... 0.6 0.2 0.3 0.4
---------- ---------- ---------- ----------
Income from continuing
operations before income taxes.. 4.8 4.0 4.9 4.6
Provision for
income taxes.................... 2.0 1.6 2.0 1.9
---------- ---------- ---------- ----------
Income from continuing
operations...................... 2.8 2.4 2.9 2.7
Income from discontinued
operations, net of income taxes. -- 0.1 -- 0.1
---------- ---------- ---------- ----------
Income before extraordinary item 2.8 2.5 2.9 2.8
Loss from extraordinary item,
net of income taxes............. -- -- 0.3 --
---------- ---------- ---------- ----------
Net income 2.8% 2.5% 2.6% 2.8%
========== ========== ========== ==========
</TABLE>
Quarters ended July 3, 1999 and July 4, 1998
Net sales for the third quarter of fiscal 1999, ended July 3, 1999,
increased $11.3 million to $41.2 million or 37.7% from $29.9 million
during the same period in fiscal 1998.
Revenue increased primarily due to increased sales of commercial products
to domestic and foreign automotive customers. In addition, sales volume
benefited from increased international sales of traditional motion control
sensors produced by a French company acquired by the Company in the fourth
quarter of fiscal 1998. This sales increase was offset, in part, by
declines in domestic commercial sales of traditional motion control
products, some of which had achieved historically high levels of sales in
the third quarter of fiscal 1998.
Cost of sales as a percentage of net sales in the third quarter of fiscal
1999 increased 1.9 percentage points to 70.4% from 68.5% in the comparable
period of fiscal 1998, due primarily to the increased proportion of
automotive GyroChip sensor sales. Sales of automotive sensor products
increased to 34% of net sales in the third quarter of fiscal 1999 from 14%
of net sales in the comparable period of fiscal 1998. Cost of sales as a
percentage of net sales for automotive sensors decreased from the same
quarter of the prior year but remains higher than the average cost of
sales percentage for the Company's non-automotive products. The Company
expects average gross profit as a percentage of net sales to trend
downward as automotive sensors become an increasingly larger portion of
the Company's product mix, and as expected increases in the average
royalty fees paid by the Company for GyroChip sensors phase-in in
accordance with the terms of the royalty agreement.
Selling, general and administrative expenses as a percentage of net sales
decreased in the third quarter of fiscal 1999 versus the comparable period
of fiscal 1998 due to higher sales volume. Actual selling, general and
administrative expenses increased primarily due to the integration of the
recently acquired French company and to a lesser degree due to legal costs
associated with trial proceedings in the Company's claim against the U.S.
Government.
Research, development and related expenses as a percentage of net sales
for the third quarter of fiscal 1999 decreased slightly from the
comparable period of fiscal 1998 due to higher sales volume combined with
only a slight increase in actual research, development and related
expenses.
Nine Months ended July 3, 1999 and July 4, 1998
Net sales for the first nine months of fiscal 1999 increased $28.0 million
or 31.4% to $117.0 million from $89.0 million during the same period in
fiscal 1998.
The increase was primarily attributable to expanded sales of sensors to
foreign and domestic automotive customers. Sales of automotive products
increased to 33% of total sales in the first nine months of fiscal 1999
from 14% of total sales in the first nine months of fiscal 1998. The
increase in commercial sales to the automotive markets was primarily due
to increased sales of GyroChip sensors for stability control and, to a
lesser degree, an increase in sales of memory seat modules and steering
sensors.
International sales also increased for traditional motion control products
by a French company acquired by the Company in the fourth quarter of
fiscal 1998. This sales increase was offset, in part, by declines in the
Company's domestic commercial sales of traditional motion control
products.
Cost of sales as a percentage of net sales in the first nine months of
fiscal 1999 increased to 69.2% from 67.5% in the comparable period of
fiscal 1998 due to several factors. Cost of sales as a percentage of net
sales for automotive sensors decreased from the same period of the prior
fiscal year but remains higher than the average cost of sales percentage
for the Company's non-automotive products. The Company expects the rate
of decline in the average selling prices of automotive sensors will
moderate, but that overall gross profit as a percentage of net sales will
trend downward as automotive sensors become an increasingly larger portion
of the Company's product mix, and as expected increases in the average
royalty fees paid by the Company for GyroChip sensors phase-in in
accordance with the terms of the royalty agreement.
Actual selling, general and administrative expenses increased 25.8% from
the first nine months of 1998 which compares favorably to the 31.4%
increase in sales. This resulted in a decrease of 0.8 percentage points
in selling, general and administrative expenses as a percentage of net
sales in the first nine months of fiscal 1999 versus the comparable period
of fiscal 1998. Increases in selling, general and administrative expenses
were incurred to support the French company acquired by the Company and to
support those Company units with sales volumes higher than the prior year.
Research, development and related expenses as a percentage of net sales
for the first nine months of fiscal 1999 decreased 0.9 percentage points
from the comparable period of fiscal 1998 due to higher sales volume
combined with only a slight increase in actual research, development and
related expenses
Liquidity and Capital Resources
During the first nine months of fiscal 1999, total cash provided by
operations was $5.1 million. Cash provided by operations included net
income of $3.1 million, adjusted for the positive impact of non-cash
charges to income from depreciation and amortization of $4.5 million and
$1.4 million, respectively, increases to other liabilities and accrued
expenses of $1.8 million, and decreases in other non-current assets of
$0.5 million. Offsetting these items were increases in inventories of
$1.1 million, accounts receivable of $1.1 million, other current assets of
$1.0 million and a decrease in customer advances of $0.5 million. Cash
used by operations also included a reduction of trade payables of $2.5
million.
Cash used in investing activities of $6.9 million consisted primarily of
equipment purchases.
Cash provided by financing activities consisted primarily of proceeds from
a new senior note issuance of $35.0 million and proceeds from long-term
borrowing of $4.0 million. The proceeds from the new senior note issuance
plus an additional $0.5 million were used to retire existing long-term
debt of $35.5 million in the first quarter of fiscal 1999. During the
third quarter of fiscal 1999, another $1.0 million of long-term debt was
retired. Short-term borrowings and the exercise of stock options for
common stock provided $0.2 million, while dividend payments absorbed $0.4
million in cash.
While the Company believes that its existing cash balances, together with
cash derived from operating revenues will be sufficient to meet the
Company's capital requirements for the next twelve months, there can be no
assurance that the Company will not require additional funding, or that
such additional funding, if needed, will be available on terms attractive
to the Company, or at all. Any additional equity financing may be
dilutive to the stockholders, and debt financing, if available, may
involve restrictive covenants.
The Company had no material capital commitments at July 3, 1999.
Year 2000 Compliance
The Company is evaluating the potential impact of what is commonly
referred to as the "Year 2000" issue, concerning the possible inability of
certain information systems to properly recognize and process dates beyond
December 31, 1999. If not corrected, these systems could fail or create
erroneous results. The Company has completed an assessment of its
products and, at this time, does not believe its products present any Year
2000 issues.
The Company's management information systems primarily use software
products purchased from commercial sources without significant
modification or customization. Updates to these products are routinely
installed by the Company to upgrade its systems and correct known faults
in the software. All major systems were reviewed during the fourth
quarter of fiscal 1998 for Year 2000 issues by an outside consultant and
a report was issued to the Board. Where necessary, the requirements for
upgraded hardware and software have been implemented by all operating
units affected. One operating unit is in the process of converting its
existing manufacturing and financial systems, including hardware, and
expects to be completed in September 1999. Approximately $100,000 was
incurred for the review and report and no other significant incremental
costs were identified as being necessary for 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.
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended July 3, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized on August 12, 1999.
BEI Technologies, Inc.
By: /s/ Robert R. Corr
Robert R. Corr
Secretary, Treasurer and
Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE PERIOD JULY 3, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> APR-04-1998
<PERIOD-END> JUL-03-1998
<CASH> 3,936
<SECURITIES> 5,795
<RECEIVABLES> 24,553
<ALLOWANCES> 0
<INVENTORY> 30,682
<CURRENT-ASSETS> 71,775
<PP&E> 33,066
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,920
<CURRENT-LIABILITIES> 30,445
<BONDS> 39,776
0
0
<COMMON> 7
<OTHER-SE> 43,080
<TOTAL-LIABILITY-AND-EQUITY> 114,920
<SALES> 41,175
<TOTAL-REVENUES> 41,409
<CGS> 28,981
<TOTAL-COSTS> 28,981
<OTHER-EXPENSES> 9,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 730
<INCOME-PRETAX> 1,952
<INCOME-TAX> 782
<INCOME-CONTINUING> 1,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,170
<EPS-BASIC> $0.16
<EPS-DILUTED> $0.16
</TABLE>
