CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 30, 1998
Commission File Number 0-16304
Optek Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1962405
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1215 West Crosby Road, Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 323-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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 definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment of
this Form 10-K. ( )
The aggregate market value of the registrant's voting stock
held by non-affiliates as of October 30, 1998 was: $121,064,031
(*see note on index page).
The number of shares outstanding of each class of
registrant's common stock as of October 30, 1998 was: Common
Stock, par value $0.01 per share, 7,707,440 shares.
___________________
Documents Incorporated by Reference
Portions of the registrant's definitive proxy statement to
be furnished to stockholders in connection with its Annual
Meeting of Stockholders to be held on March 16, 1999 are
incorporated by reference in Part III of this Form 10-K.
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OPTEK TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
Securities and Exchange Commission
Item Number and Description Page
PART I
ITEM 1. Business ........................................ 1
ITEM 2. Properties ...................................... 18
ITEM 3. Legal Proceedings ............................... 18
ITEM 4. Submission of Matters to a Vote of Security
Holders ......................................... 18
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................. 19
ITEM 6. Selected Financial Data ......................... 20
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 21
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk ..................................... 26
ITEM 8. Financial Statements and Supplemental Data ...... 26
ITEM 9. Changes in and Disagreements on Accounting and
Financial Disclosure ............................ 26
PART III
ITEM 10. Directors and Executive Officers of the
Registrant ..................................... 27
ITEM 11. Executive Compensation ......................... 27
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management ................................ 27
ITEM 13. Certain Relationships and Related Transactions.. 27
PART IV AND SIGNATURES
ITEM 14. Exhibits, Financial Statements and Financial
Statement Schedules and Reports on Form 8-K ..... 27
SIGNATURES ............................................... 29
* The figure indicated on the cover page as to the
aggregate market value of shares of the registrant's
voting stock held by nonaffiliates represents the registrant's
best good faith estimate for purposes of this annual report on
Form 10-K. The aggregate market value indicated is based upon
the closing price of the registrant's common stock as reported by
the Nasdaq National Market as of October 30, 1998. Shares held
by non-affiliates were calculated by reducing total outstanding
shares by outstanding shares beneficially owned by executive
officers and Directors of the registrant or by any stockholder
beneficially owning more than 10% of registrant's common stock,
as incorporated herein under the heading "Security Ownership of
Certain Beneficial Owners and Management," who were considered
for purposes of this disclosure to be affiliates.
PAGE
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PART I
ITEM 1. Business.
Cautionary Statement Regarding Forward-Looking Information
This Report includes "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act. All of
the statements contained in this Report, other than statements of
historical fact, should be considered forward-looking statements,
including, but not limited to, those concerning the Company's
strategies, objectives and plans for expansion of its operations,
products and services and growth in demand for sensor products.
There can be no assurances that these expectations will prove to
have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in this Report. All
subsequent written and oral forward-looking statements by or
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by such Cautionary
Statements. Investors are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the
date hereof and are not intended to give any assurance as to
future results. The Company undertakes no obligation to
publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Introduction
The Company is a leading designer and manufacturer of
electronic sensor components and assemblies that detect motion
and position for a broad range of applications. The Company
utilizes optoelectronic and magnetic field sensing technologies
to target customized, non-standard applications that require
specialized engineering and manufacturing expertise. The Company
sells its products for end use by OEMs in the office equipment,
automotive, industrial, aerospace/defense, medical and
communications markets. The Company believes that in many cases
it is the sole source supplier for specific components and
assemblies necessary for its customers' applications. In
fiscal 1998 major customers of the Company included C.P. Clare
Corporation, General Motors Corporation, Pitney Bowes, Inc.,
Strattec Security Corporation and Xerox Corporation.
The Company's primary business has been focused on the
design and manufacture of optoelectronic semiconductor chips,
discrete components and assemblies for commercial (i.e., office
equipment, industrial, medical and communications) OEMs. The
Company's commercial products include a wide array of custom
electronic components and assemblies which are each designed to
address specific applications required by its diverse customer
base. Demand by commercial customers for the Company's sensors
is driven by sales of OEM products that incorporate the Company's
sensors and frequently have life cycles ranging from three to 15
years. Often, the Company is able to leverage its specialized
engineering expertise and close customer relationships to assist
in the design of its customers' next generation of products,
which significantly increases the Company's ability to secure
continuing sales from these customers as their product lines
evolve. As a result, commercial OEMs have represented a stable
and predictable sales base for the Company.
The Company has leveraged its expertise in commercial
markets to develop customized electronic sensors to address the
growing application requirements of the automotive market. The
Company believes that the automotive sector represents its
primary opportunity for growth as an increasing number of sensors
are being incorporated into automobiles to improve fuel
efficiency and emissions, increase passenger safety and provide
additional consumer options. The Company believes this trend
will continue as governmental regulation mandates improved
passenger safety and reduced emissions and consumers demand
better safety and performance and increased functionality. As a
result of its strategic pursuit of the automotive market, the
Company's sales to the automotive market have grown from 2% to
31% of net sales from fiscal 1992 to fiscal 1998, respectively.
Currently, a substantial portion of the Company's automotive
assemblies are sold for use in a relatively small number of
applications. The Company presently sells electronic sensors for
use in General Motors' automobile ignition and theft deterrent
systems. In addition, the Company's engineering and manufacturing
expertise and customer relationships have resulted in the Company
being awarded a number of automotive programs.
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The Company's manufacturing operations are vertically
integrated, with facilities located in Carrollton, Texas and
Juarez, Mexico. Over 80% of the Company's products are assembled
in facilities operated by the Company in Juarez, Mexico. The
Company markets its products worldwide through its own technical
sales staff, independent sales representatives and independent
stocking distributors.
Industry Background
The use of electronic sensors is playing a key role in the
increasing convenience, functionality, safety and performance of
many products. Sensors are electronic devices that detect the
presence and/or amount of a physical stimulus such as
temperature, motion, position or pressure. The sensor converts
the detected stimuli into electrical signals which can be
interpreted by a microprocessor to initiate a desired response.
In effect, sensors act as the interface between the physical
world and electronic systems.
Electronic sensors operate without physical contact and are
generally capable of more accurate, reliable and sensitive
detection than standard mechanical or electromechanical devices.
These characteristics coupled with generally increased speed,
durability and compactness, have prompted the substitution of
electronic sensors for applications that previously used
mechanical and electromechanical switches. For example, to
achieve higher reliability, lower maintenance costs, increased
fuel efficiency and better emission control, automobile engine
manufacturers are utilizing electronic sensors to control the
firing of spark plugs in ignition systems, thereby replacing the
traditional mechanical distributor. In addition, sensors are
being used to offer increased functionality and performance in
products. Electronic sensors are used in vending and coin
changing machines to determine whether the currency tendered is
counterfeit.
Two major types of electronic sensors are optoelectronic and
magnetic. Optoelectronic sensors use a light emitting diode
("LED") and a photosensitive receiver to detect light as a means
of sensing motion, speed or position. For example, in security
systems, optoelectronic sensors sense the interruption of a beam
of light; in communications products, they transmit and receive
data over fiber optic cables; in military applications, they
assist a missile's guidance system in controlling direction; and
in computer peripherals, they enable a tape drive to sense
the edge of the tape. Magnetic sensors detect small changes in a
magnetic field. Magnetic sensors are well-suited for use in
environments where the presence of dirt, heat or other hostile
conditions could reduce the accuracy and reliability of
light-based optoelectronic sensors such as in certain automotive
applications.
Electronic sensors are generally divided into two
categories: standardized products which are produced to general
specifications and customized products which are designed to meet
customer specific applications using significant technical
expertise. The use of custom sensors to perform basic product
functions in various commercial applications such as high-end
office equipment and certain industrial applications is well
established, and these markets have presented a steady sales
base.
Growth in the use of sensors in automotive applications has
been driven by governmental regulation of the environment and
passenger safety and by consumer preferences, which have required
greater fuel efficiency, better emission control, additional
safety features and passenger options in automobiles. These
applications drive the demand for more and better sensors. For
example, ignition systems using magnetic sensors, which have
replaced the mechanical distributor in certain automobiles, are
better able to control the firing of the spark plugs, thus
improving fuel efficiency and reducing pollution. As new
automobile designs incorporate more and increasingly
sophisticated electronics, the demand for sensors in automotive
applications is expected to continue to increase.
PAGE
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Business Strategy
The Company's objective is to maintain and enhance its
position as a leading designer and manufacturer of custom
electronic sensors. Key elements of the Company's business
strategy include:
Leverage Expertise in Custom Applications. The Company has
structured its operations to effectively and efficiently handle
the design and manufacture of customer-specific products.
Companies that compete on the basis of the functionality and
performance of their products often require sensors that are
unique and specific to their product. A customer's application
typically requires particular electrical, optical and mechanical
packaging characteristics. The Company's engineering and
technical expertise have made it, in many cases, an integral part
of its OEM customers' design teams. This expertise and the
Company's close customer relationships have helped it to develop
a stable business with commercial (i.e., office equipment,
industrial, medical and communications) customers.
Pursue Additional Automotive Applications. The Company has
leveraged its expertise in commercial markets to develop
customized electronic sensors to address the growing application
requirements of the automotive market. An increasing number of
sensors are being incorporated into automobiles to improve fuel
efficiency, increase safety and provide additional passenger
options. The Company believes this trend will continue as
governmental regulations mandate increases in safety and
decreases in emissions and as consumers demand better
performance and increased functionality. In fiscal 1992, the
Company began production and sale of magnetic field sensors for
automotive applications and continued efforts to identify
additional applications. As a result of this strategic pursuit
of the automotive market, by fiscal 1998 automotive sales
represented approximately 31% of net sales. In late 1997, the
Company obtained QS-9000 certification, a rigorous quality
standard required by the Big Three auto makers. In order to
expand the range of automotive applications which can be
addressed, the Company has developed magnetoresistive sensors,
which have sensitivity characteristics particularly useful in
automotive applications. Effective October 30, 1998, the
Company, together with Emcore Corporation ("Emcore"), a
manufacturer of magnetoresistive chips, formed Emtek Sensors
L.L.C. ("Emtek") for the purpose of manufacturing
and marketing specified discrete magnetoresistive sensors in
order to make this technology more readily available
with the objectives of increasing the volume of demand for these
sensors and improving their competitiveness with other
technologies. The Company is also adding engineering and
manufacturing resources primarily to enable the handling of
additional automotive customer development programs.
Leverage Vertically Integrated Manufacturing Capabilities.
The Company believes its high degree of control of the
manufacturing process and stringent quality control procedures
are competitive advantages. The Company's vertically integrated
manufacturing structure enables it to exercise better control
throughout manufacturing processes and to respond on a timely
basis to customer requests for development of new products and
design changes to existing products. The Company manufactures
sensor and LED semiconductor chips; tools and plastic
molds; plastic assemblies; discrete, assembly, hybrid and high
reliability components; printed circuit boards and wire
and cable assemblies.
Utilize Multiple Sales Channels for Effective Market
Coverage. The Company sells its products through a combination
of direct technical sales personnel (eight in the United States
and three in Europe), 20 independent manufacturers'
representatives and 42 electronics parts distributors, both
domestically and internationally. The multiple sales channels
enable more efficient and wider coverage of available markets.
The Company's technical sales personnel, together with the
Company's engineering staff, seek to develop long-term
relationships with customers by working closely with them
throughout all phases of new product development and subsequent
production. In addition, independent manufacturers'
representatives provide additional market coverage for the
Company. The Company selects representatives on their ability to
effectively interface with its customers' engineers.
Distributors are typically utilized where customers are
outsourcing their electronics parts purchasing and inventory
functions.
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The Company believes that the combination of its own technical
sales people together with independent sales representatives and
distributors allows the Company to market its products in an
efficient cost-effective manner.
Products and Technology
The Company is a leading designer and manufacturer of
electronic sensor components and assemblies that detect motion
and position for a broad range of applications. The Company
utilizes optoelectronic and magnetic field sensing technologies
to target non-standard applications that require specialized
engineering and manufacturing expertise. The Company sells its
products for end use by OEMs in the office equipment, automotive,
industrial, aerospace/defense, medical and communications
markets.
Optoelectronic Sensor Products
The largest portion of the Company's current business
consists of the design, manufacture and sale of custom devices
which use optoelectronic technology to satisfy the sensor
requirements of its customers in all of its target markets.
During 1998, sales of optoelectronic devices accounted for
approximately 69% of the Company's net sales. Optoelectronic
sensors use a light emitting diode ("LED") and a photosensitive
receiver to detect light as a means of sensing motion, speed or
position. For example, certain security systems emit a beam of
light which is received by a sensor. The interruption of this
beam causes an electrical response in the sensor which activates
the alarm.
The Company's optoelectronic products consist of: (i)
infrared light emitting and light sensing semiconductor chips;
(ii) discrete components, which are plastic or metal packages
housing the light emitting or light sensing chips; (iii)
assemblies, which combine the light emitting and light sensing
discrete components in a single package to meet various
electrical and/or mechanical specifications; and (iv) fiber optic
products, which use light emitting and light sensing technologies
to transmit and receive light signals for data transmission
through fiber optic cables.
The following paragraphs describe these optoelectronic
devices and their basic principles of operation:
Semiconductor Chips. Light emitting and light sensing
semiconductor chips are the core elements in the Company's
optoelectronic products. LED chips emit light in response to an
electrical charge. Optek manufactures light emitting chips from
gallium arsenide and gallium aluminum arsenide wafers using
standard semiconductor manufacturing techniques.
Light sensors are semiconductor chips which convert light
into electrical signals and can be used to sense and relay the
signal produced by an LED. The Company produces light sensitive
chips from polished silicon slices using standard silicon
semiconductor manufacturing processes. The Company's light
sensing chips have varying characteristics of speed, sensitivity
and performance, which permit the Company to address applications
requiring varying specifications. For example, less sensitive
chips may perform better in applications where more ambient
light is present that might otherwise cause a false signal.
Other chips incorporate transistors as an integral part of
the chip, which amplifies the signal received.
In addition, the Company has developed light sensors with
analog or digital output characteristics. Less sophisticated
light sensors, which are analog in nature, produce electricity in
proportion to the amount of light applied. While analog output
must be processed before it can be communicated to a logic device
such as a microprocessor, digital output can be transmitted
directly to a logic device without processing. The Company's
digital chips are marketed under the trademark Photologic. The
versatility of the Photologic chip's output geometry allows it to
drive multiple outputs, potentially resulting in customer savings
in system processing circuitry.
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The Company has also developed a Photologic chip with low
level input detection and on-chip voltage regulation which
enables the chip to function under fluctuating power conditions.
The former characteristic is particularly useful in fiber optics
where the signal transmitted may be a very low-level signal. The
latter characteristic finds a wide range of applications, for
example, with battery powered devices or under conditions of
heavy electrical interference.
The Company uses a substantial portion of the semiconductor
chips it manufactures in its discrete components. On occasion,
however, the Company does design and manufacture custom
semiconductor chips for specific customer applications.
Discrete Components. Discrete components incorporate the
Company's LED or sensor chips in either plastic or metal packages
which protect the chip and control the focus of light to or from
the chip. These components form an integral part of the
assemblies manufactured by the Company. In manufacturing
discrete components, LED or sensor chips are mounted on lead
frames or headers, a wire is bonded from the chip to the lead,
and the device is housed in a plastic or metal package. While
most of the Company's discrete components are used in its
own assembly manufacturing operations, the Company also
manufactures and sells discrete components to OEMs, which
integrate them into their own products, and through independent
distributors.
Assemblies. Most of the Company's business is directed to
the sale of custom assemblies which are designed to be easily
integrated into the customer's products. In assemblies, the LED
and sensor components are incorporated in physical packaging
capable of withstanding rigorous environmental conditions of
temperature, acceleration or mechanical shock. Generally,
discrete LED and sensor components are used in combination with
one another in interruptive or reflective assemblies. Each of
these assemblies includes a discrete emitter, a light
transmission path and a discrete sensing component. The sensing
function occurs when an object interrupts the light
transmission path from emitter to sensor or reflects the emitted
light back to the sensor.
Optoelectronic LEDs and sensors can also be paired in sealed
couplings to isolate electrical noise or high voltage from an
electrical circuit. These coupled assemblies are used to protect
computers and other sensitive circuits from potentially damaging
electrical surges or electrical noise.
Fiber Optic Products. As a complement to its other
optoelectronic devices, the Company manufactures fiber optic LEDs
and sensors. The Company uses its LED and sensor technology to
provide the light signal and receiver products for data
transmission through fiber. These products allow electronic
equipment, such as energy management systems, computers and even
telephones, to communicate over thin lightweight cables of glass
or plastic fiber.
Magnetic Sensor Products
During fiscal 1992, the Company began production of Hall
Effect (magnetic field sensing) devices which sense physical
events by reacting to changes in magnetic fields. As the
magnetic field applied to the sensor changes, the sensor produces
a signal which is relayed to a control device. Since magnetic
fields are relatively unaffected by the cleanliness of the
environment, magnetic devices can be used in environments in
which a clear optical path is inhibited. Because the presence of
oil and dirt is characteristic of automotive applications,
magnetic sensing devices are particularly useful in such
applications. For example, magnetic devices sense rotation of
gears in automobiles for various applications where the presence
of dirt and oil would make the application of optoelectronic
technology impractical. The first practical application of this
technology by the Company was the production of crankshaft and
camshaft sensors used in conjunction with ignition systems on
automobiles. The Company also produces a magnetic sensor used in
an automotive theft deterrent system. The Company has sought to
utilize the expertise and experience gained through its initial
automotive programs to identify and participate in additional
sensor programs. Presently, most automotive applications served
by the Company's products use magnetic sensors, although the
Company has begun to introduce optoelectronic technology in a few
automotive applications. To date, few applications for magnetic
sensors have been developed by the Company outside automotive
applications.
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As with the manufacture of optoelectronic products, the
Company is vertically integrated and capable of producing each of
the elements incorporated into its magnetic sensor assemblies.
The basic building block of each device is a semiconductor chip
which reacts to fluctuations in a magnetic field. The Company
produces its own Hall Effect sensor chips through processes and
techniques similar to those used for manufacturing the Company's
light sensing chips. The Company purchases substantially all of
its requirements of magnetoresistive sensor chips from Emcore,
which has been licensed to use certain patented technology
related to the manufacture of such chips. These chips are
mounted into discrete components, which are incorporated into
custom assemblies.
Customers
In fiscal 1998, Optek's ten largest customers accounted for
approximately 66% of net sales. Sales to two customers, Strattec
Security Corporation and General Motors Corporation, accounted
for 18% and 11%, respectively, of the Company's net sales during
fiscal 1998.
Historically, a relatively small number of customers has
accounted for a significant percentage of the Company's total net
sales, and the Company expects that this trend will continue.
The Company's ability to achieve sales in the future will depend
upon its ability to obtain orders from, maintain relationships
with and provide support to a relatively small number of existing
and new key customers. As a result, any cancellation, reduction,
rescheduling or delay in orders by or shipments to any customer
or the discontinuation or redesign by any customer of its
products which currently incorporate one or more of the Company's
products could have a material adverse effect on the Company's
business, operating results and financial condition.
The automotive industry, which accounted for approximately
31% of the Company's net sales during fiscal 1998, represents the
fastest area of growth for the Company. The automotive industry
is cyclical due to general economic conditions, the level of
interest rates, consumer confidence, patterns of consumer
spending and the automobile replacement cycle, all of which are
beyond the control of the Company. In addition, the Company's
customers in the automotive industry are highly unionized and
have in the past experienced labor disruptions. Accordingly,
automotive production may not increase or may decline in the
future. A significant reduction or prolonged interruption in
automotive production could have a material adverse effect on the
Company.
The Company's customers normally purchase the Company's
products and incorporate them in products that they in turn sell
into their own markets on an ongoing basis. As a result, the
Company's sales are dependent upon the success of its customers'
products, and its future performance is dependent upon its
success in finding new customers and receiving new orders from
existing customers.
Sales, Marketing and Distribution
Optek sells its products through its technical sales staff,
independent sales representatives and independent stocking
distributors. At October 30, 1998, the Company employed eight
technical sales people who operate out of the Company's offices
in Carrollton, Texas and three technical sales people operating
out of offices in Western Europe. The Company also sells its
products worldwide through 20 independent sales representatives
and 42 stocking distributors. Certain shipments to distributors
are subject to limited right-of-return provisions.
The Company's technical sales personnel, together with the
Company's engineering staff, seek to develop long-term
relationships with customers by working closely with them
throughout all phases of new product development and subsequent
production. Initial customer contact is usually made by either a
member of the Company's technical sales staff, a sales
representative or a distributor for the geographic area. The
representative determines if custom optoelectronic or magnetic
components or assemblies could perform the specific sensing
functions desired by the customer. Typically, the customer either
provides a detailed specification of its requirements or is
assisted by the Company's engineering and technical sales staff
in the development of specifications. The Company then develops
a technical proposal, incorporating preliminary design concepts,
and submits the technical proposal to the customer. The
technical proposal typically includes pricing terms, which
usually include a one-time tooling charge and a unit price for
the product over a specified period based on an estimated
production volume. After approval, the Company continues to work
with the customer to develop an assembly meeting the customer's
requirements. Frequently, especially in automotive applications,
the Company is involved in development, testing and qualification
phases which involve all aspects of the Company's engineering and
manufacturing expertise.
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The marketing and development process can range from four
months to three years or more from initial customer contact to
purchase order, depending on the complexity of the customer's
requirements. Automotive applications tend to have a longer
development cycle, typically exceeding three years. Once a
product is qualified, subsequent production releases typically
require lead times of six or more weeks.
Many products sold by the Company are application specific
and, therefore, have life cycles generally ranging from three to
15 years. For example, many products sold to the automotive
industry are model, engine or system specific. As described
above, lengthy product development cycles requiring substantial
design and qualification are customary in the sourcing decisions
of OEMs. Therefore, the primary focus of the Company's sales
effort is to develop applications designed into the products of
OEMs during development.
Engineering and Development
A significant portion of the Company's design and
application expertise is devoted to developing customized
products for performing specific applications. As a result, the
Company's efforts have been primarily directed toward developing
enhancements to existing customer applications and to identifying
new customer-specific applications. Typically, the Company
conducts joint development efforts with its customers and
receives funds for the custom tooling required to manufacture the
customer's assembly. The Company employs over 85 engineers, many
of whom are focused on working with customers to design
assemblies to perform additional applications. The Company seeks
to involve its engineers in the design phase of its customer's
products.
In order to expand the range of applications which can be
addressed with magnetic sensor devices, the Company has
identified magnetoresistive technology as one alternative for new
magnetic sensor designs. Magnetoresistive technology produces a
superior signal to noise ratio, and is able to detect very slow
motion which is required in certain applications. The Company
has been awarded additional programs by an automotive OEM
utilizing magnetoresistive motion and position sensors for
electronic ignition systems. On October 30, 1998 the
Company formed Emtek with Emcore. The purpose of Emtek is to
manufacture and market specified discrete components
incorporating magnetoresistive chips in order to make this
technology more readily available, with the objectives of
increasing the volume of chips produced and improving their
competitiveness with alternative technologies.
In addition, in order to address certain fiber optic
applications requiring higher data transmission speeds,
the Company has applied a portion of its research activities in
recent years to the development of higher speed fiber
optic LEDs, sensors, and transceivers.
During the past three fiscal years, the Company's product
development and engineering expenses have ranged between 6% and
8% of net sales, not including that portion which has been funded
by customers. Future developments may require the Company to
allocate increased resources to advances in optoelectronic and
magnetic sensor technologies. However, no assurance can be given
that the Company will be successful in further expanding these
technologies.
Manufacturing
The Company utilizes a vertically integrated manufacturing
structure which enables the Company to exercise better control
through all manufacturing cycles and to respond on a timely basis
to customer requests for development of new products and design
changes to existing products. The Company manufactures sensor and
LED semiconductor chips, tools and plastic molds, plastic
assemblies, discrete, assembly, hybrid and high reliability
components, printed circuit boards and wire and cable assemblies.
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The Company attempts to maintain consistent high product
quality as a means to attract and retain customer business and
limit price competition. As customers have moved to
"just-in-time" inventory management, products are often shipped
directly to the production line without incoming inspection. The
Company utilizes advanced machinery and production techniques,
incorporates raw materials conforming to stringent quality
standards and individually tests each of its products in an
effort to manufacture products of consistent high quality and
reliability.
The principal raw materials used by the Company in the
manufacture of its semiconductor chips, components and assemblies
are silicon wafers, gallium wafers, certain chemicals and gases
used in processing wafers, gold wire, copper lead frames, metal
and plastic for packages that house the chip and the various
custom assemblies, and magnets used in certain magnetic sensor
applications. Presently, the Company uses sole sources for its
requirements of some of the materials used in its manufacturing
operations, which could adversely affect the Company if any such
source failed to deliver for any reason. The Company is
currently identifying and qualifying additional sources for
these materials. From time to time, particularly during periods
of increased industry-wide demand, silicon wafers and other
materials have been in short supply. As is typical in the
industry, the Company allows for a significant lead-time between
order and delivery of raw materials. See "Risk Factors - Sole
or Limited Sources of Supply."
The Company's silicon and gallium arsenide chip
manufacturing, high reliability and hybrid assembly manufacturing
and tooling, plastic molding and printed circuit board operations
occupy approximately 52,000 square feet of manufacturing space at
the Company's facilities in Carrollton, Texas. The Company's
non-military discrete components, interrupter and reflective
assemblies and isolators/couplers are assembled in the facilities
of the Company's subsidiaries located in Juarez, Mexico utilizing
approximately 118,000 square feet in two buildings.
Over 80% of the Company's components and assemblies are
produced in facilities operated by the Company in Juarez, Mexico.
Mexico has enacted legislation to promote the use of such
manufacturing operations by foreign companies and continuation of
these operations depends upon: compliance with applicable laws
and regulations of the United States and Mexico; the availability
of less expensive labor; and the continuation of favorable ex-
change rates. These operations are authorized to operate as
Maquiladoras by the Ministry of Commerce and Industrial
Development of Mexico. Maquiladora status allows the Company to
wholly own its Mexican subsidiaries and to import certain items
from the United States into Mexico duty free, provided that such
items, after processing, are re-exported from Mexico within six
months. Maquiladora status, which must be renewed every two
years, is subject to various restrictions and requirements,
including: compliance with the terms of the Maquiladora program;
proper utilization of imported materials; hiring and training of
Mexican personnel; compliance with tax, labor, exchange control
and notice provisions and regulations; and compliance with
locational constraints. Although assembly operations in Mexico
continue to be less expensive than comparable operations in the
United States, in recent years many companies have established
Maquiladora operations in the Juarez area to take advantage of
lower labor costs. Increasing demand for labor, particularly
skilled labor and professionals, from new and existing
Maquiladora operations has in the past and could in the future
result in increased labor costs. The Company may be required to
make additional investments in automating equipment to partially
offset increased labor costs. The loss of Maquiladora status,
the inability to recruit, hire and retain qualified employees, a
significant increase in labor costs, unfavorable exchange rates
or interruptions in the trade relations between the United States
and Mexico could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company anticipates that additional manufacturing
capacity, primarily in Mexico, will be required to support growth
over the next several years. Therefore, the Company increased
capital expenditures in fiscal 1998 and plans to continue that
program through fiscal 1999 and 2000, with anticipated
expenditures to total approximately $10 to $15 million over the
three year period. The timing and amount of such expenditures is
subject to adjustment based upon continued evaluation by
management.
<PAGE>
<PAGE>
Intellectual Property
The Company relies on its technical engineering expertise as
protected by trade secret laws and nondisclosure agreements and,
to a lesser extent, on a combination of patent, maskwork rights,
copyright, trademark and other intellectual property protection
methods to protect its proprietary technology. Although the
Company currently holds four patents and has one pending patent
application in the United States, the Company believes that
patents are of less significance in its industry than such
factors as customer service, innovation, technical expertise
and know-how of its personnel. There can be no assurance that
the Company's competitors will not be able to legally ascertain
the nonpatented proprietary information embedded in the Company's
sensor components or other products, in which case the Company
may be unable to prevent use of such information. To the extent
the Company elects to assert its patent rights, there can be no
assurance that any claims of the Company's patents will be
sufficiently broad to protect the Company's technology. In
addition, there can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented,
that any rights granted thereunder will provide adequate
protection to the Company, or that the Company will have
sufficient resources to prosecute its rights. The Company has
received notification of patent issues concerning a process used
to manufacture a small portion of its products, but believes the
issues asserted are without merit. There can be no assurance that
infringement claims by third parties or claims for
indemnification resulting from infringement claims will not be
asserted in the future, or that such assertions, if proven to be
true, will not materially adversely affect the Company's
business, operating results and financial condition. If any such
claims are asserted against the Company, the Company may seek to
obtain a license under the third party's intellectual property
rights. There can be no assurance that a license will be
available on reasonable terms or at all. Alternatively, the
Company could resort to litigation to challenge such claims.
Such challenges could be extremely expensive and time consuming.
Adverse determinations in any litigation could subject the
Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the
Company from manufacturing and selling its products. Any of
these developments could have a material adverse effect on the
Company's business, operating results and financial condition.
Competition
The Company believes that competition in the market for
custom optoelectronic and magnetic sensors is intense and likely
to increase substantially. Competition in the sensor markets
served by the Company is primarily based upon custom design
capabilities, quality, technology, responsiveness, timely
delivery and, to a lesser extent, price. The Company competes
with numerous companies for the custom optoelectronic and
magnetic sensor requirements of OEMs producing office equipment,
automotive products, industrial products, aerospace/defense and
medical applications and communications equipment. The Company
believes that its principal competitor for sales of custom sensor
components and assemblies is Honeywell, Inc. In addition,
because certain OEMs, either directly or through affiliated
entities, have internal capabilities to design and manufacture
custom sensor components and assemblies, the Company must also
compete with the in-house capabilities of such OEMs. In some
cases, the Company's prospective customers may elect to purchase
low-cost standardized sensor components from commodity suppliers
and utilize their in-house design and manufacturing capability to
adapt such standard components to fulfill their sensor
requirements. See "Risk Factors - Competition."
Environmental
The Company is subject to a variety of domestic and Mexican
governmental regulations relating to the use, storage, handling
and disposal of toxic or other hazardous substances used in
connection with its manufacturing activities. Any failure by the
Company to control the use, storage, handling or disposal or
adequately restrict the discharge of hazardous or toxic
substances could subject the Company to significant liability or
could cause the Company's manufacturing operations to be
curtailed or suspended. See "Risk Factors - Limited Insurance
Coverage; Environmental Regulation."
<PAGE>
Backlog
The Company's order backlog was approximately $22.8 million
at October 30, 1998 compared with a backlog of approximately
$23.9 million at October 31, 1997 and approximately $18.4 million
at October 25, 1996. The Company's backlog is comprised of orders
which customers have released and scheduled for delivery within
one year. Sales orders are typically made on the Company's
standard form, which permits the customer to cancel the order in
whole or in part. By industry practice, orders may be canceled
or modified at any time, with the customer being responsible for
all finished goods, all costs, direct and indirect, incurred by
the Company and a reasonable allowance for anticipated profits.
No assurance can be given that such amounts will be received by
the Company after cancellation.
Employees
As of October 30, 1998, the Company employed 2,145 persons,
including 1,980 in manufacturing and assembly (1,768 in Juarez,
Mexico and 212 in Carrollton, Texas), 120 in sales and
engineering and 45 in management and administration. Some of the
Company's employees are highly skilled and the Company's
continued success will depend in part on its ability to attract
and retain such employees, who are generally in demand. At
times, the Company has had difficulty hiring engineering
personnel with previous experience in its industry due to
the limited number of engineers available with such experience.
To date, this difficulty has not materially affected the
Company's operations. The Company has never had a work stoppage,
no employees are represented by any labor organization and the
Company considers its employee relations to be good.
Risk Factors
Numerous factors may affect the Company's future
performance, including the following:
Fluctuations in Operating Results. The Company's net sales
and operating results have varied on a quarterly and an annual
basis in the past and may vary significantly in the future. The
Company's first fiscal quarter, which ends in January, includes
the holiday season, which impacts customer order entry and also
includes an annual facilities shutdown, and has therefore
traditionally been the Company's lowest in terms of net sales and
operating income. Historically, the Company's net sales have
been lower in such quarter than in the immediately preceding
quarters. The Company's third fiscal quarter has in the past been
affected by the extended vacation season in Europe, which reduces
international sales during that period. The Company's net sales
and operating results could be materially and adversely affected
by many factors, some of which are partially or wholly outside
the control of the Company, including, among others, failure to
be selected to supply sensors for new products and programs,
quality control of products sold, the relatively long sales and
development cycle for the Company's products, the Company's
ability to introduce new products and technologies on a timely
basis, market acceptance of the Company's and its customers'
products, the timing, deferral or cancellation of customer orders
and related shipments, competitive pressures on selling prices,
availability of raw materials, fluctuations in yields, changes in
product mix, changes in the lead time required to ship products
after receipt of an order, introduction of products and
technologies by the Company's competitors and customers,
personnel changes and difficulties in attracting and
retaining qualified technical personnel and economic conditions
generally and in the automotive and commercial markets.
A significant portion of the Company's product sales are
made pursuant to standard purchase orders that, in some cases,
are cancelable without significant penalties. In addition,
purchase orders are subject to changes in quantities of products
and delivery schedules to reflect changes in customers'
requirements and manufacturing availability. The Company's actual
shipments depend in part on the Company's manufacturing capacity
and the availability of raw materials from the Company's
suppliers. The Company's expense levels are based, in part, on
its expectations as to future net sales and to some extent are
fixed in the short term. Accordingly, the Company may be
unable to adjust spending in a timely manner to compensate for
any unexpected shortfall in revenues, and any significant
shortfall of demand in relation to the Company's expectations or
any material delay or deferral of customer orders would have a
material adverse effect on the Company's business, operating
results and financial condition.
<PAGE>
The Company has commenced expenditures to increase
manufacturing capacity and engineering resources in anticipation
of additional potential net sales. In the event that such
additional net sales do not materialize when and as anticipated,
such expenditures could adversely affect the Company's gross
margins and operating margins.
As a result of the foregoing and other factors, it is likely
that in some future periods the Company's operating results will
fail to meet the expectations of public market analysts or
investors. In such event, or in the event that adverse
conditions prevail or are perceived to prevail generally or with
respect to the Company's business, the trading price of the
Company's Common Stock could drop significantly.
Dependence on Automotive Industry. The automotive industry,
which accounted for approximately 31% of the Company's net sales
during fiscal 1998, has in recent years represented the fastest
area of growth for the Company. Thus, the maintenance of or
improvement in the Company's operating results for future periods
will depend in part on its success in the automotive sensor
market and on the increasing of use of sensors in automobiles
to improve fuel efficiency, safety and consumer options.
Currently, a substantial portion of the Company's automotive
assemblies are sold for use in a relatively small number of
applications. No assurance can be given that additional
applications will be developed or that the Company will be
successful in participating in them.
The automotive industry is cyclical due to general economic
conditions, the level of interest rates, consumer confidence,
patterns of consumer spending and the automobile replacement
cycle, all of which are beyond the control of the Company. In
addition, the Company's customers in the automotive industry are
highly unionized and have in the past experienced labor
disruptions. Accordingly, automotive production may not increase
or may decline in the future. A significant reduction or
prolonged interruption in automotive production could have a
material adverse effect on the Company's business, operating
results and financial condition.
Dependence on Customer Specific Products; Lengthy Sales and
Development Cycle. A substantial portion of the Company's
products are designed to address the specific needs of individual
customers. As a result, the sales and development cycle for these
products can be lengthy, with the development cycle alone ranging
from four to 36 months or longer for new products in new
applications, and are particularly long for products targeted
to the automotive industry. Because customer specific products
are developed for particular customers' applications, some of the
Company's current and future customer specific products may never
be produced in high volume, or at all, due to the Company's
inability to introduce custom products in a timely manner, delays
in the introduction of the Company's customers' products, the
failure of the Company's customers' products to achieve and
sustain commercial success or the discontinuation of a customer's
product line. Any of these occurrences could have a material
adverse effect on the Company's business, operating results and
financial condition.
Product Life Cycles; Dependence on Selection as Provider for
New Products. The Company's ability to generate net sales in the
future is primarily dependent on its being selected by OEMs as a
provider of sensor components and/or assemblies for their new
products. OEMs typically select and qualify sensor providers for
new product models during the initial design and testing phases
of their product development cycles, which typically range from
four to over 36 months in length. Once a new product model is
implemented, its life cycle typically ranges from three to 15
years. The Company believes that it would be difficult for it to
begin providing components and assemblies for use in a particular
end product if the Company had not been selected and qualified as
a provider during the development of such product. Therefore, a
failure to be selected as a provider during the early stages
of a product's life cycle could preclude the Company from ever
providing assemblies and components for such product model
throughout its life cycle. In addition, such failure to be
selected could reduce the Company's ability to be selected as a
provider for future product models if, for example, such failure
adversely affects the working relationship between the Company
and the manufacturer of such product model. There can be no
assurance that the Company will be selected as a provider of
sensor assemblies and components for new product models
introduced by current customers or other OEMs. Unless the
Company is selected as a supplier of sensor components and
assemblies for new models as existing models are phased out, the
Company's business, operating results and financial condition
could be materially and adversely affected.
<PAGE>
Customer Concentration. Historically, a relatively small
number of customers has accounted for a significant percentage of
the Company's total net sales, and the Company expects that this
trend will continue. During fiscal 1998, the Company's ten
largest customers accounted for approximately 66% of net sales.
Two customers, Strattec Security Corporation and General Motors
Corporation made purchases which accounted for 18% and 11%,
respectively, of the Company's net sales for fiscal 1998. The
Company's ability to achieve sales in the future will depend upon
its ability to obtain orders from, maintain relationships with
and provide support to a relatively small number of existing and
new key customers. As a result, any cancellation, reduction,
rescheduling or delay in orders by or shipments to any
significant customer or the discontinuation or redesign by any
such customer of its products which currently incorporate one or
more of the Company's products could have a material adverse
effect on the Company's business, operating results and financial
condition.
Pricing Pressure. There is continuing pressure from OEMs to
reduce costs associated with outside suppliers such as the
Company. In some cases, the Company sells products under
agreements which contain provisions that require the Company to
reduce its per unit price over time. The Company's other
products, subject to periodic re-quotation, may also experience
declining average selling prices over their life cycles with a
similar potential impact on gross margins if the Company is
unable to reduce corresponding costs or introduce new products
with higher gross margins. If the Company is unable to make
corresponding product cost reductions, the resulting decline in
the average selling prices of the products sold could reduce the
Company's product gross margin.
Foreign Manufacturing Operations. Over 80% of the Company's
components and assemblies are produced in facilities operated by
the Company in Juarez, Mexico. Mexico has enacted legislation to
promote the use of such manufacturing operations by foreign
companies and continuation of these operations depends upon:
compliance with applicable laws and regulations of the United
States and Mexico; the availability of less expensive labor; and
the continuation of favorable exchange rates. These operations
are authorized to operate as Maquiladoras by the Ministry of
Commerce and Industrial Development of Mexico. Maquiladora
status allows the Company to wholly own its Mexican subsidiaries
and to import certain items from the United States into Mexico
duty free, provided that such items, after processing, are
re-exported from Mexico within six months. Maquiladora status,
which must be renewed every two years, is subject to various
restrictions and requirements, including: compliance with the
terms of the Maquiladora program; proper utilization of imported
materials; hiring and training of Mexican personnel; compliance
with tax, labor, exchange control and notice provisions and
regulations; and compliance with locational constraints. Although
assembly operations in Mexico continue to be less expensive than
comparable operations in the United States, in recent years many
companies have established Maquiladora operations in the Juarez
area to take advantage of lower labor costs. Increasing demand
for labor, particularly skilled labor and professionals, from new
and existing Maquiladora operations has in the past and could in
the future result in increased labor costs. The Company may be
required to make additional investments in automating equipment
to partially offset increased labor costs. The loss of
Maquiladora status, the inability to recruit, hire and retain
qualified employees, a significant increase in labor costs,
unfavorable exchange rates or interruptions in the trade
relations between the United States and Mexico could have a
material adverse effect on the Company's business, operating
results and financial condition. The Company anticipates that
additional manufacturing capacity, primarily in Mexico, will be
required to support growth over the next several years.
Therefore, the Company increased capital expenditures in
fiscal 1998 and plans to continue that program through fiscal
1999 and 2000, with anticipated expenditures to total
approximately $10 to $15 million over the three year period. The
timing and amount of such expenditures is subject to adjustment
based upon continued evaluation by management.
<PAGE>
International Sales. During fiscal 1998, international
sales accounted for approximately $18.9 million, or approximately
22% of net sales, as compared to $17.4 million, or approximately
23% of net sales for fiscal 1997 and $18.9 million, or
approximately 28% of net sales for fiscal 1996. International
sales were made primarily to customers in Western Europe. The
Company expects that revenues derived from international sales
will continue to represent a significant portion of its net sales
in the future. Because all of the Company's revenues from inter-
national sales have to date been denominated in United States
dollars, the Company does not currently face significant currency
exchange rate risks. However, international operations and
demand for the Company's and its customers' products are subject
to a variety of risks, including tariffs, import restrictions and
other trade barriers, changes in regulatory requirements, longer
accounts receivable payment cycles, adverse tax consequences,
export license requirements, foreign government regulation,
political and economic instability and changes in diplomatic
and trade relationships. In addition, currency fluctuations
could reduce demand for the Company's products or demand for its
customers' products by making them more expensive than
competitors' products. There can be no assurance that one or
more of the foregoing risks will not have a direct or indirect
material adverse effect on the Company's business, operating
results and financial condition. Moreover, the laws of certain
foreign countries in which the Company's products are or may in
the future be sold may not protect the Company's intellectual
property rights to the same extent as the laws of the United
States, thus increasing the possibility of infringement or misap-
propriation of the Company's intellectual property.
Competition. The Company believes that competition in the
market for custom optoelectronic and magnetic sensors is intense
and is likely to increase. Competition in the sensor markets
served by the Company is primarily based upon custom design
capabilities, quality, technology, responsiveness, timely
delivery and price. The Company competes with numerous companies
for the custom optoelectronic and magnetic sensor requirements of
OEMs producing office equipment, automotive products, industrial
products, specialized aerospace/defense and medical applications
and communications equipment. The Company believes that its
principal competitor for sales of custom sensor components and
assemblies is Honeywell, Inc. In addition, because certain OEMs,
either directly or through affiliated entities, have internal
capabilities to design and manufacture custom sensor components
and assemblies, the Company must also compete with the in-house
capabilities of such OEMs. In some cases, the Company's
prospective customers may elect to purchase low-cost standardized
sensor components from commodity suppliers and utilize their
in-house design and manufacturing capabilities to adapt such
standard components to fulfill their sensor requirements.
Certain of the Company's current and potential competitors may
have substantially greater financial resources, name recognition
and/or more extensive engineering, manufacturing, marketing and
customer service and support capabilities than the Company.
Furthermore, the Company expects its competitors to
continually improve their design and manufacturing capabilities
and to introduce new products and processes with enhanced
performance characteristics and/or lower prices. While the
Company believes that its custom design capabilities, quality,
responsiveness, engineering and operating efficiencies are
competitive advantages, no assurance can be given that the
Company will be able to compete successfully in the future. This
competitive environment could result in significant price
reductions or the loss of orders from current and/or potential
customers which, in each case, could materially adversely affect
the Company's business, operating results and financial
condition.
Sole or Limited Sources of Supply. The Company relies on
outside vendors to supply raw materials used in the manufacture
of its sensor components and assemblies. From time to time,
certain of these materials, including lead frames used in the
manufacture of discrete sensor components, are only attainable
from a sole or limited group of qualified suppliers. The
Company's reliance on outside vendors generally, and on a sole or
limited group of suppliers in particular, involves several risks,
including a potential inability to obtain an adequate supply of
required materials, reduced control over pricing and timely
delivery of materials, and limited ability to pass on price
increases to its customers. Because the procurement of certain
of these components may require long lead times, there can be no
assurance that delays or shortages caused by suppliers will not
occur. The Company's ability to fill customer orders may depend
on the availability of numerous different components from its
suppliers and, particularly in periods of high demand, the
Company has experienced difficulties in obtaining certain
materials when needed which, in some cases, has delayed
deliveries to the Company's customers. Furthermore, the
Company's customers, in particular in the automotive industry,
may require the Company to secure certain materials from quali-
fied manufacturers and the process of qualifying an alternate
supplier can take several months. If the Company is unable to
secure materials due to supplier shortages or for any other
reason, it could adversely affect the Company's ability to retain
customer orders or to deliver products on a timely basis, which
in turn could adversely affect its relationships with customers.
If significant customer relationships were adversely affected in
this manner or if significant orders were cancelled or delayed,
it could have a material adverse effect on the Company's
business, operating results and financial condition.
<PAGE>
Limited Intellectual Property Protection. The Company
relies on its technical engineering expertise as protected by
trade secret laws and nondisclosure agreements and, to a lesser
extent, on a combination of patent, maskwork rights, copyright,
trademark and other intellectual property protection methods to
protect its proprietary technology. Although the Company
currently holds four patents and has one pending patent
application in the United States, the Company believes that
patents are of less significance in its industry than such
factors as customer service, innovation, technical expertise and
know-how of its personnel. There can be no assurance that the
Company's competitors will not be able to legally ascertain the
nonpatented proprietary information embedded in the Company's
sensor components or other products, in which case the Company
may be unable to prevent use of such information. To the extent
the Company elects to assert its patent rights, there can be no
assurance that any claims of the Company's patents will be
sufficiently broad to protect the Company's technology. In
addition, there can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented,
that any rights granted thereunder will provide adequate
protection to the Company, or that the Company will have
sufficient resources to prosecute its rights. The Company has
received notification of patent issues concerning a process used
to manufacture a small portion of its products, but believes the
issues asserted are without merit. There can be no assurance
that infringement claims by third parties or claims for
indemnification resulting from infringement claims will not be
asserted in the future, or that such assertions, if proven to be
true, will not materially adversely affect the Company's
business, operating results and financial condition. If any such
claims are asserted against the Company, the Company may seek to
obtain a license under the third party's intellectual property
rights. There can be no assurance that a license will be
available on reasonable terms or at all. Alternatively, the
Company could resort to litigation to challenge such claims.
Such challenges could be extremely expensive and time consum-
ing. Adverse determinations in any litigation could subject the
Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the
Company from manufacturing and selling its products. Any of
these developments could have a material adverse effect on the
Company's business, operating results and financial condition.
Limited Insurance Coverage; Environmental Regulation. The
operations of the Company in the United Stated and in Mexico
involve the use of industrial machine tools and exposure to
hazardous chemicals, with attendant risks of liability for
personal injury and property damage. There can be no assurance
that accidents will not occur or that the Company will not incur
substantial liability in connection with the operation of its
business. The Company maintains workers' compensation insurance
and general liability insurance, with policy limits of $1 mil-
lion and $2 million, respectively, per accident or occurrence.
The Company also maintains an umbrella policy with limits of $20
million in the aggregate. Such insurance excludes coverage for
losses or liabilities relating to environmental damage or
pollution. The Company's business, operating results and
financial condition could be materially adversely affected by a
claim that was not covered or only partially covered by its
insurance. In addition, the Company is subject to a variety of
domestic and Mexican governmental regulations relating to the
use, storage, handling and disposal of toxic or other hazardous
substances used in connection with its manufacturing activities.
Any failure by the Company to control the use, storage, handling
or disposal or adequately restrict the discharge of hazardous
or toxic substances could subject the Company to significant
liabilities or could cause the Company's manufacturing
operations to be curtailed or suspended.
Technological Change. While the Company is unaware of any
emerging technology that would have an adverse effect on its
business, there can be no assurance that products or technologies
developed by others will not render the Company's products
obsolete or non-competitive. There an be no assurance that the
Company will be able to define new products successfully and
develop and bring to market new and enhanced products on a timely
and cost effective basis, develop or access new processes or
technologies or respond effectively to new technological
changes or new product announcements by others. A failure in any
of these areas could have a material adverse effect on the
Company's business, operating results and financial condition.
<PAGE>
Reliance on Key Personnel; Need for Additional Technical
Personnel. The Company's future financial performance will depend
in significant part upon the continued contributions of its
executive officers and other key personnel, many of whom would be
difficult to replace. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful
in attracting or retaining such personnel. To better retain
them, the Company has entered into employment agreements with its
senior management. The failure to retain such persons, or to
attract and retain replacements, could materially adversely
affect the Company's business, operating results and financial
condition.
The Company believes that a key requirement for competing
successfully in the optoelectronic and magnetic sensor business
is the ability to attract and retain creative and knowledgeable
design engineers and other technical personnel who are qualified
in these fields. The number of design engineers who have the
education, training, creativity and experience to design complex
sensor solutions is very limited, and the competition for such
personnel can be intense. Because of the active involvement of
the Company's design engineers in the sales process, the
Company's ability to pursue new customers and new projects from
existing customers is affected by its available engineering
resources. The Company's future success will be heavily dependent
upon its ability to attract and retain qualified design,
technical and management personnel. There can be no assurance
that the Company will be able to continue to attract and retain
these personnel, and the failure to do so could have a material
adverse effect on the Company's business, operating results and
financial condition.
Risks of Product Liability. The use of the Company's
products in various industrial, commercial or consumer
applications may subject the Company to product liability
claims. The automotive industry, in particular, has historically
faced frequent product liability and similar claims. Although
the Company has not experienced any product liability claims to
date, the sale of products by the Company may entail the risk of
such claims. Further, notwithstanding the possible existence of
legal defenses or contractual limitations of liability, industry
practices or the need to maintain good customer relationships may
lead the Company to make payments related to such product
liability claims. Notwithstanding the provisions in the
agreements with its customers, any product liability claim,
which often involve claims for substantial damages, brought
against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
Risks of Product Recalls. The automotive industry is
heavily regulated by government agencies which establish various
vehicle safety standards that are often indirectly related to the
components and subcomponents in their vehicles. To the extent
that any vehicles or any parts therein are required to be or are
voluntarily recalled and the recall involves vehicles or parts
that are directly or indirectly related to any of the Company's
products, the Company may be required to repair or replace its
products, redesign or reproduce its products or halt production
or shipment of its products. Further, any recall of vehicles or
parts directly or indirectly related to any of the Company's
products may have the effect of damaging the Company's
reputation. Although no such recall has involved the Company or
its products in the past, such a recall could occur in the future
and, if a recall does occur, it could have a material adverse
effect upon the Company's business, operating results and
financial condition.
Year 2000 Compliance. The Year 2000 Issue is the result of
computer programs being written using two digits rather than four
to define the applicable year. Any computer programs that have
date-sensitive software may recognize a date using 00 as the year
1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities. To become Year 2000 compliant, the Company has
implemented a comprehensive study of its information technology
systems. Because many of its systems were outdated and no longer
supported, ordinary replacement with Year 2000 compliant systems
has addressed most of the Company's needs in those areas.
However, the Company found it necessary to upgrade its
marketing order management software outside of the ordinary
replacement cycle to be Year 2000 compliant at a cost of
approximately $75,000. In addition, the Company is currently
conducting a review of all PCs, HVAC, test equipment and
similar systems and acting on them accordingly. To date, the
Company has not identified any of such systems which it believes
would fail and significantly disrupt the Company's operations.
In any event, the Company does not expect future costs to address
its internal Year 2000 matters to exceed $150,000.
<PAGE>
Because the Company's products are not date sensitive, the
Company does not believe that they will be affected by the Year
2000 Issue.
Further, the Company has requested from all of its
suppliers, and has received from approximately 65% of its
suppliers, written questionnaires and assurances that they
are taking the necessary measures to avoid any significant
disruptions from Year 2000 noncompliance. The Company is
continuing its efforts to identify any exposures from failure of
any significant supplier to provide goods or services required by
the Company.
The Company anticipates being fully Year 2000 compliant in
all of its information systems by April 30, 1999 and its
production equipment by July 31, 1999. Although the Company is
committed to a successful and timely Year 2000 conversion and
funds are dedicated and available for this project, no assurance
can be given that it will be fully and timely implemented.
Failure of the Company's equipment or software to operate
properly with regard to the Year 2000 and thereafter could
require the Company to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on the
Company's business, operating results and financial condition.
Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 issues if their systems
malfunction or they expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures may
result in reduced funds to purchase products and services such as
those offered by the Company, which could have a material
adverse effect on the Company's business, operating results and
financial condition. The Company believes the least controllable
and therefore most probable exposure specifically related to its
business would be the failure of a supplier to timely provide
goods or services required by the Company. The Company has
obtained assurances of Year 2000 compliance from most of its
suppliers and intends to continue canvassing critical suppliers
concerning the compliance of their systems. In addition, the
Company has in many instances sought to identify and qualify
alternate suppliers, where feasible. However, if notwithstanding
these measures the Company does not receive required goods or
services as a result of the failure of one or more suppliers,
such failure could have a material adverse effect upon the
Company's business, operating results and financial condition.
Uncertain Need and Availability of Additional Funding.
Although the Company believes that its existing cash reserves,
credit facility and cash flows from operations will be adequate
to fund the Company's operations for at least the next 12 months,
there can be no assurance that such sources will be adequate or
that additional funds will not be required either during or after
such period. No assurance can be given that additional financing
will be available or that, if available, it will be available on
terms favorable to the Company or its stockholders. If addi-
tional funds are raised through the issuance of equity
securities, the percentage ownership of then current stock-
holders of the Company will be reduced and such equity securities
may have rights, preferences or privileges senior to those of the
holders of the Company's Common Stock. If adequate funds are not
available to satisfy either short or long-term capital
requirements, the Company may be required to limit its operations
significantly. The Company's capital requirements will depend on
many factors, including, but not limited to, the rate at which
the Company develops and introduces its products, the market
acceptance and competitive position of such products,
the levels of promotion and advertising required to market such
products and attain a competitive position in the marketplace,
and the response of competitors to the Company's products. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Possible Volatility in Price of Common Stock. The market
price of the Common Stock is likely to be volatile and may be
significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, the introduction
of new products, new contracts or changes in pricing policies by
the Company or its competitors, developments with respect to
proprietary rights, changes in earnings estimates by analysts,
conditions and trends in the industries to which it markets its
sensors as well as general market conditions and other fac-
tors. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that
have particularly affected the market prices for the securities
of technology companies. These broad market fluctuations, as
well as general economic, market and political conditions, may
adversely affect the market price of the Company's Common Stock.
In the past, following periods of volatility in the market price
of a company's common stock, securities class action litigation
has often occurred against such companies. There can be no
assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition.
<PAGE>
Potential Future Acquisitions. In the future, the Company
may pursue acquisitions of product lines, technologies or
businesses. Future acquisitions by the Company may result in the
use of significant amounts of cash, potentially dilutive
issuances of equity securities, incurrence of debt and
amortization expenses related to goodwill and other intangible
assets, each of which could materially adversely affect the
Company's business, operating results and financial condition.
In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies
and products of the acquired company, the diversion of
management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct
prior experience, and the potential loss of key employees of the
acquired company. There are currently no negotiations, com-
mitments or agreements with respect to any acquisition. In the
event that such an acquisition does occur, however, there can be
no assurance as to the effect thereof on the Company's business,
operating results and financial condition.
Potential Issuance of Preferred Stock. The Board of
Directors has the authority to issue up to 1,000,000 shares of
preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and
may be adversely and materially affected by, the rights of the
holders of any preferred stock that may be issued in the future.
The issuance of preferred stock, while potentially providing
desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has
no current plans to issue shares of preferred stock.
Anti-Takeover Provisions of Delaware Law. The Company is
subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a publicly held
Delaware corporation from engaging in a business combination
(which includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder)
with an "interested stockholder" (defined generally as any person
who beneficially owns 15% or more of the outstanding voting stock
of the Company or any person affiliated with such person)
for a period of three years following the date of the transaction
in which the person became an interested stockholder, unless (i)
prior to such date the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder,
or (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in
which the employee participants do not have the right to
determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on
or subsequent to such date the business combination is approved
by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
PAGE
<PAGE>
ITEM 2. Properties.
The Company's administrative offices, engineering
facilities, silicon and gallium arsenide chip manufacturing and
hybrid assembly manufacturing, as well as tooling, plastic
molding and printed circuit board operations, are located in a
Company-owned building containing 205,000 square feet on a 15.5
acre site in Carrollton, Texas. The Company also leases
approximately 6,250 square feet of warehouse space in El Paso,
Texas. This lease expires in January of 1999.
Over eighty percent of the Company's discrete components and
assemblies are assembled at the facilities of the Company's
subsidiaries located in Juarez, Mexico. The Mexican subsidiaries
own, directly or beneficially through trust agreements with Banca
Serfin, Sociedada Nacional de Credito, buildings in Juarez,
Mexico containing 130,000 square feet at which the Company's
assembly and test operations are performed. The Company also
owns a smaller 24,000 square foot building which formerly
contained assembly operations, but which the Company is
currently seeking to sell.
The Company believes that its existing facilities and
equipment are well maintained and are in good operating
condition. The Company anticipates that its current facilities
will be suitable and adequate for its operations through 1999.
ITEM 3. Legal Proceedings.
The Company is not involved in any material current or
pending legal proceedings, other than ordinary routine litigation
incidental to its business.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted by the Company during the fourth
quarter of the fiscal year ended October 30, 1998 to a vote of
the Company's security holders through the solicitation of
proxies or otherwise.
PAGE
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Common Stock is included for quotation in The Nasdaq
Stock Market's National Market (the "Nasdaq National Market")
under the symbol OPTT. The following table sets forth the
quarterly high and low sales prices per share for the Common
Stock for each quarterly period during the last two fiscal years.
<TABLE>
High Low
---- ---
<S> <C> <C>
Fiscal 1997
- -----------
First Quarter...... $13.88 $ 9.00
Second Quarter..... 14.13 10.50
Third Quarter...... 16.00 11.00
Fourth Quarter .... 19.75 15.75
Fiscal 1998
- -----------
First Quarter ..... $23.25 $18.00
Second Quarter .... 27.75 20.75
Third Quarter ..... 23.00 17.75
Fourth Quarter .... 23.13 10.94
</TABLE>
At October 30, 1998, the Company had approximately 149
stockholders of record. The Company believes that a significant
number of shares of the Company's Common Stock are held in street
name and, consequently, the Company is unable to determine the
actual number of beneficial owners thereof.
The Company has never paid a cash dividend on its Common
Stock, currently intends to retain any earnings for use in its
business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company's loan
agreement contains covenants restricting the Company from paying
dividends on its Common Stock exceeding 50% of its net profit
during any fiscal year.
PAGE
<PAGE>
ITEM 6. Selected Financial Data.
The following table summarizes certain selected consolidated
financial data for the periods indicated. This information is
derived from the Company's consolidated financial statements and
is qualified in its entirety by, and should be read in
conjunction with, Management's Discussion and Analysis of
Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-K.
<TABLE>
Fiscal Year End
----------------------------------------------
Oct. 30, Oct. 31, Oct. 25, Oct. 27, Oct. 28,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of income data:
- -------------------------
Net sales $87,229 $75,572 $67,395 $62,542 $55,625
Cost of sales 51,535 43,423 39,010 38,513 38,269
------ ------ ------ ------ ------
Gross profit 35,694 32,149 28,385 24,029 17,356
Product develop-
ment and
engineering
expenses 6,207 5,246 4,933 3,841 3,591
Selling, general
and administrative
expenses 10,203 9,145 8,266 7,090 6,536
------ ------ ------ ------ ------
Operating
income 19,284 17,758 15,186 13,098 7,229
Other (income) expense:
Interest (income)
expense (652) (65) 1,292 2,960 3,685
Other (income)
expense 46 59 (145) 142 365
----- ----- ------ ------- -----
Total other, net (606) (6) 1,147 3,102 4,050
------ ------ ------ ------ ------
Income before
income taxes
and extraordinary
item 19,890 17,764 14,039 9,996 3,179
Income tax
expense 6,886 5,259 1,144 158 -
------ ------ ------ ------ ------
Income before
extraordinary
item 13,004 12,505 12,895 9,838 3,179
Extraordinary
item, net of
income taxes - 1,003 - - -
------ ------ ------ ------ ------
Net income $13,004 $11,502 $12,895 $ 9,838 $ 3,179
======= ======= ======= ======= =======
Basic earnings
per share:
Income before
extraordinary
item $ 2.15 $ 2.98 $ 3.41 $ 2.96 $ 0.99
Extraordinary
item - (0.24) - - -
------ ------ ------ ------ ------
Basic earnings
per share $ 2.15 $ 2.74 $ 3.41 $ 2.96 $ 0.99
======= ======= ======= ======= =======
Weighted average
shares
outstanding 6,062 4,193 3,780 3,319 3,224
Diluted earnings
per share:
Income before
extraordinary
item $ 1.63 $ 1.63 $ 1.71 $ 1.40 $ 0.62
Extraordinary
item - (0.13) - - -
------ ------ ------ ------ ------
Diluted earnings
per share $ 1.63 $ 1.50 $ 1.71 $ 1.40 $ 0.62
====== ====== ====== ====== ======
Weighted average
common and
potentially
dilutive
shares
outstanding 7,961 7,672 7,544 7,007 5,154
Balance sheet data:
- -------------------
Working
capital $26,743 $15,068 $ 6,658 $ 4,028 $ 4,830
Total assets 52,672 38,936 25,886 26,065 27,827
Total current
liabilities 10,117 12,656 7,982 9,175 8,159
Long-term debt - - 3,428 15,996 28,692
Stockholders'
equity (deficit)42,415 26,163 14,067 810 (9,148)
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Optek is a leading designer and manufacturer of electronic
sensor components and assemblies that detect motion and position
for a broad range of applications. The Company utilizes
optoelectronic and magnetic field sensing technologies to target
non-standard, customized applications that require specialized
engineering and manufacturing expertise. The Company sells its
products for end use by OEMs in the office equipment, automotive,
industrial, aerospace/defense, medical and communications
markets. The Company believes that in many cases it is the sole
source supplier for specific components and assemblies necessary
for its customers' applications. In fiscal 1998, major customers
included C.P. Clare Corporation, General Motors Corporation,
Pitney Bowes, Inc., Strattec Security Corporation and Xerox
Corporation.
The following table sets forth the Company's net sales by
target market for the last three fiscal years:
</TABLE>
<TABLE>
Oct. 30, Oct. 31, Oct. 25,
1998 1997 1996
-------------- -------------- --------------
Actual Percent Actual Percent Actual Percent
------ ------- ------ ------- ------ -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Office equipment $28.4 32.7% $25.4 33.6% $24.8 36.7%
Automotive 26.6 30.5 19.1 25.3 12.9 19.1
Industrial 21.2 24.3 18.7 24.7 17.6 26.1
Aerospace/defense 5.0 5.7 6.0 7.9 6.0 8.9
Medical 4.4 5.0 4.4 5.8 4.0 5.9
Communications 1.6 1.8 2.0 2.7 2.2 3.3
----- ----- ----- ---- ----- ----
Total net sales $87.2 100.0% $75.6 100.0% $67.4 100.0%
===== ====== ===== ====== ===== ======
The Company's primary business has been focused on the
design and manufacture of optoelectronic semiconductor chips,
discrete components and assemblies for commercial (i.e., office
equipment, industrial, medical and communications) OEMs. The
Company's commercial products include a wide array of custom
electronic components and assemblies which are each designed to
address specific applications required by its diverse customer
base. Demand by commercial customers for the Company's sensors
is driven by sales of OEM products that incorporate the Company's
sensors and frequently have life cycles ranging from three to 15
years. Often, the Company is able to leverage its specialized
engineering expertise and close customer relationships to assist
in the design of its customers' next generation of products,
which significantly increases the Company's ability to secure
continuing sales from these customers as their product lines
evolve. As a result, commercial OEMs have represented a stable
and predictable sales base for the Company.
The Company believes that the automotive sector represents
its primary opportunity for growth as an increasing number of
sensors are being incorporated into automobiles to improve fuel
efficiency and emissions, increase passenger safety and provide
additional consumer options. The Company believes this trend
will continue as governmental regulation mandates improved
passenger safety and reduced emissions and consumers demand
better safety and performance and increased functionality. As a
result of its strategic pursuit of the automotive market,
the Company's sales to the automotive market have grown from 2%
to 31% of net sales from fiscal 1992 to fiscal 1998,
respectively. Currently, a substantial portion of the Company's
automotive assemblies are sold for use in a relatively small
number of applications. The Company presently sells electronic
sensors for use in General Motors' automobile ignition and theft
deterrent systems. In addition, the Company's engineering and
manufacturing expertise and customer relationships have resulted
in the Company being awarded other automotive programs.
<PAGE>
Gross margins have increased from 31.2% in fiscal 1994 to
40.9% in fiscal 1998. Gross margins are subject to fluctuation
depending upon numerous factors, including pricing pressure from
OEMs, cost of materials and direct labor costs. There is
continuing pressure on OEMs to reduce costs, including costs
associated with outside suppliers such as the Company. In some
cases, the Company sells products under agreements requiring the
Company to reduce its per unit price over time. The Company's
other products, subject to periodic re-quotation, may also
experience declining average selling prices over their life
cycles with a similar potential impact on gross margins if the
Company is unable to reduce corresponding costs or introduce new
products with higher gross margins. If the Company is unable to
make corresponding product cost reductions, the resulting decline
in the average selling prices of the products sold may reduce the
Company's product gross margin.
The Company has commenced expenditures to increase
manufacturing capacity and engineering resources in anticipation
of additional potential net sales. In the event that such
additional net sales do not materialize when and as anticipated,
such expenditures could adversely affect the Company's gross
margins and operating margins.
The combined effect of higher sales volumes and improved
gross margins have enabled the Company to generate sufficient
cash flows to pay down its long-term debt from a high of $39.0
million at the end of fiscal 1992 to $0 by the end of the second
fiscal quarter of 1997. As a result, interest expense was reduced
from $4.0 million during fiscal 1993 to $110,000 in fiscal 1997.
Results for fiscal 1995 and 1996 include tax benefits
resulting from utilization of net operating loss carryforwards
for book and tax purposes during those years of $3.9 million and
$3.2 million, respectively. All such carryforwards were fully
utilized during fiscal 1996.
Over 80% of the Company's components and assemblies are
produced in facilities operated by the Company in Juarez, Mexico.
The Company is not subject to significant exchange risk because
currency required for those operations is transferred as needed
to pay related expenses and no significant balance of funds is
maintained in any foreign currency. Exchange gains and losses
related to such operations have been immaterial in the past. The
United States dollar has been determined to be the functional
currency for all foreign operations.
During fiscal 1998, international sales accounted for
approximately $18.9 million, or approximately 22% of net sales,
as compared to $17.4 million, or approximately 23% of net sales
for fiscal 1997, and $18.9 million, or approximately 28% of net
sales during fiscal 1996.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items in the
Company's statement of income:
</TABLE>
<TABLE>
Percentage of Net Sales
--------------------------------------
Fiscal Year Ended
--------------------------------------
Oct. 30, Oct. 31, Oct. 25,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 59.1 57.5 57.9
----- ----- -----
Gross Profit 40.9 42.5 42.1
Product development and
engineering expenses 7.1 6.9 7.3
Selling, general and
administrative
expenses 11.7 12.1 12.3
----- ----- -----
Operating income 22.1 23.5 22.5
Other (income) expense (0.7) - 1.7
------ ----- ------
Income before income
taxes and extraordinary
item 22.8 23.5 20.8
Income tax expense 7.9 7.0 1.7
Extraordinary item, net
of income taxes - 1.3 -
----- ----- -----
Net income 14.9% 15.2% 19.1%
===== ===== =====
</TABLE>
Fiscal Year Ended October 30, 1998 Compared to Fiscal Years Ended
October 31, 1997 and October 25, 1996
Net sales for fiscal 1998 were $87.2 million compared to
$75.6 million in fiscal 1997 and $67.4 million in fiscal 1996.
The increase from fiscal 1997 to fiscal 1998 of $11.6 million, or
15.4%, reflects an increase of automotive sales of $7.5 million,
or 38.7% year to year, and an increase of commercial (i.e.,
office equipment, industrial, medical and communications) net
sales of $5.1 million, or 10.0% year to year, partially offset by
a decline of $1 million in aerospace/defense net sales. The
increase from fiscal 1996 to fiscal 1997 of $8.2 million,
or 12.1%, was primarily the result of higher automotive net sales
of $6.2 million and higher commercial net sales of $2.0 million.
The significant increase in automotive net sales in both years
was primarily attributable to sales of sensor assemblies for use
in a new theft deterrent system for model year 1998 trucks and
sport utility vehicles, sales of which commenced in the third
quarter of fiscal 1997.
Gross profit in fiscal 1998 was $35.7 million, or 40.9% of
net sales, compared to $32.1 million, or 42.5% of net sales, in
fiscal 1997 and $28.4 million, or 42.1% of net sales, in fiscal
1996. The dollar amount of gross profit increased from fiscal
1997 to 1998 as a result of the significantly higher sales volume
discussed above. However, gross profit as a percentage of net
sales was negatively affected by the General Motors strike which
occurred in June and July 1998. Due to the strike, anticipated
sales for which the Company had expended additional overhead and
other costs failed to develop, adversely affecting overall gross
margin. The increase from fiscal 1996 to fiscal 1997 was
primarily attributable to the higher net sales volume in
automotive and commercial products in fiscal 1997.
<PAGE>
Product development and engineering expenses in fiscal 1998
were $6.2 million, or 7.1% of net sales, compared with $5.2
million, or 6.9% of net sales, in fiscal 1997 and $4.9 million,
or 7.3% of net sales, in fiscal 1996. These expenses were
primarily related to the development of new applications and
processes. These expenses increased significantly (18.5%) from
fiscal 1997 to fiscal 1998 as the Company added 15 engineers to
extend its engineering capacity to develop new products and
applications. However, such expenses increased only modestly
as a percentage of net sales due to the significant increase in
net sales from year to year. Although expenses were up slightly
in absolute dollars from 1996 to 1997, they declined as a
percentage of net sales due to the increase in net sales. The
Company anticipates expenditures to increase in absolute dollars
in fiscal 1999 primarily to support the development of new
products.
Selling, general and administrative expenses in fiscal 1998
were $10.2 million, or 11.7% of net sales, compared to $9.1
million, or 12.1% of net sales, in fiscal 1997 and $8.3 million,
or 12.3% of net sales, in fiscal 1996. The increase in absolute
dollars from fiscal 1997 to fiscal 1998 related primarily to
commissions on increased sales volume and upgrades of management
information systems software and maintenance and development of
electronic data interchange, but the percentage these expenses
represented of net sales declined as net sales grew at a faster
rate compared to expenses. The increase in absolute dollars from
fiscal 1996 to fiscal 1997 was primarily related to additional
commissions expensed on increased net sales volume.
As a result of the factors discussed above, operating income
for fiscal 1998 was $19.3 million, or 22.1% of net sales,
compared to $17.8 million, or 23.5% of net sales, in fiscal 1997
and $15.2 million, or 22.5% of net sales, in fiscal 1996.
Other (income) expense for fiscal 1998 was $606,000 of
income as compared to $6,000 of income for fiscal 1997 and $1.1
million of expense in fiscal 1996. Other (income) expense
consists primarily of interest income net of interest expense in
fiscal 1998 and 1997 and interest expense in fiscal 1996.
Interest expense decreased in fiscal 1997 and fiscal 1996 due to
the continued reduction and eventual retirement, in fiscal 1997,
of long-term debt.
Income tax expense was $6.9 million, or 7.9% of net sales,
in fiscal 1998 compared to $5.3 million, or 7.0% of net sales, in
fiscal 1997 and $1.1 million, or 1.7% of net sales, in fiscal
1996. The Company's effective tax rate increased in fiscal 1998
and fiscal 1997 as a result of the Company fully utilizing its
remaining net operating loss carryforwards during the fourth
quarter of fiscal 1996. Income for fiscal 1997 was taxed at the
effective rate of 29.6%, which was lower than the statutory rate
of 35% primarily due to research and experimentation tax credits.
In the fourth quarter of fiscal 1997, the Company agreed to
pay its former lender $1,545,000 to release all debt obligations,
including contingent additional interest, under the credit
facility and other restrictive covenants. The provision for
payment, net of related income tax benefits of $542,000, was
classified as an extraordinary item. See Note 5 to the
Consolidated Financial Statements.
As a result of the factors discussed above, net income for
fiscal 1998 was $13.0 million compared to $11.5 million in fiscal
1997 and $12.9 million in fiscal 1996.
Liquidity and Capital Resources
The Company generated approximately $10.4 million in cash
from operations during fiscal 1998. The largest use of cash flow
was the purchase of manufacturing equipment throughout the year
in the amount of $4.7 million and the purchase of a manufacturing
facility in Juarez, Mexico for $1.8 million. At fiscal year end,
the Company's working capital was $26.7 million, including $15.8
million of cash and cash equivalents.
The Company anticipates that additional manufacturing
capacity, primarily in Mexico, will be required to support growth
over the next several years. Therefore, the Company increased
capital expenditures in fiscal 1998 and plans to continue that
program through fiscal 1999 and 2000, with anticipated
expenditures to total approximately $10 to $15 million over the
three-year period. The timing and amount of such expenditures is
subject to adjustment based upon continued evaluation by
management.
<PAGE>
In January 1998, the Company obtained a three-year $10.0
million unsecured line of credit from NationsBank N.A. Borrowings
under this facility bear interest, at the option of the Company,
either at (i) a LIBOR-based rate plus a margin ranging from 1.00%
per annum to 1.50% per annum, depending upon the Company's
ratio of indebtedness to operating income, or (ii) a base rate
equal to a reference rate plus a margin ranging from -1.00% to
0%, depending upon the Company's ratio of indebtedness to
operating income. These facilities contain customary covenants
that, among other things: require the maintenance of certain
financial ratios relating to fixed charges and interest coverage
as well as debt and equity amounts; require the maintenance of
certain net worth levels; restrict liens on Company and
subsidiary assets; and limit the payment of cash dividends.
The Company anticipates that it will generate sufficient
cash flow from operations to meet its obligations, including
capital requirements, for the next 12 months. However, an
unanticipated expansion or contraction of its business or future
acquisitions may require the Company to draw upon its existing
credit line or obtain other financing.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any computer programs that have date-sensitive
software may recognize a date using 00 as the year 1900 rather
than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities. To become Year 2000 compliant, the Company has
implemented a comprehensive study of its information technology
systems. Because many of its systems were outdated and no
longer supported, ordinary replacement with Year 2000 compliant
systems has addressed most of the Company's needs in those areas.
However, the Company found it necessary to upgrade its marketing
order management software outside of the ordinary replacement
cycle to be Year 2000 compliant at a cost of approximately
$75,000. In addition, the Company is currently conducting a
review of all PCs, HVAC, test equipment and similar systems and
acting on them accordingly. To date, the Company has not
identified any of such systems which it believes would fail
and significantly disrupt the Company's operations. In any
event, the Company does not expect future costs to address its
internal Year 2000 matters to exceed $150,000.
Because the Company's products are not date sensitive, the
Company does not believe that they will be affected by the Year
2000 Issue.
Further, the Company has requested from all of its
suppliers, and has received from approximately 65% of its
suppliers, written questionnaires and assurances that they
are taking the necessary measures to avoid any significant
disruptions from Year 2000 noncompliance. The Company is
continuing its efforts to identify any exposures from failure of
any significant supplier to provide goods or services required by
the Company.
The Company anticipates being fully Year 2000 compliant in
all of its information systems by April 30, 1999 and its
production equipment by July 31, 1999. Although the Company is
committed to a successful and timely Year 2000 conversion and
funds are dedicated and available for this project, no assurance
can be given that it will be fully and timely implemented.
Failure of the Company's equipment or software to operate
properly with regard to the Year 2000 and thereafter could
require the Company to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on the
Company's business, operating results and financial condition.
Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 issues if their systems
malfunction or they expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures may
result in reduced funds to purchase products and services such as
those offered by the Company, which could have a material
adverse effect on the Company's business, operating results and
financial condition. The Company believes the least
controllable and therefore most probable exposure specifically
related to its business would be the failure of a supplier to
timely provide goods or services required by the Company. The
Company has obtained assurances of Year 2000 compliance from most
of its suppliers and intends to continue canvassing critical
suppliers concerning the compliance of their systems. In
addition, the Company has in many instances sought to identify
and qualify alternate suppliers, where feasible. However, if
notwithstanding these measures the Company does not receive
required goods or services as a result of the failure of one or
more suppliers, such failure could have a material adverse effect
upon the Company's business, operating results and financial
condition.
<PAGE>
New Accounting Standards
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130 (SFAS
No. 130), Reporting Comprehensive Income, and Statement of
Financial Accounting Standards No. 131 (SFAS No. 131),
Disclosures About Segments of an Enterprise and Related
Information. SFAS No. 130 and SFAS No. 131 are effective for
financial statements issued for periods beginning after December
15, 1997. The Company does not expect these standards to have a
significant impact on the consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosure About Market
Risk.
The Company invests its available cash and cash equivalents
in short term money market funds and therefore does not believe
that such instruments are subject to any significant interest
rate risk, foreign currency exchange risk, commodity price risk
or other significant market risks.
ITEM 8. Financial Statements and Supplemental Data.
Included on pages F-1 through F-13 hereof.
ITEM 9. Changes in and Disagreements on Accounting and Financial
Disclosure.
None
PAGE
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information relating to the Company's Directors and
executive officers is set forth under the heading "Election of
Directors and Information as to Directors, Nominees and Executive
Officers" in the Company's definitive proxy statement relating to
the Company's Annual Meeting of Stockholders to be held March 16,
1999, which will be filed with the Securities and Exchange
Commission on or about February 1, 1999, and such information is
incorporated herein by reference.
ITEM 11. Executive Compensation.
Information relating to executive compensation is set forth
under the heading "Executive Compensation" in the Company's
definitive proxy statement relating to the Company's Annual
Meeting of Stockholders to be held March 16, 1999, which will be
filed with the Securities and Exchange Commission on or about
February 1, 1999, and such information is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
Information relating to the ownership of certain beneficial
owners and management of the Company's Common Stock is set forth
under the heading "Securities Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy
statement relating to the Company's Annual Meeting of
Stockholders to be held March 16, 1999, which will be filed with
the Securities and Exchange Commission on or about February 1,
1999, and such information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information relating to the business relationships and
related transactions with respect to the Company and
certain Directors, executive officers, nominees for election as
Directors and beneficial owners of its securities is set forth in
the Company's definitive proxy statement relating to the
Company's Annual Meeting of Stockholders to be held March 16,
1999, which will be filed with the Securities and Exchange
Commission on or about February 1, 1999, and such information is
incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statements and Financial Statement
Schedules and Reports on Form 8-K.
(a) Financial Statements included in Part II (Item 8) of this
report:
Independent Auditors' Report;
Consolidated Balance Sheets as of October 30, 1998
and October 31, 1997;
Consolidated Statements of Income for the three
years ended October 30, 1998;
Consolidated Statements of Stockholders' Equity
for the three years ended October 30, 1998;
Consolidated Statements of Cash Flows for the three
years ended October 30, 1998;
Notes to Consolidated Financial Statements.
Consolidated Financial Statement Schedules included in
Part IV (Item 14) of this report for the
three fiscal years ended October 30, 1998:
<PAGE>
Independent Auditors' Report;
Schedule II - Valuation and Qualifying Accounts.
All other schedules are omitted, as the required
information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.
No. Exhibits
--- ---------
3.7 Bylaws of Optek Technology, Inc. (1).
3.8 Restated Certificate of Incorporation of
Optek Technology, Inc. dated August 27, 1987
(2).
10.1 Restated and Amended 1983 Incentive Stock
Option Plan(1).
10.2 Form of Incentive Stock Option Agreement (1).
10.47 Long-Term Stock Investment Plan (3).
10.48 Directors' Formula Award Plan (3).
10.61 Employment Agreement between Optek
Technology, Inc. and Thomas R. Filesi (4).
10.63 Employment Agreement between Optek Technology,
Inc. and William J. Collinsworth(4).
10.64 Employment Agreement between Optek Technology,
Inc. and Richard Dahlberg (4).
10.65 Employment Agreement between Optek Technology,
Inc. and Thomas Garrett (4).
10.66 Employment Agreement between Optek Technology,
Inc. and Robert Kosobucki (4).
10.67 Amended and Restated Optek Technology, Inc. 401(k)
Plan (4).
10.68 Directors' Formula Compensation Plan(5).
10.71 Loan Agreement dated January 29, 1998 between
NationsBank of Texas, N.A. and Optek Technology,
Inc. (6).
10.73 Agreement dated November 1, 1994 between Strattec
Security Corporation and Optek Technology,
Inc.(7).
10.74 Employment Agreement between Optek Technology,
Inc. and Jerry Curtis.
11.1 Statement Regarding Computation of Per Share
Earnings.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
(1) Previously filed as Exhibits 3.7, 10.1 and 10.2, to
registrant's Registration Statement on Form S-1, No.
33-14885, and incorporated herein by reference.
(2) Previously filed as Exhibit 3.8 to registrant's
Registration Statement on Form 8-A filed on October 15,
1987, and incorporated herein by reference.
(3) Previously filed as Exhibits 10.47 and 10.48 to
registrant's Annual Report on Form 10-K for the fiscal year
ended October 25, 1991 and incorporated herein by reference.
(4) Previously filed as Exhibits 10.61, 10.62, 10.63,
10.64, 10.65, 10.66, and 10.67 to registrant's Annual Report
on Form 10-K for the fiscal year ended October 25, 1996 and
incorporated herein by reference.
(5) Previously filed as Exhibit 10.68 to registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
May 2, 1997 and incorporated herein by reference.
(6) Previously filed as Exhibits 10.71 to registrant's
Annual Report on Form 10-K for the fiscal year ended October
31, 1997 and incorporated herein by reference.
(7) Partially redacted pursuant to a request for confidential
treatment granted on April 29, 998. Previously filed in
such form as Exhibit 10.73 to registrant's Amendment No. 4
to Annual Report on Form 10-K/A as filed on April 29, 1998
and incorporated herein by reference.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the
quarter ended October 30, 1998.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Optek Technology, Inc.:
We have audited the accompanying consolidated balance sheets
of Optek Technology, Inc. and subsidiaries as of October 30, 1998
and October 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years
in the three-year period ended October 30, 1998. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Optek Technology, Inc. and subsidiaries as
of October 30, 1998 and October 31, 1997, and the results of
their operations and their cash flows for each of the years in
the three-year period ended October 30, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Dallas, Texas
December 11, 1998
<PAGE>
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
October 30, October 31,
1998 1997
----------- ----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $15,836 $ 9,815
Accounts receivable, net of allowance
for doubtful accounts and customer
returns of $1,891 in 1998 and $1,653 in
1997 10,185 9,196
Inventories (notes) 7,916 6,491
Deferred income taxes (note 7) 2,610 2,113
Other current assets 313 109
------ -------
Total current assets 36,860 27,724
Property, plant and equipment, net
(note 3) 15,675 11,135
Other assets 137 77
------ -------
$52,672 $38,936
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,258 $ 3,109
Accrued expenses (note 4) 7,859 9,547
------ ------
Total current liabilities 10,117 12,656
Other liabilities 140 117
Stockholders' equity (note 6):
Preferred stock, $.01 par value.
Authorized 1,000,000 shares;
none issued - -
Common stock, $.01 par value.
Authorized 12,000,000 shares;
issued 7,738,740 shares in 1998
and 4,259,534 shares in 1997 77 43
Additional paid-in-capital 17,674 13,963
Treasury stock, at cost - 31,300 shares (497) -
Retained earnings 25,161 12,157
------ -------
Total stockholders' equity 42,415 26,163
------ -------
$52,672 $38,936
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
Year ended
-----------------------------------------
October 30, October 31, October 25,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $87,229 $75,572 $67,395
Costs and expenses:
Cost of sales 51,535 43,423 39,010
Product development
expenses 1,395 1,233 1,348
Engineering expenses 4,812 4,013 3,585
Selling expenses 5,725 5,289 5,087
General and
administrative
expenses 4,478 3,856 3,179
------ ------ ------
Total costs and
expenses 67,945 57,814 52,209
------ ------ ------
Operating income 19,284 17,758 15,186
Other (income) expense:
Interest (income)
expense, net (652) (65) 1,292
Other (income) expense 46 59 (145)
------ ------ ------
Total other, net (606) (6) 1,147
------ ------ ------
Income before income
taxes and extraordinary
item 19,890 17,764 14,039
Income tax expense
(note 7) 6,886 5,259 1,144
------- ------ ------
Income before
extraordinary item 13,004 12,505 12,895
Extraordinary item
(net of income tax
benefit of $542 -
note 5) - 1,003 -
------ ------ ------
Net income $13,004 $11,502 $12,895
====== ====== ======
Basic earnings per share:
Income before
extraordinary item $2.15 $2.98 $3.41
Extraordinary item - (0.24) -
------ ------ ------
Basic earnings per
share $2.15 $2.74 $3.41
====== ====== ======
Weighted average
shares outstanding 6,062,132 4,192,530 3,779,748
======== ========= =========
Diluted earnings per share:
Income before
extraordinary item $1.63 $1.63 $1.71
Extraordinary item - (0.13) -
------ ------ ------
Diluted earnings per
share $1.63 $1.50 $1.71
====== ====== ======
Weighted average
common and potentially
dilutive shares
outstanding 7,961,139 7,671,509 7,544,333
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
Retained Total
Addi- earnings stock-
tional (accum- hold-
Common Stock paid-in Treasury Stock ulated ers'
Shares Amount capital Shares Amount deficit) equity
------ ------ ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 27,
1995 3,444,624 $34 $13,016 - $ - $(12,240)$ 810
Net income - - - - - 12,895 12,895
Exercise of
stock options
and warrants 468,291 5 357 - - - 362
-------- --- ------ ----- ----- ------ ------
Balance at
October 25,
1996 3,912,915 39 13,373 - - 655 14,067
Net income - - - - - 11,502 11,502
Exercise of
stock options
and warrants 346,619 4 590 - - - 594
------- --- ----- ----- ---- ------- ------
4,259,534 43 13,963 - - 12,157 26,163
Net income - - - - - 13,004 13,004
Exercise of
stock options
and warrants 329,206 3 1,240 - - - 1,243
Exercise of
First Source
Financial LLP
warrant net of
$223 issuance
costs (Note
6) 3,150,000 31 1,321 - - - 1,352
Tax benefit
on disposition
of stock
options and
warrants - - 1,150 - - - 1,150
Purchase of
treasury
stock - - - (31,300) (497) - (497)
------ --- ----- ------ --- ------- -----
Balance at
October 30,
1998 7,738,740 $77 $17,674 (31,300) $(497) $25,161 $42,415
========= === ====== ====== ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> <PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Year ended
-----------------------------------------
October October October
30, 1998 31, 1997 25, 1996
---------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $13,004 $11,502 $12,895
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 1,955 2,038 2,944
Gain on sale of property,
plant and equipment (6) (204) -
Tax benefit on disposition
of stock options and
warrants 1,150 - -
Provision for deferred
taxes (497) (1,280) (833)
Changes in assets and
liabilities:
Accounts receivable (989) (1,908) (357)
Inventories and other
assets (1,689) (492) (643)
Accounts payable, accrued
expenses and other
liabilities (2,516) 4,691 (310)
------- ------- -------
Net cash provided by
operating activities 10,412 14,347 13,696
------- ------- -------
Cash flows from investing
activities:
Purchase of property,
plant and equipment (6,495) (2,034) (1,432)
Proceeds from sale of
property, plant and
equipment 6 215 2
------- ------ -------
Net cash used in
investing activities (6,489) (1,819) (1,430)
------- ------ ------
Cash flows from
financing activities:
Net repayment under
long-term bank debt - (3,428) (12,568)
Net proceeds from
exercise of stock options
and warrants 1,243 594 362
Net proceeds from exercise
of First Source Financial
LLP warrant 1,352 - -
Purchase of treasury stock (497) - -
------ ------- -------
Net cash provided by (used
in) financing activities 2,098 (2,834) (12,206)
------ ------ ------
Net increase in cash and
cash equivalents 6,021 9,694 60
Cash and cash equivalents
at beginning of year 9,815 121 61
------ ------ ------
Cash and cash equivalents
at end of year $15,836 $ 9,815 $ 121
====== ====== ======
Interest payments $ - $ 171 $ 1,346
====== ====== ======
Income tax payments $ 6,818 $ 4,258 $ 2,089
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
OPTEK TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended October 30, 1998, October 31, 1997 and
October 25, 1996
(dollars in thousands, except share and per share data)
(1) Summary of Significant Accounting Policies
(a) General Information
Optek Technology, Inc. and subsidiaries (the Company)
design, manufacture and market custom infrared optoelectronic
devices, magnetic field sensing devices and fiber optic
transmitters and receivers. A substantial portion of the
Company's products are manufactured by a wholly-owned subsidiary
located in Mexico. Net assets located at that subsidiary were
$12,695 at October 30, 1998 and $5,773 at October 31, 1997.
The Company uses a fiscal year ending on the last Friday in
October. Fiscal 1998 comprised 52 weeks, fiscal 1997 comprised
53 weeks, and fiscal 1996 comprised 52 weeks.
(b) Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Optek Technology, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Revenue Recognition
Revenues from product sales are recognized at the time of
shipment to the customer. Certain shipments to distributors
are subject to limited right-of-return provisions. The Company
provides for estimated returns when material.
(d) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of net sales and
expenses during the reporting period. Because of the use of
estimates inherent in the financial reporting process, actual
results could differ from those estimates.
(e) Inventories
Inventories are stated at the lower of cost or market
on a first-in, first-out basis. The Company continually assesses
the appropriateness of the inventory valuations giving
consideration to obsolete and excess inventory.
(f) Property, Plant and Equipment
Depreciation of property, plant and equipment is provided
using the straight-line method over the estimated useful life of
the asset. Useful lives range from 20 years for buildings to 3
to 5 years for equipment. Leasehold improvements are depreciated
over the shorter of the life of the asset or the term of the
lease.
<PAGE>
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of, on
October 26, 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this Statement did not have a
material impact on the Company's financial position, results of
operations, or liquidity.
(g) Earnings per Common Share
During fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings
per Share. SFAS No. 128 requires disclosure of basic and diluted
earnings per share. In accordance with SFAS No. 128, all prior
period earnings per share have been restated. Basic earnings per
share is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the reporting period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock. For the calculation of diluted earnings per
share, the basic weighted average number of common shares is
increased by potentially dilutive shares (stock options and
warrants) determined using the treasury stock method.
Weighted average shares used in calculating basic and
diluted earnings per share are as follows:
<TABLE>
Fiscal Year
----------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares
outstanding 6,062,132 4,192,530 3,779,748
Dilutive securities -
common stock options 524,863 586,406 738,864
Warrants held by First
Source Financial LLP 1,575,000 3,150,000 3,150,000
Other warrants 44,700 191,968 233,801
Assumed repurchase of
common shares (245,556) (449,395) (358,080)
--------- --------- --------
Weighted average common
and potentially dilutive
shares outstanding 7,961,139 7,671,509 7,544,333
========= ========= =========
Antidilutive stock options
and warrants excluded
from calculation 163,433 5,733 95,247
========= ========= =========
</TABLE>
(h) Cash and Cash Equivalents
The Company considers all cash and short-term investments
with original maturities of three months or less to be cash
equivalents.
(i) Stock Based Compensation Plans
The Company accounts for its stock option plans and warrants
in accordance with the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees, and related interpretations. Compensation expense is
recorded on the date of grant only if the market price of the
underlying stock exceeds the exercise price. On October 26,
1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). Under SFAS 123, the Company may elect to recognize
expense for stock-based compensation based on the fair value of
the awards, or continue to account for stock-based compensation
under APB 25 and disclose in the financial statements the effects
of SFAS 123 as if the recognition provisions were adopted. The
Company has elected to continue to account for stock-based
compensation under APB 25 and provide the disclosures required by
SFAS 123.
<PAGE>
(j) Financial Instruments
All financial instruments held by the Company have been
stated at values which approximate fair value as of October 30,
1998 and October 31, 1997 due to the instruments bearing interest
at market rates or due to their short duration.
(k) Foreign Currency Translation
The United States dollar has been determined to be the
functional currency for all foreign operations. Exchange gains
and losses related to such operations are immaterial for all
years presented.
(l) Income Taxes
The Company uses the asset and liability method of
accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(m) Reclassifications
Certain amounts in the fiscal 1997 and 1996 consolidated
financial statements have been reclassified to conform with the
current year's presentation.
(2) Inventories
A summary of inventories at October 30, 1998 and October 31,
1997 follows:
1998 1997
------ ------
Finished goods $2,416 $1,503
Work in process 4,018 4,003
Raw materials 3,618 3,140
Reserve for excess and
obsolete inventory (2,136) (2,155)
------ -------
$7,916 $6,491
====== ======
(3) Property, Plant and Equipment
A summary of property, plant and equipment at October 30,
1998 and October 31, 1997 follows:
1998 1997
------- -------
Land $ 3,907 $ 3,137
Buildings and improvements 10,398 8,873
Equipment 23,977 20,106
------ ------
38,282 32,116
Accumulated depreciation (22,607) (20,981)
------ ------
$15,675 $11,135
====== ======
<PAGE>
(4) Accrued Expenses
A summary of accrued expenses at October 30, 1998 and
October 31, 1997 follows:
1998 1997
------- -------
Payroll accruals $ 3,454 $ 3,166
Federal income tax 851 1,625
Debt extinguishment charge - 1,545
Other 3,554 3,211
------ ------
$ 7,859 $ 9,547
====== ======
(5) Long-term Debt
During the second quarter of fiscal 1997, the Company repaid
all amounts outstanding under a credit facility with First Source
Financial LLP (First Source). The credit facility continued to
provide a $10.5 million working capital line through the end of
fiscal 1997 at which time the Company chose to let the credit
facility expire.
In the fourth quarter of fiscal 1997, the Company agreed to
pay First Source $1,545 to release all obligations, including
contingent additional interest, under the credit facility and
other restrictive covenants. The provision for payment, net of
related income taxes of $542, has been classified as an
extraordinary item.
In January 1998, the Company obtained a three-year $10.0
million unsecured line of credit from NationsBank N.A..
Borrowings under this facility bear interest, at the option of
the Company, either at (i) a LIBOR-based rate plus a margin
ranging from 1.00% per annum to 1.50% per annum, depending upon
the Company's ratio of indebtedness to operating income, or (ii)
a base rate equal to a reference rate plus a margin ranging from
- -1.00% to 0%, depending upon the Company's ratio of indebtedness
to operating income. This facility contains customary covenants
that, among other things: require the maintenance of certain
financial ratios relating to fixed charges and interest coverage
as well as debt and equity amounts; require the maintenance of
certain net worth levels; restrict liens on Company and
subsidiary assets and limit the payment of cash dividends.
(6) Stockholders' Equity
During fiscal 1998, the Company adopted a stock option plan
(Stock Plan) which allows the granting of options to key
employees and non-employee advisors to the Company to purchase up
to 750,000 shares of the Company's authorized but unissued common
stock at an exercise price equal to the fair market value on the
date of grant. Options vest over a period of 3 years and are
exercisable for up to 10 years after the date of grant. The
stock plan allows the granting of rights to receive cash in the
event of certain changes of control not approved in advance by
the Company's Board of Directors. During fiscal 1998, options to
purchase 132,000 shares of the Company's common stock were
granted. The range of exercise prices was $22.44 to $27.06 and
the weighted average price of those options was $23.33.
During fiscal 1992, the Company adopted a long-term
stock investment plan (Investment Plan) which allows the granting
of options to key employees and non-employee advisors to the
Company to purchase up to 1,000,000 shares of the Company's
authorized but unissued common stock at an exercise price equal
to the fair market value on the date of grant. Options vest over
a period of 3 years and are exercisable for up to 10 years after
the date of grant. During fiscal 1995, the Company increased the
authorized common stock available for this plan to 1,500,000
shares. The Investment Plan allows the granting of rights to
receive cash in the event of a change of control in the Company
or to acquire shares of common stock equal in value to the
difference between the exercise price and the current market
price of stock issuable pursuant to exercisable options. No
rights to receive cash in lieu of common stock have been granted
as of October 30, 1998. A summary of option activity under the
Investment Plan follows:
<PAGE>
Weighted
Number Average
of Shares Exercise Price
------- -------
Balance at October 26, 1995 818,825 $ 1.72
Granted 156,000 11.88
Exercised (370,202) .41
Canceled (17,665) 3.68
-------
Balance at October 25, 1996 586,958 5.19
Granted 200,500 10.16
Exercised (272,247) 1.49
Canceled (6,917) 8.77
-------
Balance at October 31, 1997 508,294 9.08
Granted 169,600 27.06
Exercised (112,880) 8.62
Canceled (7,434) 11.06
------
Balance at October 30, 1998 557,580 $ 14.62
=======
At October 30, 1998, the range of exercise prices and
weighted average remaining contractual life of outstanding
options were $.19 to $27.06 and 8 years, respectively. At
October 30, 1998 and October 31, 1997, the number of options
exercisable was 277,375 and 171,711, respectively, and the
weighted average exercise price of those options was $8.68 and
$7.33, respectively.
During fiscal 1983, the Company adopted an incentive stock
option plan (Incentive Plan) which allowed the granting of
options, vesting over 3 years and exercisable for up to ten years
after the date of grant, to key employees to purchase the
Company's authorized but unissued common stock at an exercise
price equal to the fair market value on the date of grant. The
Incentive Plan expired during fiscal 1993. During fiscal 1996,
options to purchase 84,089 shares of common stock were exercised.
During fiscal 1997, options to purchase 21,166 shares of
common stock were exercised at a weighted average price of $1.31.
During fiscal 1998, options to purchase 2,500 shares of common
stock were exercised at a weighted average price of $1.46. Under
the Incentive Plan, options outstanding and exercisable totaled
40,200 at a weighted average exercise price of $2.19 and a range
of $1.19 to $2.31 per share at October 30, 1998.
During fiscal 1997, the Company adopted a directors' formula
compensation plan (Directors' Compensation Plan) which provides
for the reservation and issuance of up to 100,000 shares of the
Company's common stock. Under the plan, non-employee directors
may elect, in lieu of all or part of the annual retainer of $12,
to: a) receive the number of shares of Optek's common stock
equal to the amount of the retainer divided by the fair market
value per share on the date such amount would otherwise be paid;
b) receive ten year options to purchase shares of the Company's
common stock at an exercise price equal to 50% of the fair market
value for the number of shares equal to the retainer divided by
the difference between the market price and the exercise price,
or; c) defer payment of the retainer until such time as they
cease to be a director. No elections to receive the benefits
afforded have been made by any director under the Director's
Compensation Plan.
During fiscal 1992, the Company adopted a directors'
formula award plan (Directors' Award Plan) which provides for the
granting of options to directors of the Company to
purchase up to 200,000 shares of the Company's authorized
but unissued common stock at an exercise price equal to the fair
market value on the date of grant. Each individual elected or
reelected to serve as a director of the Company who is not a
full-time employee of the Company will automatically be awarded
options to purchase up to 3,500 shares of common stock. Options
granted under the Directors' Award Plan vest if such
individual continues to serve as a Director of the Company
until the next annual meeting of the Company's stockholders and
are exercisable for a period of ten years from the date of grant.
During each of the fiscal years 1996, 1997, and 1998, options to
purchase 14,000 shares of the Company's common stock were
granted. During fiscal 1996, options to purchase 14,000 shares
of common stock were exercised. During fiscal 1997, there were no
options to purchase shares of common stock exercised. During
fiscal 1998, options to purchase 35,000 shares of common stock
were exercised. At October 30, 1998 there are 52,500 director
options outstanding of which 38,500 are currently exercisable at
a weighted average exercise price of $5.40 and a range of $.44 to
$13.38 per share.
<PAGE>
The per share weighted average fair values of stock options
granted during fiscal 1998, 1997 and 1996 were $9.17, $3.77 and
$4.13, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
1998 1997 1996
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected volatility 44.3% 44.2% 41.5%
Risk-free interest rate 5.6% 6.0% 6.0%
Expected life 3 years 3 years 3 years
The Company applies APB No. 25 in accounting for its plans
and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had
the Company determined compensation cost based on the fair value
at the grant date for stock options granted in fiscal 1998, 1997
and 1996 under SFAS No. 123, the Company's net income would have
been reduced to the proforma amounts indicated below:
Net income: 1998 1997 1996
------ ------ ------
As reported $13,004 $11,502 $12,895
Proforma 12,134 11,259 12,810
Diluted earnings per share:
As reported $1.63 $1.50 $1.71
Proforma 1.52 1.47 1.70
Proforma net income reflects only options granted in fiscal
1998, 1997 and 1996. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not
reflected in the proforma net income and net earnings per share
amounts presented above in fiscal 1997 and 1996 because
compensation cost is reflected over the options' vesting period
of 3 years and compensation cost for options granted prior to
October 28, 1995 is not considered.
Prior to fiscal 1995, warrants were granted in the amount of
261,301 shares to certain non-employee directors and advisors.
During fiscal 1995, warrants to purchase 16,000 shares of common
stock were exercised at a weighted average exercise price of
$3.25. During fiscal 1996, 11,500 warrants expired with an
exercise price of $6.13 per share. During fiscal 1997, warrants
to purchase 53,333 shares of common stock were exercised at a
weighted average exercise price of $3.03. During fiscal 1998,
warrants to purchase 180,468 shares of common stock were
exercised at a weighted average exercise price of $0.39. As of
October 30, 1998, no such warrants were outstanding.
Prior to fiscal 1997, the Company granted First Source a
warrant, as amended on October 31, 1997, to purchase 3,150,000
shares of the Company's common stock at an exercise price of $.50
per share. During fiscal 1998, First Source exercised all
3,150,000 warrants to purchase common shares and subsequently
sold 2,500,000 shares in a public offering.
<PAGE>
(7) Income Taxes
Income taxes consist of the following:
1998 1997 1996
------ ------ ------
Current:
U.S. Federal $7,201 $6,379 $1,887
Foreign 182 160 90
Deferred (497) (1,280) (833)
------ ----- -----
Income tax expense
before extraordinary
item 6,886 5,259 1,144
Extraordinary item - (542) -
------ ------ -----
$6,886 $4,717 $1,144
===== ===== =====
Income tax expense attributable to income before
extraordinary item differs from the "expected" tax expense
computed by applying the U.S. corporate income tax rate of 35%
for fiscal 1998, 1997 and 1996 to income before income taxes and
extraordinary item as follows:
1998 1997 1996
------ ------ ------
Expected tax expense $ 6,961 $ 6,217 $ 4,914
Realization of benefits
of tax loss carryforwards - - (3,238)
Change in valuation
allowance - (358) (209)
Tax credit for research and
experimentation activities (75) (600) -
Other, net - - (323)
------ ------ ------
Income tax expense $ 6,886 $ 5,259 $ 1,144
====== ====== ======
The fiscal 1997 change in valuation allowance and tax credit
for research and experimentation activities occurred in the
fourth quarter.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at October 30,
1998 and October 31, 1997 are presented below:
Deferred tax assets: 1998 1997
------ ------
Accounts receivable allowances $ 662 $ 578
Inventory allowances 832 506
Accrued expenses and other 420 524
Property, plant and equipment
depreciation 696 505
------ ------
Deferred tax assets $2,610 $2,113
====== ======
The net changes in the valuation allowance for the years
ended October 31, 1997 and October 25, 1996 were decreases of
$358 and $3,447 (including realization of benefits of tax loss
carryforwards), respectively. Based on the Company's historical
and current earnings, management believes it is more likely than
not that the Company will realize the benefits of its deferred
tax assets existing at October 30, 1998.
(8) Operating Leases
The Company leases certain manufacturing facilities and
equipment under noncancellable operating leases. Future minimum
lease payments as of October 30, 1998 under all such operating
leases are as follows: 1999, $277; 2000, $263; 2001, $257; 2002,
$254; and 2003, $208. Rental expense in fiscal 1998 was $310;
1997, $469; and 1996, $399.
<PAGE>
(9) Credit Risk and Major Customer Information
Substantially all of the Company's sales are made on credit
on an unsecured basis. The Company evaluates credit risks on an
individual basis before extending credit to its customers and
believes the allowance for doubtful accounts adequately provides
for losses on uncollectible accounts.
During fiscal 1998, the Company's ten largest customers
accounted for approximately 66% of net sales versus 63% in fiscal
1997 and 62% in fiscal 1996. Such customers are involved
primarily in the automotive and office equipment industries.
During fiscal 1998, net sales to one customer in the automotive
industry were 18% of total net sales, versus 13% in fiscal 1997
and 11% in fiscal 1996, and net sales to another automotive
customer were 11% of total net sales versus 13% in fiscal 1997
and 8% in fiscal 1996. Sales to one customer in the office
equipment industry were 9% of total net sales versus 10% in
fiscal 1997 and 11% in fiscal 1996.
Aggregate export sales to unaffiliated customers were
$18,905 in fiscal 1998, $17,361 in 1997, and $18,865 in 1996.
Export sales were primarily to customers in Western Europe.
(10) Employee Benefit Plan
All U.S. paid employees of the Company are entitled to
participate in the Optek Technology, Inc. Profit-Sharing Plan and
Trust (Profit-Sharing Plan). Pursuant to the Profit-Sharing
Plan, employees may request the Company to deduct and contribute
up to 20% of their salary up to the appropriate statutory dollar
limits. The Company has the option to contribute up to 2% of the
employee's salary. Employer contributions vest ratably over a
period of five years. Vesting occurs each year in which employees
accumulate at least 1,000 hours of service. An employee's vested
account balance is distributable either upon termination of
employment or after attaining a certain age. During fiscal 1998,
the Company provided for contributions to the Profit-Sharing Plan
totaling $165 to be paid during the first quarter of fiscal 1999.
For fiscal 1997 and fiscal 1996 the Company contributed $200 and
$143, respectively.
(11) Contingencies
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material effect on the Company's financial position or
results of operations.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Optek Technology, Inc.
Under date of December 11, 1998, we reported on the consolidated
balance sheets of Optek Technology, Inc. and subsidiaries as of
October 30, 1998 and October 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended
October 30, 1998, which are included in this annual report on
Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related
consolidated financial statement schedule as listed in Item 14.
This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, 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.
KPMG LLP
Dallas, Texas
December 11, 1998
PAGE
<PAGE>
Schedule II
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
Bal-
Balance Deduc- ance
at Additions tions at
beginning charged to and end
of costs and write of
Description year expenses -offs year
- ------------------- ----- -------- ------ ----
<S> <C> <C> <C> <C>
Year ended October 30,
1998
Allowance for doubtful
accounts and customer
returns 1,653 959 (721) 1,891
Reserve for excess and
obsolete inventory 2,155 33 (52) 2,136
Year ended October 31,
1997
Allowance for doubtful
accounts and customer
returns 1,095 1,331 (773) 1,653
Reserve for excess and
obsolete inventory 1,806 421 (72) 2,155
Year ended October 25,
1996
Allowance for doubtful
accounts and customer
returns 975 641 (521) 1,095
Reserve for excess and
obsolete inventory 2,453 (151) (496) 1,806
</TABLE>
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
OPTEK TECHNOLOGY, INC.
By /s/ Thomas R. Filesi
-------------------------
Thomas R. Filesi, President
and Chief Executive
Officer
Dated: January 27, 1998
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.
Signature Title Date
/s/ Thomas R. Filesi Chairman of the Board, Chief Executive
- -------------------- Officer and Director (Principal
Thomas R. Filesi Executive Officer)
/s/ Jerry L. Curtis President, Chief Operating Officer and
- ------------------- Director
Jerry L. Curtis
/s/ William J.
Collinsworth Vice President - Finance, and Chief
- -------------------- Financial Officer, Treasurer and
William J. Collinsworth and Assistant Secretary (Principal
Financial and Accounting Officer)
/s/ Grant A. Dove Director
- --------------------
Grant A. Dove
/s/ Rodes Ennis Director
- --------------------
Rodes Ennis January 27,
1998
/s/ Michael E. Cahr Director
- --------------------
Michael E. Cahr
/s/ William H. Daughtrey Director
- ---------------------
William H. Daughtrey
/s/ Wayne Stevenson Director
- --------------------
Wayne Stevenson
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") effective the
18th day of May, 1998, by and between OPTEK TECHNOLOGY, INC., a
Delaware corporation, with principal executive offices at 1215
West Crosby Road, Carrollton, Texas 75006 (hereinafter referred
to as the "Company") and JERRY CURTIS, an individual residing at
2708 Blue Wood Trail, Flower Mound, Texas 75022 (hereinafter
referred to as "Executive");
W I T N E S S E T H:
WHEREAS, Executive wishes to continue to be employed by the
Company, and Executive and the Company desire to enter into an
agreement relating to such employment;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein set forth, it is agreed as follows:
1. Employment. The Company employs Executive, and
Executive accepts employment by the Company, subject to the terms
and conditions set forth herein.
2. Term. Subject to the provisions hereof, the term of
Executive's employment by the Company under this Agreement shall
be for a period of three (3) years commencing on the date hereof;
provided, however, that at the end of each year of employment,
the term of employment shall be extended for an additional
one-year period unless, on or prior to the date six (6) months
prior to the end of such year of employment, the Company shall
give written notice to Executive or Executive shall give written
notice to the Company of an intention to terminate this
Agreement, in which event the term of employment shall comprise
only the remaining two years and six months of the then existing
term of employment. The term of Executive's employment
hereunder, including any continuation or extension of the
original term, is hereinafter referred to as the "Employment
Period."
3. Position and Duties. During the Employment Period,
Executive shall serve as President and Chief Operating Officer of
the Company, with such assignments, powers and duties as are
assigned or delegated to him by the Board of Directors of the
Company. Such assignments, powers and duties may, from time to
time, be modified by the Company, as needs may require.
Executive shall also, at the request of the Company, perform
similar services for any Affiliate (as hereinafter defined) of
the Company without additional compensation. Executive agrees to
devote his full time, skill, attention and energy to the business
affairs of the Company and its Affiliates to advance the best
interests of the Company and its Affiliates and shall not hold
any other salaried position during the Employment Period.
<PAGE>
Nothing contained herein shall be construed to prevent
Executive from investing his assets in any form or manner or from
serving on the Boards of other corporations or charitable
organizations or holding uncompensated positions with
professional, academic or industry organizations, provided such
investments and activities do not unreasonably interfere with
Executive's performance of services on behalf of Company
hereunder. As used in this Agreement, the term "Affiliate" of the
Company means any person or corporation that, directly or
indirectly through one or more intermediaries, is controlled by
the Company.
4. Compensation.
(a) For all services rendered by Executive to the Company
during the Employment Period, the Company shall pay Executive a
salary at the rate of Two Hundred Ten Thousand Dollars
($210,000.00) per year, payable, subject to such withholding as
may be required by law, in installments in accordance with the
Company's customary payroll practices.
(b) In addition, Executive shall be entitled to receive
such bonuses, based generally upon the performance of the Company
as compared to its annual budget, as shall be determined by duly
adopted resolution of the Board of Directors of the Company or
its duly authorized Committees (the "Board"), which resolution
may be adopted either before or after actual performance against
the budget has been determined.
(c) Executive shall be entitled to such salary increases,
further compensation and reasonable expenses incurred in
connection with business of the Company, if any, as shall be
authorized by the Board.
5. Office Facilities. During the Employment Period, the
Company will furnish Executive, without charge, suitable office
facilities for the purpose of performing his duties hereunder,
which facilities shall include secretarial, telephone, clerical
and support personnel and services and shall be similar to those
furnished to employees of the Company having comparable
positions.
6. Fringe Benefits; Vacations.
(a) During the Employment Period, Executive shall be
entitled to participate in or receive benefits under such
pension, medical and life insurance and other employee benefit
plans of the Company which may be in effect from time to time, to
the extent he is eligible under the terms of those plans, on the
same basis as other employees of the Company having comparable
positions.
(b) Executive shall be entitled to twenty days of vacation
with pay during each year of employment, which vacation time
shall accrue pro rata during each year of employment according to
the portion of such year of employment during which Executive has
served.
<PAGE>
7. Expenses. Subject to such policies regarding expenses
and expense reimbursement as may be adopted from time to time by
the Company and compliance therewith by Executive, Executive is
authorized to incur reasonable and necessary expenses in the
performance of his duties hereunder, and the Company will
reimburse Executive for such reasonable out-of-pocket expenses
upon the presentation by Executive of a reasonably itemized
account and receipts satisfactory to the Company.
8. Termination by Company.
(a) If Executive dies during the Employment Period, Company
shall pay to:
(i) the surviving spouse of Executive in the event of
his death, for so long as she survives; or,
(ii) the estate of Executive if Executive's spouse does
not survive him, or dies before expiration of the Employment
Period,
all amounts payable to Executive hereunder through the date of
death and the amounts which would otherwise be payable to
Executive pursuant to Section 4(a) hereof during the thirty (30)
day period immediately following the date of death, less any
amounts payable to Executive (or such spouse or estate) pursuant
to any insurance programs provided for Executive's benefit with
premiums paid by Company. All other rights of Executive under
this Agreement shall terminate concurrently with his death.
(b) The Company may terminate the employment of Executive
at any time upon written notice to Executive if Executive has (i)
breached an express term or provision of this Agreement and has
failed to remedy such breach within thirty (30) days of receipt
by Executive of notice of such breach; (ii) habitually neglected
the duties that Executive is required to perform under the terms
of this Agreement at any time within ninety (90) days after
having received a written notice from the Company that Executive
has so neglected such duties; or (iii) willfully violated
reasonable and substantial rules governing employee performance
at any time within ninety (90) days after having received a
written notice from the Company that Executive has so violated
such rules. In the event of termination of Executive's
employment pursuant to this Section 8(b), Executive shall
continue to receive salary at the rate specified in Section 4(a)
and, to the extent permitted by the applicable plans, to
participate in the benefits described in Section 6 on a
month-to-month basis thereafter until (i) Executive
shall have obtained subsequent employment or (ii) the expiration
of an additional period of three months from the date of such
termination, whichever time period is shorter.
<PAGE>
(c) If Executive commits any act of criminal misconduct,
whether or not related to Executive's duties hereunder, or any
clearly dishonest, disloyal or criminal act toward the Company or
its Affiliates, the Employment Period and Executive's salary and
other rights under this Agreement or as an employee of the
Company shall terminate without severance pay or other obligation
on the part of Company upon written notice from the Company to
Executive, but such termination shall not affect the liability of
Executive by reason of his misconduct or dishonest, disloyal or
criminal conduct.
(d) Notwithstanding anything to the contrary contained
herein, the Employment Period and the Executive's salary and
other rights under this Agreement or as an employee of the
Company shall not be deemed to have been terminated pursuant to
either Section 8(b) or (c) unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than two-thirds of the
Pre-change Directors (as defined below) of the Board at a meeting
of the Board called and held for the purpose (after reasonable
notice to the Executive and an opportunity for the Executive,
together with his counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the Executive was
guilty of conduct set forth above in Section 8(b) or (c).
(e) Nothing herein shall be construed to reduce or abrogate
any rights Executive may have pursuant to the Consolidated
Omnibus Budget Reduction Act of 1985.
9. Termination by Executive.
(a) The Employment Period may be terminated by Executive,
if the Company fails to perform its duties hereunder or fails to
comply with any of the provisions hereof, thirty (30) days after
giving written notice to Company stating the nature of such non-
performance or non-compliance, unless Company shall have remedied
such non-performance or non-compliance with such thirty (30) days
notice period.
(b) The Executive shall be entitled to terminate his
employment hereunder at any time that (A) a change in control of
the Company (as defined below) has occurred and (B) there has
occurred, without the express written consent of the Executive:
(i) a substantial alteration in the nature or status
of the title, position, duties or responsibilities of
Executive from those in effect immediately prior to the
change in control of the Company;
<PAGE>
(ii) a reduction by the Company in the Executive's
salary as in effect on the date hereof or as the same may be
increased from time to time;
(iii) the relocation of the Company's principal
executive offices to a location outside the Dallas
Metropolitan Area or the Company's requiring the Executive
to be based anywhere other than the Company's principal
executive offices except for required travel on the
Company's business to an extent substantially consistent
with the Executive's business travel obligations prior to
the change in control of the Company;
(iv) the failure by the Company to continue in effect
any compensation plan in which the Executive was
participating immediately prior to the change in control, or
the failure by the Company to continue the Executive's
participation therein;
(v) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's employee
stock ownership, life insurance, medical, health-and-
accident, or disability plans, as well as vacation, travel
and club privileges in which the Executive was participating
at the time of a change in control of the Company or the
taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefits enjoyed by the
Executive immediately before the time of the change in
control of the Company; or
(vi) any purported termination of the Executive's
employment which is not effected in accordance with the
requirements of Section 8 and, for purposes of this
Agreement, no such purported termination shall be effective.
(c) Upon termination of the Employment Period pursuant to
Section 9(a) or 9(b), the Company shall pay to Executive in one
lump sum on the fifth (5th) day following such termination, cash
in an amount equal to the lesser of (i) the total compensation
provided for under this Agreement for the balance of the then
effective Employment Period and (ii) the amount that is one
dollar ($1.00) less than the amount which would be deemed a
"parachute payment" to Executive under the Internal Revenue Code
of 1986, as amended, to be paid in consideration of Executive's
election to terminate his employment with the Company and to
release in full all rights as an employee of the Company.
(d) Upon the occurrence of any change in control of the
Company, all options awarded to Executive under the Company's
Long-Term Stock Investment Plan which are not then vested shall
become fully vested.
<PAGE>
(e) For purposes of this Agreement, a "change in control of
the Company" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or
not the Company is then subject to such reporting requirement, or
any other actual change in the control of the Company (whether by
merger, consolidation, acquisition of assets or stock or
otherwise); provided that, without limitation, such a change in
control shall be deemed to have occurred if (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange
Act) other than a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of the Company's common stock as of the
date of this Agreement, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than
forty-five percent (45%) of the combined voting power of the
Company's then outstanding securities entitled to vote in the
election of directors, (ii) a change occurs in ownership of more
than forty-five percent (45%) in book value of the Company's
assets, or (iii) during any period of two (2) consecutive years,
individuals who at the beginning of such two year period
constituted the Board of Directors of the Company, including for
this purpose any new director whose election or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office
who were directors at the beginning of the period (collectively,
"Pre-Change Directors"), cease for any reason to constitute a
majority of the Company's Board of Directors.
10. Intellectual Property Rights.
(a) Executive hereby assigns, transfers, and conveys his
entire right, title, and interest in any and all Intellectual
Property which he makes or conceives, whether as a sole inventor
or originator or as a joint inventor or originator with others,
whether made within or out of usual working hours or upon the
premises or elsewhere, during the Employment Period. Executive
understands that "Intellectual Property" as used herein includes
information of a technical or a business nature such as ideas,
discoveries, designs, inventions, improvements, trade secrets,
know-how, manufacturing processes, product formulae, design
specifications, writings and other works of authorship, computer
programs, financial figures, marketing plans, customer lists and
data, business plans or methods and the like, which relate in any
manner to the actual or anticipated business or the actual or
anticipated areas of research and development of the Company, or
its divisions, subsidiaries, Affiliates, or related entities.
<PAGE>
(b) Either during or subsequent to Executive's employment,
upon the request and at the expense of the Company, and for no
remuneration in addition to that due Executive pursuant to this
Agreement, but at no expense to him, Executive agrees to execute,
acknowledge, and deliver to the Company, its nominee, or its
attorneys any and all instruments which in the judgment of the
Company, its nominee, or its attorneys may be necessary or
desirable to secure or maintain for the benefit of the Company or
its nominee adequate patent, copyright, and other property rights
in the United States and foreign countries with respect to any
Intellectual Property embraced within this Agreement, including
but not limited to: (1) domestic and foreign patents and
copyright applications, (2) any other applications for securing,
protecting, or registering any property rights embraced within
this Agreement, and (3) powers of attorney, assignments, oaths,
affirmations, supplemental oaths and sworn statements; and
further agrees to assist the Company, its nominee, or its
attorneys as required to draft said instruments, to obtain said
rights, and to enforce said rights.
(c) Executive further agrees to disclose to the Company
promptly in writing any and all ideas, designs, inventions,
improvements, and developments, when conceived or made in whole
or in part, by him and to maintain adequate and current records
thereof.
(d) Any ideas, designs, inventions, improvements, dis-
coveries, and developments disclosed by Executive within one year
following termination of his employment shall be deemed to have
been assigned, transferred, and conveyed under the terms of
paragraphs (a) and (b), unless proved to have been conceived
after termination.
11. Covenant Not to Disclose. Executive covenants and
agrees that he will not, at any time during or after the
termination of his employment by the Company, communicate or
disclose to any person, or use for his own account, or advise,
discuss with, or in any way assist any other person or firm in
obtaining or learning about, without the prior written consent of
the Company, information concerning any inventions, processes,
programs, systems, flow charts or equipment used in, or any
secret or confidential or proprietary information, trade secrets
or know-how (including, without limitation, any customer lists,
trade secrets or information concerning any work done by the
Company for its customers or done in an effort to solicit or
obtain customers) concerning, the products, services, business or
affairs of the Company or any of its Affiliates which is not
generally available to the public and which has become known to
Executive at any time he has been employed by the Company.
Executive further covenants and agrees that he shall retain all
such knowledge and information concerning the foregoing in trust
for the sole benefit of the Company and its Affiliates and their
respective successors and assigns. Upon termination of his
employment with Company, all documents, records, notebooks, and
similar repositories of or containing secret or confidential or
proprietary information, including copies thereof, then in
Executive's possession, whether prepared by him or others,
will be left with Company.
<PAGE>
12. Protection of Company Goodwill and Proprietary
Information
(a) The following provisions of this Agreement contain
substantial restrictions on Executive's post-employment
activities. As evidenced by his initials affixed to this and
subsequent pages, Executive acknowledges that he has read and
understands such provisions.
(b) Executive recognizes and acknowledges that the lists of
the Company's customers, as well as information pertaining to
customer personnel, product preferences and buying habits as such
lists or information may exist, whether same are ever actually
committed to writing or otherwise compiled in one or more docu-
ments, or are merely memorized by Executive, are also valuable,
special and unique assets of the Company's business. Executive
will not, during or after the term of this Agreement, disclose,
directly or indirectly any of said customer lists or information
of or pertaining to customers or any part thereof, to any person,
firm, corporation, association or other entity for any reason or
purpose whatsoever.
(c) Further, Executive agrees:
(i) that Executive shall not, during the one (1) year
period immediately following the date upon which his employ-
ment by Company is terminated, directly or indirectly, for
himself or for any other person, firm, corporation, associa-
tion or other entity, as an owner, independent contractor,
principal, agent, officer, director, partner, stockholder,
employee, consultant or otherwise, within any state of the
United States of America or any foreign country in which the
Company has sold goods or services within one (1) year prior
to such termination, sell, solicit or accept orders, or
assist or aid in the selling or solicitation or acceptance
of orders for products similar to or which can be used in
substitution for or replacement of the Company's to any
party with whom Executive had contact while in the employ of
Company and (A) who is or has been a customer or client of
the Company at the date of such termination or within a
period of one (1) year prior thereto, or (B) who has been
identified as a potential customer or client of the Company
as of the date of such termination;
<PAGE>
(ii) that Executive shall not during the one (1) year
period immediately following the date upon which his employ-
ment or engagement by Company is terminated, directly or
indirectly, for himself or for any other person, firm,
corporation, association or other entity as owner,
independent contractor, principal, agent, officer, director,
partner, stockholder, employee, consultant or otherwise,
within any state of the United States of America or any
foreign country in which the Company has purchased or
obtained goods or services within one (1) year prior to such
termination, employ or attempt to employ, or engage or
attempt to engage, or solicit or encourage to leave the
employment of Company or otherwise cease, curtail or modify
his relationship with Company, any employee, salesman,
independent contractor or agent employed or engaged by
Company as of the date of Executive's termination, unless
such person's employment or engagement with Company shall
have been terminated by Company prior thereto or Company
shall have consented to such employment, engagement,
solicitation or encouragement in writing.
(d) While the restrictions set forth in this Section 12 are
considered by the parties to be reasonable in all circumstances,
it is agreed that if any of such restrictions shall be adjudged
to be void or ineffective for whatever reason, but would be
adjudged to be valid and effective if part of the wording thereof
were deleted or the periods thereof reduced, the said
restrictions shall apply with such modifications as may be
necessary to make the same valid and effective.
13. Essential Nature of Covenants. The existence of any
claim or cause of action of Executive against the Company or any
of its Affiliates, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by
the Company of the covenants contained in Sections 10, 11 and 12
hereof. Executive understands that the covenants contained in
Sections 10, 11 and 12 are essential elements of the transactions
contemplated by this Agreement and, but for the agreement of
Executive to Sections 10, 11 and 12, the Company would not have
agreed to enter into such transactions. Executive has had the
opportunity to consult with counsel and to be advised in all
respects concerning the reasonableness and propriety of Sections
10, 11 and 12 with specific regard to the nature of the business
conducted by the Company, and Executive acknowledges that
Sections 10, 11 and 12 are reasonable in all respects.
14. Remedies. Notwithstanding Section 15 of this
Agreement, in the event of a breach or threatened breach by
Executive of Sections 10, 11 or 12, the Company shall be entitled
to obtain from any court having jurisdiction of the parties a
temporary restraining order and an injunction restraining
Executive from the commission of such breach. Nothing contained
in this Section 14 shall be construed as prohibiting the Company
from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery money damages.
<PAGE>
15. Arbitration. Except as provided in Section 14 of this
Agreement, the Company and Executive agree to submit to binding
arbitration any controversy or claim arising out of or relating
to this Agreement or the breach thereof or any other matter
relating in any manner to the relationship between the Company
and Executive or the termination of such relationship or
otherwise arising from or relating to any practices or procedures
of the Company or conduct of the Company or its agents toward
Executive, including but not limited to tortious claims and
statutory claims. Such arbitration shall be conducted in the
City of Dallas, Texas, in accordance with the Model Employment
Arbitration Procedures then in effect or, if such have been
repealed, the rules then obtaining of the American Arbitration
Association, and judgment upon the award rendered may be entered
in any court having jurisdiction thereof.
16. Certain Arbitration Procedures.
(a) The parties shall cooperate to the fullest extent
practicable in the voluntary exchange of documents and
information to expedite any such arbitration. Any request for
documents or other information should be specific, relate to the
matter in controversy, and afford the party to whom the request
is made a reasonable period of time to respond without
interfering with the time set for the hearing.
(b) Document Production and Information Exchange.
(i) Any party may serve a written request for infor-
mation or documents ("information request") upon another
party twenty (20) business days or more after the
non-complaining party has received notice of the institution
of arbitration proceedings. The requesting party shall
serve the information request on all parties and file a copy
with the arbitrator(s). The parties shall endeavor to
resolve disputes regarding an information request prior to
serving any objection to the request. Such efforts shall be
set forth in the objection.
(ii) Unless a greater time is allowed by the requesting
party, information requests shall be satisfied or objected
to within thirty (30) calendar days from the date of
service. Any objection to an information request shall be
served by the objecting party on all parties and filed with
the arbitrator(s).
(iii) Any response to objections to an information re-
quest shall be served on all parties and filed with the
arbitrator(s) within ten (10) calendar days of receipt of
the objection.
(iv) Upon the written request of a party whose infor-
mation request is unsatisfied, the matter will be referred
by the arbitrator(s) to either a pre-hearing conference
under subsection (d) of this section or to a selected
arbitrator under subsection (f) of this section.
<PAGE>
(c) At least ten (10) calendar days prior to the first
scheduled hearing date, all parties shall serve on each other
copies of documents in their possession they intend to present at
the hearing and shall identify witnesses they intend to present
at the hearing. The arbitrators may exclude from the arbitration
any documents not exchanged or witnesses not identified. This
paragraph does not require service of copies of documents or
identification of witnesses which parties may use for cross-
examination or rebuttal.
(d)(i) Upon the written request of a party or an
arbitrator, a pre-hearing conference shall be scheduled. The
arbitrator(s) shall set the time and place of a pre-hearing
conference and appoint a person to preside. The pre-hearing
conference may be held by telephone conference call. The
presiding person shall seek to achieve agreement among the
parties on any issue which relates to the pre-hearing process or
to the hearing, including but not limited to exchange of
information, exchange or production of documents, identification
of witnesses, identification and exchange of hearing documents,
stipulation of facts, identification and briefing of contested
issues, and any other matters which will expedite the arbitration
proceedings.
(ii) Any issues raised at the pre-hearing conference that
are not resolved may be referred to a single member of the
arbitration panel for decision.
(e) The arbitrator(s) shall apply such rules of procedure
in addition to the preceding rules as the arbitrator(s) think
appropriate under the circumstances, provided that both parties
shall be entitled to representation by counsel, to appear and
present written and oral evidence and argument, and to cross-
examine witnesses presented by the other party, and the
arbitrator(s) shall provide written reasons for the determination
rendered.
(f) The arbitrators (if more than one) may appoint a single
member of the arbitration panel to decide all unresolved issues
under this Section 16. Such arbitrator shall be authorized to
act on behalf of the panel to issue subpoenas, direct appearances
of witnesses and production of documents, set deadlines for
compliance, and issue any other ruling which will expedite the
arbitration proceedings. Decisions under this section shall be
made upon the papers submitted by the parties, unless the
arbitrator calls a hearing. The arbitrator may elect to refer
any issue under this section to the full panel.
<PAGE>
17. Waiver of Breach. The waiver by the either party of a
breach of any provision of this Agreement by the other party
shall not operate nor be construed as a waiver of any subsequent
breach by the other party.
18. Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their
respective successors, assigns, heirs and legal representatives.
19. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect the construction
or interpretation of this Agreement.
20. Severability. Whenever possible each provision of this
Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
21. Governing Law. This Agreement shall be construed (both
as to validity and performance) and enforced in accordance with
and governed by the laws of the State of Texas.
22. Notice. All notices which are required or may be given
under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person or three (3) days
after being mailed by registered or certified first class mail,
postage prepaid, return receipt requested, at the address listed
above for such party, or to such other address as such party
shall have specified by notice to the other party hereto as
provided in this Section.
23. Entire Agreement. Except as specifically set forth
below, this Agreement constitutes the entire agreement between
the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
24. Amendment. This Agreement may not be changed orally,
but only in writing signed by the party against whom enforcement
of any waiver, change, modification, extension, or discharge is
sought.
25. Limitations. No suit, action, arbitration or other
proceeding based upon or arising out of this Agreement shall be
maintainable in any court of law or equity or before any arbitra-
tor(s) or other adjudicator(s) unless the same be commenced
within two (2) years after the calendar date upon which the claim
giving rise to such suit, action, arbitration or other proceeding
arose.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first above written.
OPTEK TECHNOLOGY, INC.
By: /s/ Thomas R. Filesi
---------------------------
Print Name: /s/ Thomas R. Filesi
------------------
Title: Chairman, CEO
------------------------
/s/ Jerry Curtis
-----------------------------
JERRY CURTIS
COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1
For the Fiscal Years Ended
October 30, October 31, October 25,
1998 1997 1996
---------- ---------- ----------
Adjusted shares
outstanding
- ---------------
Weighted average
common shares
outstanding 6,062,132 4,192,530 3,779,748
Dilutive shares -
common stock
options 524,863 586,406 738,864
Warrant held by
First Source
Financial LLP 1,575,000 3,150,000 3,150,000
Other warrants 44,700 191,968 233,801
Assumed repurchase
of common shares (245,556) (449,395) (358,080)
--------- --------- ---------
Weighted average
common and
potentially dilutive
shares outstanding 7,961,139 7,671,509 7,544,333
========= ========= =========
Net income
- ----------
Income before extra-
ordinary item $ 13,004 $ 12,505 $ 12,895
Extraordinary item,
net of income taxes - (1,003) -
-------- -------- --------
Net income $ 13,004 $ 11,502 $ 12,895
======== ======== ========
Basic earnings per
share
- ------------------
Income before extra-
ordinary item $ 2.15 $ 2.98 $ 3.41
Extraordinary item,
net of income taxes - (0.24) -
-------- -------- --------
Net income $ 2.15 $ 2.74 $ 3.41
======== ======== ========
Diluted earnings
per share
- ----------------
Income before extra-
ordinary item $ 1.63 $ 1.63 $ 1.71
Extraordinary item,
net of income taxes - (0.13) -
-------- -------- --------
Net income $ 1.63 $ 1.50 $ 1.71
======== ======== ========
Notes:
- ------
SFAS No. 128 requires the disclosure of basic and diluted
earnings per share. Basic earnings per share is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding during the reporting
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted to common stock.
For the computation of diluted earnings per share, the basic
weighted average number of common shares is increased by
potentially dilutive shares (stock options and warrants)
determined using the treasury stock method. Under the treasury
stock method, any proceeds from the exercise of potentially
dilutive shares are assumed to be used to repurchase common
shares outstanding.
EXHIBIT 21
Subsidiaries of the Registrant
Optek Technology, Inc. (Texas)
OTX Corporation (Texas)
Semiconductores Opticos, S.A. de C.V. (Mexico)
Optron de Mexico, S.A. de C.V. (Mexico)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Optek Technology, Inc.
We consent to incorporation by reference in the registration
statements (No. 333-419, 33-60656, 33-18555, 333-64323, 333-64327)
on Form S-8 of Optek Technology, Inc. of our reports dated December
11, 1998, relating to the consolidated balance sheets of Optek
Technology, Inc. as of October 30, 1998 and October 31, 1997, and
the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year
period ended October 30, 1998, and the related schedule which
reports appear in the October 30, 1998 annual report on Form 10-K
of Optek Technology, Inc.
KPMG LLP
Dallas, Texas
January 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-K for the fiscal year ended October 30, 1998 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-END> OCT-30-1998
<CASH> 15836
<SECURITIES> 0
<RECEIVABLES> 12072
<ALLOWANCES> 1891
<INVENTORY> 7916
<CURRENT-ASSETS> 36860
<PP&E> 38282
<DEPRECIATION> 22607
<TOTAL-ASSETS> 52672
<CURRENT-LIABILITIES> 10117
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 42338
<TOTAL-LIABILITY-AND-EQUITY> 52672
<SALES> 87229
<TOTAL-REVENUES> 87229
<CGS> 51535
<TOTAL-COSTS> 67945
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (652)
<INCOME-PRETAX> 19890
<INCOME-TAX> 6886
<INCOME-CONTINUING> 13004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13004
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 1.63
</TABLE>
