<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1994
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ______.
Commission file number 0-17885
B E I E L E C T R O N I C S, I N C.
(Exact name of Registrant as specified in its charter)
Delaware 71-0455756
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
(Address of principal executive offices)
(415) 956-4477
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 6,699,627 shares as of January 11, 1995
Page 1 of 13
<PAGE> 2
BEI ELECTRONICS , INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
PART 1. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--December 31, 1994 and October 1, 3
1994
Condensed Consolidated Statements of Operations--Quarter ended December 4
31, 1994 and January 1, 1994
Condensed Consolidated Statements of Cash Flows--Quarter ended December 5
31, 1994 and January 1, 1994
Notes to Condensed Consolidated Financial Statements--December 31, 1994 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1994.
SIGNATURES 13
----------
</TABLE>
Page 2 of 13
<PAGE> 3
BEI ELECTRONICS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, October 1,
1994 1994
------------ ----------
(Unaudited) (Note)
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,718 $4,197
Trade receivables - net 17,328 18,503
Inventories - net 36,774 33,185
Other current assets 4,232 4,903
-------- --------
Total current assets 60,052 60,788
Property, plant and equipment - net 28,676 29,270
Goodwill 5,084 5,156
Other assets - net 16,575 17,218
-------- --------
$110,387 $112,432
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $6,801 $7,826
Accrued expenses and other liabilities 11,525 11,951
Federal and state income taxes -- --
Current portion of long-term debt 825 822
-------- --------
Total current liabilities 19,151 20,599
Long-term debt, less current portion 30,354 30,421
Deferred income taxes and other liabilities 3,577 3,583
Stockholders' equity less treasury stock 57,305 57,829
-------- --------
$110,387 $112,432
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Note: The balance sheet at October 1, 1994 has been derived from the audited
consolidated balance sheet at that date.
Page 3 of 13
<PAGE> 4
BEI ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
December 31, January 1,
1994 1994
------------ ----------
(dollars in thousands except per share amounts)
<S> <C> <C>
Net sales $36,698 $29,414
Cost of sales 26,786 20,427
------- -------
9,912 8,987
Selling, general and administrative expenses 8,667 8,399
Research, development and related expenses 1,282 1,612
------- -------
Income (loss) from operations (37) (1,024)
Interest expense 655 553
Other income 42 52
------- -------
Income (loss) before income taxes (650) (1,525)
Provision (benefit) for income taxes (205) (602)
------- -------
Net income (loss) ($445) ($923)
======= =======
Earnings (loss) per common share and common
share equivalents ($0.07) ($0.14)
======= =======
Weighted average shares outstanding 6,690 6,616
======= =======
Dividends per common share $0.02 $0.02
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 13
<PAGE> 5
BEI ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
December 31, January 1,
1994 1994
------------ ----------
(dollars in thousands)
<S> <C> <C>
Net cash provided (used) by operating activities ($1,429) ($3,327)
Cash flows from investing activities:
Increase in investments -- (1,975)
Purchases of property, plant and
equipment (994) (862)
Decrease (Increase) in other assets 107 (711)
-------- --------
Net cash used in investing activities (887) (3,548)
Cash flows from financing activities:
Borrowings from line of credit agreement 1,500 1,000
Payments on line of credit (1,500) (1,000)
Proceeds from long-term debt -- 11,200
Payments on long-term debt (37) (56)
Proceeds from issuance of common stock 7 26
Purchase of treasury stock -- (156)
Payment of cash dividends (133) (132)
-------- --------
Net cash provided by financing activities (163) 10,882
-------- --------
Net decrease in cash and cash equivalents (2,479) 4,007
Cash and cash equivalents at beginning of period 4,197 1,572
-------- --------
Cash and cash equivalents at end of period $1,718 $5,579
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 13
<PAGE> 6
BEI ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1994
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the year ending September 30, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto in the
Company's annual report on Form 10-K for the year ended October 1, 1994.
NOTE B--INVENTORIES
<TABLE>
<CAPTION>
December 31, October 1,
1994 1994
------------ ----------
(dollars in thousands)
<S> <C> <C>
Finished products $1,646 $2,515
Work in process 5,351 5,570
Materials 9,584 9,047
Costs incurred under long-term contracts,
including U.S. Government contracts 34,357 36,054
Unapplied progress payments (14,164) (20,001)
-------- --------
Net inventories $36,774 $33,185
</TABLE> ======== ========
Page 6 of 13
<PAGE> 7
NOTE C--EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
<TABLE>
<CAPTION>
Quarter Ended
-------------------------
December 31, January 1,
1994 1994
------------ ----------
(dollars in thousands except per share amounts)
<S> <C> <C>
Weighted average shares outstanding 6,690 6,616
Net effect of dilutive stock options
based on the treasury stock method -- --
------- -------
Total weighted average shares outstanding 6,690 6,616
======= =======
Net income (loss) ($445) ($923)
======= =======
Earnings (loss) per common share and common
share equivalents ($0.07) ($0.14)
======= =======
</TABLE>
Earnings per common share and common share equivalents are computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the period. Loss per common share is
based on the weighted average number of common shares only, as any assumption
of conversion of options would be antidilutive.
NOTE D--CONTINGENCIES AND LITIGATION
In connection with the acquisition of assets from Systron Donner Corporation
during fiscal 1990, BEI Systron Donner Company assumed an obligation to pay
former shareholders of General Precision Industries (GPI) $4.3 million if
certain levels of confirmed orders and shipments are achieved for products
developed using technology acquired from GPI in 1986 under a license agreement
which expires in 2003. The technology acquired was assigned a value of $5.6
million for the purchase price allocation for the acquisition.
In September of 1991, the Licensor of the patent on which the Company's quartz
technology is based advised the Company that royalties in excess of the amounts
previously paid by the Company were due. The amount of royalties involved was
approximately $400,000. The Company advised the Licensor that based on its
understanding of the license agreement no additional amounts were due. The
Licensor alleged that nonpayment of the royalties due would give the Licensor
the right to terminate the license agreement. The parties were unable to
resolve these differences. Accordingly, the Company elected to exercise the
provision of the license agreement which required arbitration of any disputes
between the parties to the agreement.
Page 7 of 13
<PAGE> 8
In June of 1993, the Company and the Licensor filed briefs with the arbitration
panel. The Licensor alleged in its brief that the amount of royalties,
milestone payments and accrued interest due as of September 30, 1992 was
approximately $10.0 million (including the $4.3 million described above), and
asked the arbitration panel to rule that the license could be terminated based
on noncompliance by the Company with the terms of the license agreement.
The Company has asked the arbitration panel to rule that the amounts of the
royalties paid by the Company had been properly determined by the Company, that
the original license agreement should be reformed to reduce the royalties due
on future sales as a result of failure by the Licensor to disclose certain
matters which significantly impacted the Company's timely ability to employ the
licensed patent on production units and that the license was not subject to
termination.
The arbitration process is ongoing. Final arguments regarding issues of law
and interpretation of the agreement were presented in late 1994. The
arbitration panel is expected to issue its ruling in 1995. Management has
vigorously defended its rights under the license agreement, and while the
outcome of this matter cannot be determined with certainty, management
believes, taking all factors into account and after consultation with legal
counsel, that this matter will not result in termination of the license nor
will the ultimate resolution of the matter have a material adverse impact on
the financial position of the Company.
During a vendor survey conducted by BEI Defense Systems Company in the first
quarter of fiscal 1994, a component used in the HYDRA 70 rocket motor was
identified as being produced by a process that differed from the one that the
vendor had certified. Subsequent to the survey and BEI's evaluation of
alternative acceptable processes, BEI's customer, the U.S. Government, was
notified of the potentially non-conforming material. The customer, as required
by applicable contract provisions, notified Justice Department and Defense
Department investigators. Management also conducted an internal investigation
to determine the facts and appropriateness of follow-up actions. Due to these
investigations, delivery of certain completed rocket motors was delayed
beginning in late December 1993. Subsequently, the customer agreed to accept
the completed but undelivered rocket motors and the Company agreed to replace
the affected parts under warranty. During the fourth quarter of fiscal 1994,
the Company began rework under warranty and substantial deliveries of rocket
motors were completed prior to year end. The Company has provided for the cost
of warranty replacement of the affected parts in all undelivered rocket motors.
For previously delivered rocket motors, the customer is in the process of
conducting extensive tests on the potentially non-conforming part to determine
whether required levels of performance and reliability are achieved by the
affected part. The tests are expected to be completed in March 1995. Based on
the results of less extensive tests arranged by the Company which were designed
to test the performance and reliability of the affected part, management
believes the results of the customer's tests will be a determination that
performance and reliability of the affected part meet applicable requirements.
No provision has been made in the accompanying financial statements for any
liability that may result from an adverse determination with respect to
performance and reliability requirements. The outcome of the Justice
Department portion of the investigation is not presently determinable.
Page 8 of 13
<PAGE> 9
In October 1993, the State of California filed a first amended complaint
against a division of the Company and fifty-two other defendants. The
complaint seeks recovery of response costs incurred by the State at a waste
oil recycling facility in Commerce, California (the "Site"). The State alleges
that, as of October 1993, it had incurred over $2.2 million in response costs
at the Site.
The Company has joined a group of defendants who are potentially parties for
the Site (the "PRP Group"). The PRP Group is proceeding with analysis of past
work performed at the Site and preparing a Remedial Action Plan for the Site.
Currently, the estimated cost of the remedial actions proposed for the Site
range from $500,000 to $1,200,000. The PRP Group is also conducting settlement
negotiations with the State. Since filing its First Amended Complaint, the
State has disclosed that its past costs associated with the Site are
$3,700,000.
The division of the Company against which the claim is asserted was acquired
from Systron Donner Corporation in 1990. In connection with that acquisition,
Systron Donner agreed to indemnify the Company against any claims, damages and
expenses in excess of $100,000 arising in connection with certain environmental
matters. Management believes such indemnification will encompass this claim.
While the outcome of this matter cannot be determined with certainty,
management believes that the ultimate resolution will not have a material
adverse impact on the financial position of the Company.
In October 1993, CooperSurgical, Inc. a subsidiary of the Cooper Companies,
filed a claim for unspecified damages alleging unfair competition due to
actions by BEI Medical Systems and Richard Turner, its president, a former
employee of the Cooper Companies, and others. On May 16, 1994, the Chancery
Division for the Superior Court of New Jersey granted a partial summary
judgment in favor of the plaintiff and issued an injunction against the
defendants restraining them from selling certain products until June 20, 1996.
In September 1994, BEI Medical Systems filed a motion to vacate the May 16,
1994 order. In October 1994, CooperSurgical filed an expert report with the
court alleging $11 million in damages due plus interest. On November 28, 1994,
the Court granted BEI Medical Systems' motion to vacate the May order. As a
result the partial summary judgement has been reversed and the injunction has
been lifted.
Management has vigorously defended its rights in this action and believes after
discussion with legal counsel that the CooperSurgical claims are exaggerated.
Expert witnesses for BEI have prepared a formal response to the CooperSurgical
damage claims which will be submitted early in 1995. While the outcome of this
matter cannot be determined at this time, management believes, taking known
factors into account and after consultation with legal counsel, that this
matter will not result in a material adverse impact on the financial position
of the Company.
The Company has pending various legal actions arising in the normal course of
business. None of these legal actions are expected to have a material effect
on the Company's operating results or financial condition.
Page 9 of 13
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items in the Company's
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 73.0 69.4
----- -----
Gross profit 27.0 30.6
Operating expenses
Selling, general and administrative expenses 23.6 28.6
Research, development and related expenses 3.5 5.5
----- -----
Income (loss) from operations (0.1) (3.5)
Interest expense 1.8 1.9
Other income 0.1 0.2
----- -----
Income (loss) before income taxes (1.8) (5.2)
Provision for income taxes (credit) (0.6) (2.1)
----- -----
Net income (loss) (1.2)% (3.1)%
===== =====
</TABLE>
QUARTER ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
Net sales for the first quarter of fiscal 1995, ended December 31, 1994,
increased $7.3 million or 24.8% from the same period in fiscal 1994.
Defense Systems segment net sales increased $5.4 million or 66.2% in the first
quarter of fiscal 1995 compared to the same period in the prior year. The
increase was primarily the result of lower than average shipments caused by
delays in deliveries experienced in the first quarter of 1994, when certain
lines of rocket motors and warheads suffered a shortfall in shipments as a
result of then unresolved upgrading, testing, and requalification issues.
In January 1995, the Company was advised that the U.S. Army's fiscal 1996 to
fiscal 1998 HYDRA 70 Systems procurement had been awarded to a competing
bidder. The HYDRA 70 Systems contract represented greater than 90 percent of
Defense Systems segment revenue during fiscal 1994 and in the first quarter of
fiscal 1995. The existing HYDRA 70 backlog of approximately $60 million which
is scheduled for shipments into fiscal 1996 represents a similar portion of the
total Defense Systems backlog. As the HYDRA 70 Systems contract nears
completion in early fiscal 1996, revenues of the Defense Systems segment can be
expected to decline substantially unless there is a change in the Army's
announced plan.
Page 10 of 13
<PAGE> 11
Sensors & Systems segment sales volume increased $1.7 million or 8.9% from the
first quarter of 1994. The higher net sales were due primarily to increases in
several commercial product lines, primarily industrial and automotive products.
Partially offsetting these gains in sales volume were decreased sales in the
government sector, reflecting the continuing impact of U.S. Government-defense
related cutbacks.
Consolidated cost of sales as a percentage of net sales was greater in the
first quarter of fiscal 1995 versus the comparable period of fiscal 1994.
Defense Systems segment cost of sales increased substantially from the prior
year as the result of higher sales and an increased proportion of
competitively-bid contracts, including the HYDRA 70 systems contract. To the
extent the sales mix of the Defense Systems segment contains an increased
proportion of competitively bid contracts, cost of sales have been unfavorably
impacted. Increases in cost of sales as a percentage of net sales in the
Defense Systems segment were partially offset by decreases in cost of sales as
a percentage of net sales in the Sensors and Systems and Medical Systems
segments due primarily to higher gross margin percentages on commercial sales.
The Company's gross profit margins from sales to the U.S. Government for
military and space products are generally lower than gross profit margins from
sales of commercial and industrial products. The margins on the Defense
Systems segment vary considerably. As a result, profitability from Defense
Systems' revenue has varied significantly depending on the contract mix in any
period. The existing backlog in the Defense Systems segment has gross margins
that are similar to fiscal 1994 gross margins on similar Defense Systems
products. Management is continuing measures to reduce costs for the HYDRA 70
program. Downward pressure on gross profit margins will continue, especially
for military contracts.
Selling, general and administrative expenses as a percentage of net sales
decreased in the first quarter of fiscal 1995 versus the comparable period of
fiscal 1994, due to increased volume of total net sales as well as reduced
levels of spending in the Medical Systems and Defense Systems segments.
Research, development and related expenses as a percentage of net sales for the
first quarter of fiscal 1995 showed a decrease from the same period in fiscal
1994 due to increased volume of total net sales as well as reduced levels of
spending in the Sensors and Systems and Defense Systems segments.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1995, total cash used by operations was $1.4
million, including the net loss of $0.4 million. Outflows of cash from
operations primarily consisted of a $3.6 million increase in inventory and a
decrease in accruals and other liabilities of $1.7 million. Countering these
usages, cash provided by operations included net trade receivable collections
of $1.2 million and the reduction in other current assets of $0.9 million, as
well as the positive impact of non-cash charges to income from depreciation,
amortization, and losses on disposals of property, plant, and equipment for
$1.3 million, $0.7 million, and $0.2 million respectively.
Page 11 of 13
<PAGE> 12
Cash used for investing activities of $0.8 million was primarily composed of
$1.0 million of capital expenditures, offset by a $0.1 million decrease in
other assets. The level of other capital expenditures for fiscal 1995 is
consistent with the current volume of business.
Cash flows for financing activities consisted of the short term borrowing and
repayment of $1.5 million on the Company's line of credit, as well as $0.1
million used to pay stock dividends.
The Company had no material capital commitments at December 31, 1994.
In 1991, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("FAS") No. 107 "Disclosures About Fair Value of Financial
Instruments." The Company will be required to adopt FAS 107 in fiscal year
1996. Accordingly, the Company plans to adopt FAS 107 when required, and will
disclose the fair value for all of its financial instruments, if practicable.
Based on the financial condition of the Company at October 1, 1994, management
believes that the existing cash balances, cash generated from operations, and
available lines of credit will be sufficient to meet the Company's planned
needs for the foreseeable future. If the Company requires additional capital,
it anticipates that such capital will be provided by bank or other borrowings,
although there can be no assurances that funds will be available on terms as
favorable as those applicable to the Company's currently outstanding debt.
EFFECTS OF INFLATION
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
Page 12 of 13
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San
Francisco, County of San Francisco, State of California, on February 13, 1995.
BEI ELECTRONICS, INC.
By: /s/ Robert R. Corr
------------------------------
Robert R. Corr
Treasurer and Controller
(Principal Accounting Officer)
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 1,718
<SECURITIES> 0
<RECEIVABLES> 17,328
<ALLOWANCES> 0
<INVENTORY> 36,774
<CURRENT-ASSETS> 60,052
<PP&E> 28,676
<DEPRECIATION> 0
<TOTAL-ASSETS> 110,387
<CURRENT-LIABILITIES> 19,151
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 57,305
<TOTAL-LIABILITY-AND-EQUITY> 110,387
<SALES> 36,698
<TOTAL-REVENUES> 36,698
<CGS> 26,786
<TOTAL-COSTS> 26,786
<OTHER-EXPENSES> 9,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 655
<INCOME-PRETAX> (650)
<INCOME-TAX> (205)
<INCOME-CONTINUING> (445)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (445)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
