UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number O-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
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
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(Address of principal executive offices) (Zip code)
(415) 956-4477
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of November 29, 1995 was $34,579,792(A). As
of November 29, 1995, 5,319,968 shares of Registrant's Common Stock, excluding
stock held in Treasury, were outstanding.
(A) Based upon the closing sale price of the Common Stock on November 29, 1995
as reported on the NASDAQ National Market System. Excludes 1,577,904 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on November 29, 1995.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of Registrant, or that such person is
controlled by or under common control with Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement with respect to its 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission is
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business...................................................... 3
Item 2. Properties................................................... 17
Item 3. Legal Proceedings............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.......... 20
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................. 20
Item 6. Selected Financial Data..................................... 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation................ 22
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...................... 46
PART III
Item 10. Directors and Executive Officers
of the Registrant........................................... 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................... 46
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..................................... 47
Signatures ............................................................ 51
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PART I
ITEM 1. BUSINESS
Introduction
BEI Electronics, Inc. (the "Company") is a diversified manufacturer which
focuses its activity on three principal families of technology-oriented
products. These include:
1.) sensors, engineered subsystems and associated components which are
used for control of precision machinery and equipment in industrial,
medical, automotive, aerospace and military applications (Sensors and
Systems segment);
2.) rocket-propelled ordnance systems for military use (Defense Systems
segment) (see Note C to Consolidated Financial Statements for shut
down of the HYDRA 70 Rocket business); and
3.) proprietary medical instruments and supplies for diagnostic and
minimally invasive surgical procedures (Medical Systems segment).
The Company conducted its fiscal 1995 operations through BEI Sensors & Systems
Company (Sensors and Systems), BEI Defense Systems Company (Defense Systems) and
BEI Medical Systems Company (Medical Systems). The Company has major operations
in Arkansas, California, New Jersey and Texas. See Note N to Consolidated
Financial Statements for Business Segment Data. For a discussion of factors
relating to the Company's risks, see "Risk Factors" below.
The Company incorporated in Delaware in 1974, as a successor to Baldwin
Electronics, Inc., and became a publicly-owned company in 1989. BEI's principal
executive offices are located at One Post Street, Suite 2500, San Francisco,
California 94104 and its telephone number at that location is (415) 956-4477.
Unless the context indicates otherwise, "BEI" and the "Company" refer to BEI
Electronics, Inc. and its consolidated subsidiaries. BEI is a registered
trademark of the Company.
SENSORS AND SYSTEMS SEGMENT
BEI Sensors & Systems Company produces components and systems that provide vital
communication, information and control links between digital electronic
equipment and precision mechanisms. Supplemental or complementary products such
as motors are also manufactured. Sensors and Systems' products consist of
optical encoders and servo systems, precision potentiometers, mechanical
accelerometers, quartz rate sensors, pressure transducers, cryocoolers,
actuators, brushless motors, quartz accelerometers, inertial guidance components
and subsystems, and other control electronics which sense, drive and control the
motion of a wide variety of machinery and equipment with the high accuracy and
reliability required in modern industrial automation, space technology,
aviation, automotive components, health care, science and office automation
applications. Using standard designs, parts and subassemblies, the Company
typically manufactures products to meet the specifications of end users or
original equipment manufacturers (OEMs), who integrate these products into their
systems, machinery and equipment. The Company's technical expertise allows it to
offer its customers the flexibility to develop both customized components and
fully integrated sensor and control systems that satisfy their individual
requirements.
Products of Sensors and Systems Segment
The following products, which may be used alone or in combination, are produced
in the Sensors and Systems segment:
Optical Encoders and Servo Systems. Optical encoders when mechanically connected
to rotating shafts translate angular motion and velocity information into
digital electronic signals. These signals are then received by signal processing
electronics and used to control the operation of machinery and equipment.
Optical encoders include a light source, a rotating slotted code disk through
which the light passes, a photoelectric sensor, which receives the light through
the code disk, and a signal processor to translate the pulses of light into
digital information. The Company offers a wide array of optical encoders to
serve a variety of applications. The most common applications are for factory
automation,
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office automation, and transportation equipment, but specialized versions are
also used for military and space hardware. Servo Systems are closed-loop
electronic systems that control the position or velocity of rotating shafts or
other moving parts by accepting a desired rate or position input from computers
or keyboards, monitoring the position or rate of movement (using an appropriate
encoder or other sensor) and constantly providing feedback which indicates
whether the desired performance has been achieved.
Quartz Rate Sensors, Mechanical Accelerometers, Quartz Accelerometers and
Inertial Guidance Systems. These products provide precise and reliable
measurement of minute linear and angular motions for control, guidance and
instrumentation requirements in strategic systems, tactical aircraft and
missiles, space systems and in commercial, industrial and automotive
applications. In general, these devices operate without need for direct linkage
to the driving mechanisms. Such measurements are required for stabilization and
other functions of satellites, in-flight monitoring of military and commercial
aircraft antenna stabilization, navigation of oil well drill bit assemblies,
components used in intelligent vehicle dynamic control, and navigation systems
in the automotive industry.
Mechanical accelerometers and rate sensors using traditional technology (e.g.,
pivot and jewel sensing mechanisms) rely on the movement of complex machined
metallic parts to measure motion. The Company's miniature, solid state
accelerometers and rate sensors are based on its innovative quartz technology.
Quartz accelerometers are used in oil field applications for the navigation of
the drill bit assembly. The Company developed the Quartz Rate Sensor (QRS) for
military applications such as a replacement for traditional rotating wheel
gyroscopes. Unlike a conventional gyroscope, which may contain several hundred
individual parts in the sensing assembly, the QRS uses only one single element
as its sensor. This element is chemically micro-machined from crystalline quartz
using photolithographic methods similar to those used in the manufacture of
silicon semiconductor chips. The advantages of quartz rate sensors and
accelerometers over traditional mechanical units are increased reliability,
reduced size, and lower production and life cycle cost.
GyroChip Sensors. The Company's GyroChip sensors developed for commercial gyro
applications, are lower cost versions of the Quartz Rate Sensor. These products
have found use in such varied requirements as navigation of autonomous guided
vehicles (robotics), ocean buoy and sea-state monitoring, and stabilization of
optical systems. Prototype units are in use as yaw sensors in advanced next
generation stability control or anti-skid systems for automobiles. The GyroChip
provides performance suitable for commercial applications while offering
ruggedness, long life and small size at a lower cost than military versions of
the product.
Precision Potentiometers. Potentiometers are used as position-sensing devices
for throttles, steering position, transmission controls, wiper delay and seat
and mirror positions in automobiles and heavy equipment, such as earth movers,
and construction and farm machinery. They are also used as position sensors in
such applications as actuators on molding presses, saw mills and numerous other
types of industrial equipment and in oil well logging calipers. In light of
their resolution, durability and resistance to electronic noise, these devices
are well suited to function as control transducers (a device which converts an
input to another form of output; e.g., analog to digital). Customized versions
of some potentiometers makes these sensors suitable for the high acceleration,
shock and vibration levels required for control and instrumentation of missiles,
satellites and space vehicles. Incorporating the potentiometer technology with
the company's proprietary optical encoder technology has resulted in a
multisensor that could serve as a steering wheel position sensor for an
intelligent vehicle dynamic control and braking system for future automobiles.
Brushless DC Motors. Brushless DC Motors permit high performance, drive
efficiency in lightweight packages, and ease of interface with microprocessors.
The motors, which feature high energy magnets, are characterized by long life
and low acoustic and electrical noise. They are well suited to high speed, high
reliability applications, such as in operating rooms where the risk of sparks
from a brush motor would be hazardous or where electrical noise could disrupt
computers or computer-controlled equipment.
Pressure Transducers. Pressure Transducers monitor aircraft engine, oil, fuel
and cabin pressure and are capable of providing voltage or frequency output
proportional to pressure in the range from vacuum to 10,000 psi. These products
are produced to meet the requirements of low pressure ranges such as those
needed for the measurement of altitude, airspeed and Mach number. Other versions
accommodate higher pressure applications intended to provide accurate
measurement, long life and resistance to severe vibration and shock
environments. BEI's pressure transducers can be found on executive jets and
turboprops, commercial and military aircraft, missiles and torpedoes, and on the
Space
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Shuttle. The Sensors & Systems segment is currently developing a product line of
silicon based pressure sensors designed for high volume commercial/industrial
applications.
Actuators. Actuators are used in place of motors to achieve precise control of
short stroke linear or limited rotary motion. Actuators using high energy
magnets are also produced for specialized applications requiring intense force,
torque or acceleration relative to the size of the device.
Cryogenic Coolers. This newly developed product line is a low cost, long life
Stirling cycle refrigerator known for generating cryogenic temperatures required
for super conducting applications and infrared detection such as night vision
and surveillance cameras.
Significant Customers and Marketing for Sensors and Systems Segment
The Sensors and Systems segment marketed its products during the past fiscal
year to approximately 6,000 commercial end users and OEMs, principally in the
United States, through its direct sales force. Sales to the U.S. Government (or
prime contractors to the U.S. Government) represented approximately 32% of
Sensors and Systems net sales in fiscal 1995 and 40% in fiscal 1994. No other
customer accounted for more than 10% in fiscal 1995 or fiscal 1994. While the
Company has received several large orders from non-government customers,
individual orders are typically less than $100,000. (See Note N to Consolidated
Financial Statements.) The Company's strategy is to place increased emphasis on
the development of non-government customers to offset the effects of reductions
in government programs. (See Risk Factors below.)
The Sensors and Systems segment is represented internationally by approximately
20 sales representatives and distributors. In addition, during fiscal 1994, the
Company finalized a joint U.S.-European marketing and technical assistance
agreement with Ideacod, S.A. of Strasbourg, France. Under this agreement,
Ideacod's direct sales network has become the principal European sales channel
for the Sensors and Systems segment's commercial encoder products and BEI will
market Ideacod's products in the U.S. Also, the Company entered into a marketing
agreement in late fiscal 1994 with Nozaki & Company, Ltd. for exclusive
distribution of quartz sensors to military, defense, space and shipbuilding
markets in Japan.
Field sales engineers are trained to assist in product selection and system
design. Factory-based application engineers assist in defining performance
criteria and in prototype development. Customer service staffs are also
available to coordinate after-sale service and support. Warranties on products
typically range from a period of one to two years. Warranty costs have
historically not been significant.
Backlog for Sensors and Systems Segment
The segment's backlog at September 30, 1995 and October 1, 1994 was as follows:
Backlog
(dollars in thousands)
September 30, 1995 October 1, 1994
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$41,442 $37,622
Backlog includes aggregate contract revenues remaining to be earned by the
Company over the life of existing contracts. Some contracts undertaken by the
Company extend beyond one year. Accordingly, portions of such contracts are
carried forward from one year to the next as part of backlog. Not all of the
backlog as of September 30, 1995 is scheduled for shipment during fiscal 1996.
In the case of U.S. Government contracts, backlog includes only those contracts
that are fully funded by a procuring Government agency. All U.S. Government
contracts and subcontracts are subject to termination by the U.S.
Government for convenience.
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The Sensors and Systems segment has commercial operations that typically ship
standard products within 30 to 60 days after receipt of an order. The Company
believes that its competitive position in this segment depends in part on
minimizing the time that elapses between receipt and shipment of an order.
Products which require special analysis, design or testing, such as those
produced for customers in the aviation and defense or space technology markets,
are generally shipped from six to twelve months after receipt of the order.
Competition for Sensors and Systems Segment
The Company's principal competitors in the Sensors and Systems segment include
Vernitron Corporation, Dynapar Corporation and Veeder-Root, subsidiaries of
Danaher Controls, Dynamics Research Corporation, Renco Encoders Incorporated, a
subsidiary of Heidenhain Corporation, Encoder Products Company, Allied Signal,
Litton, Northrop Corporation, Rockwell International Corporation, Honeywell, CTS
Corporation and Kulite Semiconductor Products, Inc. In addition, the Company
also may compete with manufacturers of competing technologies, such as
potentiometers, resolvers, inductosyns or laser gyros and magnetic encoders.
Manufacturing for Sensors and Systems Segment
The Sensors and Systems segment manufacturing operations primarily consist of
the manufacture and assembly of encoders, accelerometers, rate sensors, pressure
sensors, potentiometers, motors, cryogenic coolers, actuators, servo systems and
other electronics. Special equipment developed by the Company generates and
replicates, with a high degree of accuracy, optical code disks, which are
components critical to the production of optical encoders. Production of
precision components for all systems requires accurate machining capabilities.
Because of the sensitivity of certain products to environmental contamination,
such as encoders, quartz rate sensors and servo systems for space and military
applications, these products are assembled under strict clean room conditions.
Research & Development for Sensors and Systems Segment
The major focus of this segment's R&D effort has been to improve performance,
yield and predictability of existing products, with special emphasis on the
quartz sensors used in high accuracy Inertial Measurement Units (IMU's) and high
volume yaw rate sensors for the automotive industry. Substantial effort has also
been devoted to the development of an automotive yaw rate sensor and the
manufacturing methods necessary to deliver competitive prices and quality in
this market. Other development has focused on expanding applications of existing
sensors. New pressure sensor applications were targeted at low cost general
aviation applications and a miniature transducer for petroleum exploration and
production.
The Company has also produced prototypes of future products incorporating
silicon micromachined pressure sensors geared towards next generation
requirements for automotive, industrial and aerospace markets.
U.S. Government Contracts for Sensors and Systems Segment
Approximately 32%, 40% and 47% of the Sensors and Systems segment's net sales in
fiscal 1995, 1994 and 1993, respectively, were derived from contracts with the
U.S. Government or under subcontract to other prime contractors to the
Government. Because a large portion of the segment's business is derived from
contracts with the Department of Defense ("DOD") or other agencies of the U.S.
Government, the Company's business is dependent upon defense and other
Government spending policies, which can be subject to significant variation from
year to year. At various times, the Company's results have been adversely
affected by contract cutbacks and there can be no assurance that the Company's
results of operations will not in the future be materially and adversely
affected by changes in Government procurement policies or reductions in
Government expenditures for products furnished by the Company.
Under applicable regulations, various audit agencies of the U.S. Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. Because of the recurring nature of changes in laws and regulations
and related regulatory audits, the Company expects it will continue to incur
costs for monitoring and compliance efforts. During fiscal 1995 and 1994, these
costs were higher than in the past. The Government also has the right to review
retroactively the cost records of the Company under most U.S. Government
contracts. Contract prices may be adjusted in the event the Company submits
incomplete, inaccurate or obsolete cost or pricing data. U.S. Government
contracts and
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subcontracts generally provide for either a fixed price, negotiated fixed price
or cost-plus-fixed-fee basis for remuneration. The majority of the contracts
with the U.S. Government are competitive fixed price or negotiated fixed price
contracts, although cost-plus contracts were approximately 22% of U.S.
Government net sales of the segment in fiscal 1995. For fixed price contracts,
the Company bears the risk of cost overruns and derives the benefits from cost
savings. As a result, greater risks are involved under fixed price contracts
than under cost-plus contracts because failure to anticipate technical problems,
estimate costs accurately or control costs during contract performance may
reduce or eliminate the contemplated profit or may result in a loss.
All U.S. Government contracts contain termination clauses that allow the
contract to be terminated either for contractor default or for the convenience
of the Government. In the event of termination for the convenience of the
Government, the clause typically provides that the contractor will receive
payment for work-in-progress, including profit. To date, termination of the
Company's contracts by the Government has not had any significant effect on the
Company's financial results. However, no assurance can be given that such
terminations will not have a materially adverse effect on the Company's results
of operations in the future. Portions of the Company's business are classified.
As a result, the Company is and will be prohibited from disclosing the substance
or status of such business.
DEFENSE SYSTEMS SEGMENT
BEI Defense Systems Company (hereafter Defense Systems) provides rocket systems,
including weapons management systems, rocket motors, and combat and training
warheads primarily to the Department of Defense (DOD), and also to allied
foreign governments. For a number of years, Defense Systems has been the sole
manufacturer and integrator of the HYDRA 70, a cost-effective, advanced
free-flight rocket system that can be employed in a variety of combat and
training roles. In September 1995, management of the Company reached a decision
to exit the rocket manufacturing line of business which makes up a substantial
portion of the Company's Defense Systems segment. For fiscal 1995, HYDRA 70
revenues represented 85% of Defense Systems' total sales. The Company estimates
that HYDRA 70 revenues will represent approximately the same proportion of
Defense Systems' segment revenues in fiscal 1996.
For production in fiscal 1997-1998, the Government has initiated competitive
bidding for new HYDRA 70 contracts. The Company learned in early December 1995
that the joint bid with a team led by Alliant Techsystems was not successful.
The Company will realize diminished levels of HYDRA 70 revenues in fiscal 1996
and does not anticipate any H 70 revenues thereafter (see Note C to Consolidated
Financial Statements). (See also Competition, U.S. Government Contracts, Major
Programs and Subcontractors below).
Products of Defense Systems Segment
HYDRA 70 Rocket Systems.
The HYDRA 70 is a 2.75 inch free-flight rocket system which features a
microprocessor-based weapons management system that provides automatic control
of components such as rocket motors, fuzes and a variety of warheads, each of
which is specifically adapted for use as part of the system. A pilot need only
select a target and type of ammunition, and aim the sight. The management system
automatically sets the fuze that subsequently detonates the warhead or deploys
submunitions at the designated target. Placing the management system on board
the aircraft permits a relatively inexpensive fuze to be placed in the warhead,
instead of an expensive electronic guidance and control package. A selection of
warheads, available from the Company or U.S. military arsenals, enables a pilot
using the HYDRA 70 to select a range of combinations and effectively engage a
variety of targets. As a result, the HYDRA 70 can achieve substantial cost
efficiencies over more expensive guided missiles. Depending on configuration,
the price for a HYDRA 70 rocket and warhead ranges from several hundred to over
a thousand dollars, approximately one-tenth or less of the typical price of a
guided missile. The HYDRA 70 system can either be installed on new helicopters
or retrofitted to existing helicopters. The system is also qualified for use on
certain fixed wing aircraft, as well as ground launch and shipboard platforms.
Rocket Motors. Defense Systems assembles rocket motors, including the MK66, the
current generation of the HYDRA 70 rocket motor developed by the U.S. Navy. The
MK66 provides greater range and accuracy than prior rocket motors. The MK66 is
characterized by wrap-around fins, fluted nozzle and double-based propellant,
which together increase acceleration and impart spin to improve accuracy through
the entire trajectory.
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Warheads. Defense Systems supplies warheads with specialized capabilities that,
along with other warheads produced by U.S. military arsenals, allow customers to
use the HYDRA 70 system for a variety of purposes. The warheads currently sold
in production quantities by Defense Systems are the Multipurpose Submunition,
Multipurpose Practice Submunition, High Explosive Unitary, Signature Practice,
Illumination, and Flechette Warheads. At a predetermined point in flight,
Multipurpose Submunition warheads release nine grenades that each detonate on
impact, creating a zone of explosive effect. Practice warheads are used for
training purposes.
Fuzes. Defense Systems offers a range of fuzes for use on its rockets and
warheads. Certain fuzes, which are remotely set, can be programmed at the moment
of launch to deploy munitions at predetermined ranges. These fuzes provide for
airburst or point detonation of warheads. Submunition fuzes provide a mechanical
trigger for detonation on impact.
Other
Weapons Management System. Defense Systems has developed a microprocessor-based
Rocket Management System that controls up to seventy-six 2.75 inch rockets. The
system may be programmed to manage simultaneously up to five different warheads,
to set fuzes remotely and to display the inventory of warheads remaining.
Defense Systems has also developed a more compact, less expensive version of the
Rocket Management System, the Armament Management System, that can be used on
aerial, ground and sea-based weapons platforms. This system controls up to
thirty-eight 2.75 inch rockets.
Advanced Rocket System. During fiscal 1995, Defense Systems concluded its
development work on the Advanced Rocket System (ARS) as the major subcontractor
to Lockheed Missiles and Space Company.
Significant Customers and Marketing for Defense Systems Segment
Defense Systems has marketed its products primarily to the DOD either directly
or indirectly as a subcontractor to prime contractors. Defense Systems has also
marketed its products to allied foreign governments both through direct sales
and through foreign military sales programs funded by the U.S. Government. Only
limited marketing efforts were pursued during fiscal 1995 related to weapons
management systems. Foreign sales constituted approximately 3%, 3% and 2% of
Defense Systems' revenues in fiscal 1995, 1994 and 1993, respectively. (See Note
N to Consolidated Financial Statements.) Defense Systems expects to complete its
current backlog of rocket and warhead production during fiscal 1996.
Backlog for Defense Systems Segment
The segment's backlog at September 30, 1995 and October 1, 1994 was as follows:
Backlog
(dollars in thousands)
September 30, 1995 October 1, 1994
------------------ ---------------
$35,836 $73,908
Backlog includes aggregate contract revenues remaining to be earned by the
Company over the life of existing contracts. All of the backlog as of September
30, 1995 is scheduled for shipment during fiscal 1996. In the case of U.S.
Government contracts, backlog includes only those contracts that are fully
funded by a procuring Government agency. All U.S. Government contracts and
subcontracts are subject to termination by the U.S. Government for convenience.
Many factors affect the scheduling of projects; therefore, no assurance can be
given as to when revenue will be realized on projects included in the Company's
backlog. Year-to-year comparisons of backlog are not necessarily indicative of
future revenue or profitability trends, and management believes that backlog as
of any particular date may not be representative of actual sales for the segment
for any succeeding fiscal period. The existing backlog in the Defense
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Systems segment has gross margins that are significantly lower than historical
gross margins on similar Defense Systems products. In addition, delays caused by
matters beyond the Company's control can, and have, resulted in increased
product costs.
Competition for Defense Systems Segment
The defense industry has become increasingly competitive in recent years with
the growing emphasis on competitive bidding of contracts and the decline in
defense spending because of budget constraints. To date, Defense Systems has
been the sole supplier of certain components and services related to the HYDRA
70. The total HYDRA 70 System program, rockets and warheads, was opened to
competitive bidding during fiscal 1992. Following a winning bid in 1992, Defense
Systems entered into a contract to produce the HYDRA 70 System and retained its
sole source position. During 1995, a new HYDRA 70 System contract was
competitively solicited by the U.S. Army for known requirements through 1998.
BEI agreed to join a team led by Alliant Techsystems for this competition.
Results of the bidding as of early December 1995 identified a team led by Martin
Marietta as the winner of this bid. Since the Company was not awarded a portion
of the 1995 competitive contract, the revenue from HYDRA 70 rockets will be zero
beyond shipment of the current backlog (see Note C to Consolidated Financial
Statements).
Manufacturing for Defense Systems Segment
Defense Systems' manufacturing operations consist primarily of the production
and assembly of fuzes, rocket motors, warheads and explosive devices, as well as
the assembly of electronic products. Certain Defense Systems operations are
subject to rigorous safety requirements which are normal to the handling of
munitions and explosives.
Under specified U.S. military contracts, Defense Systems has been required to
depend on certain materials, particularly solid propellant and components such
as fuzes and rocket igniters, often furnished only by the U.S. Government or
U.S. Government designated suppliers. In the past, the Company has been unable
to obtain desired supply levels of propellant and has experienced quality
problems with respect to propellant and these components. While these and other
difficulties have resulted in interruptions of production and other
dislocations, the Company maintained profitable operations during these periods.
With the award in fiscal 1992 of the HYDRA 70 System contract to Defense
Systems, under which deliveries began late in fiscal 1993, the Company has been
required to deal directly with component suppliers and, in some cases, to
initiate in-house production of certain components.
With respect to in-house production of certain components, there has continued
to be some irregularity of production, particularly of fuzes for submunition
warheads. A dispute has arisen between Defense Systems and the U.S. Government
concerning the accuracy and completeness of certain Government-supplied
technical data including design and manufacturing specifications. Efforts to
resolve these matters are continuing (see Note C to Consolidated Financial
Statements). Management believes that all fuze production required to support
Defense Systems' remaining rocket backlog deliveries will be completed during
fiscal 1996.
Research & Development for Defense Systems Segment
Government-funded development during the year included completion of work
required on a development contract for the Advanced Rocket System, a next
generation enhanced performance rocket system.
During fiscal 1995 Company funding of R&D efforts was discontinued.
U.S. Government Contracts for Defense Systems Segment
Approximately 97%, 97% and 98% of the Defense Systems segment's net sales in
fiscal 1995, 1994 and 1993 respectively, were derived from contracts with the
U.S. Government or under subcontract to other prime contractors to the
Government. (See Note C to Consolidated Financial Statements.)
Under applicable regulations, various audit agencies of the U.S. Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. Because of the recurring nature of changes in laws and regulations
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and related regulatory audits, the Company expects it will continually incur
costs for monitoring and compliance efforts. During fiscal 1995, these costs
were similar to 1994 but higher than in the past and there can be no assurance
that such costs will not be material in fiscal 1996. The Government also has the
right under most U.S. Government contracts to review retroactively the cost
records of the Company. Contract prices may be adjusted in the event the Company
submits incomplete, inaccurate or obsolete cost or pricing data.
All U.S. Government contracts and subcontracts generally provide for either a
fixed price, negotiated fixed price or cost-plus-fixed-fee basis for
remuneration. The major part of the segment's contracts with the U.S. Government
are competitive fixed price or negotiated fixed price contracts. For fixed price
contracts, the Company bears the risk of cost overruns and derives the benefits
from cost savings. As a result, greater risks are involved under fixed price
contracts than under cost-plus contracts.
All U.S. Government contracts contain termination clauses that allow the
contract to be terminated either for contractor default or for the convenience
of the Government. In the event of termination for the convenience of the
Government, the clause typically provides that the contractor will receive
payment for work-in-progress, including profit. To date, termination of the
Company's contracts by the Government has not had any significant effect on the
Company's financial results. However, no assurance can be given that such
terminations will not have a materially adverse effect on the Company's results
of operations in the future. Portions of the Company's business are classified.
As a result, the Company is and will be prohibited from disclosing the substance
or status of such business.
Major Programs for Defense Systems Segment
Sales of HYDRA 70 systems and components represented approximately 27%, 31% and
31% of the Company's revenues in fiscal 1995, 1994 and 1993, respectively. The
Company anticipates that sales of the HYDRA 70 will continue to constitute a
smaller share of revenues for fiscal 1996. The failure of the Alliant-BEI team
to win the 1995 competitive award for continued HYDRA 70 production eliminates
these sales from future results of operations beyond fiscal 1996.
Subcontractors - Sources of Supplies for Defense Systems Segment
Under specified U.S. military contracts, Defense Systems has been required to
depend on certain materials, particularly rocket propellant grain furnished only
by the U.S. Government. Periodically, the Company has been unable to obtain
desired levels of supply of propellant grain. The Company has also been impacted
on occasion by discoveries of non-conforming materials having been delivered by
certain of its suppliers despite these suppliers having provided "Certificates
of Compliance" with these component shipments. While these difficulties have
resulted in periodic disruptions of deliveries and other dislocations,
production is not currently impacted. However, due to the nature of the
procurement contracts involved, no assurance can be given that there will not be
future supply disruptions. Any such disruption could affect the timing of
shipments.
MEDICAL SYSTEMS SEGMENT
BEI Medical Systems Company (hereafter Medical Systems) designs, manufactures,
and/or sells electrosurgery units, various endoscopes, surgical instruments and
surgical-procedure-specific intervention products and kits. It also assembles
endoscopic illuminators, video imaging systems and insufflators.
Products
The following products which may be used alone or in combination are produced
and/or sold by Medical Systems.
Electrosurgery Units. These products use radio frequency (RF) currents to cut
tissue and/or coagulate bleeding. Medical Systems produces a variety of
electrosurgical generators which are designed for use in various medical and
surgical procedures. These and associated supporting items are marketed under
the Meditron brand and brands of OEM customers.
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Devices, Instruments & Procedure Kits. Medical Systems has a line of surgical
instruments, procedure kits and devices which aid in, or enable a physician to
apply various technologies to an array of medical/surgical requirements in the
field of gastroenterology, gynecology and orthopedics. These products come in a
variety of disposable or reusable configurations, allowing the caregiver's
institution to select the most suitable option. Products include ZUMI(TM)
uterine manipulator/injectors, ZUI(TM) uterine injectors, Z-Clamps(TM) and
Z-Scissors(TM) for hysterectomy, ZSI Zip Tip(TM) cervical biopsy forceps,
Corson-Myoma(TM) grasping forceps, ZSI Miya Hook(TM), micro surgical
instruments, hysterectomy kits and other specialty instruments. Other products
include endoscopic illuminators, cameras, various types of endoscopes and an
automatic electronic insufflator. These products are used in laparoscopic
procedures in gastrointestinal, orthopedic and general surgery.
Significant Customers and Marketing for Medical Systems Segment
Medical Systems' products are sold to a variety of customers primarily for the
gynecology markets. Other markets served include gasteoenerology, orthopedics
and general surgery. In the U.S., Medical Systems utilizes 19 independent
manufacturer's representative organizations, direct sales representatives, and
telemarketers to market its products directly to end users, hospitals, surgical
centers and doctors' offices. Products are also sold through a network of 77
domestic and international distributors. Additionally, a variety of products are
private label manufactured under various OEM agreements. In fiscal 1995, OEM
sales were 21% of Medical Systems sales similar to the prior year.
Backlog for Medical Systems Segment
Backlog is not a significant factor in the Medical Systems segment. The segment
has commercial operations that typically ship instruments within one to two
weeks of receipt of an order and electronic products within 30 days after
receipt of an order. Disposable products are normally shipped within one day of
receipt of order. Products which require special development, design, packaging
and testing are generally shipped within four to six months after an order is
received.
Competition for Medical Systems Segment
The Company's principal competitors in the Medical Systems segment include
Valleylab, a subsidiary of Pfizer, Microvasive, a subsidiary of Boston
Scientific, Circon/ACMI, Cabot Medical, Utah Medical, Leisegang, Wallach,
CooperSurgical, Inc. and Unimar.
Manufacturing for Medical Systems Segment
Medical Systems segment manufacturing operations consist primarily of the
manufacture and assembly of equipment such as electrosurgery units, endoscopic
illuminators, and electronic insufflators. Additionally, some component
fabrication and assembly of various non-electrical products, both disposable and
reusable, is performed by the manufacturing group. The Company's facilities and
documentation procedures for the manufacture of medical devices are required to
conform to the Food and Drug Administration's ("FDA") Good Manufacturing
Practices ("GMP"), enforced by the FDA through its facilities inspection
program. Withdrawal of GMP status would have a material adverse effect on the
Company's Medical Systems segment.
Research & Development for Medical Systems Segment
The Company's principal development effort for this segment has focused on
proprietary devices for procedures in gynecology. In addition, the Company
continued development in monopolar and bipolar electrosurgical generators and
expansion of the surgical illuminator and automatic insufflator product lines
for general and laparascopic surgery. The Company has continued to work with
several OEM customers for the adaptation of its proprietary technology to
various private label requirements.
Government Regulation
Medical Systems manufactures and sells medical devices. In the U.S. the FDA
(among other governmental agencies) is responsible for regulating the
introduction of new medical devices and the manufacturing, labeling and
record-keeping
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for such devices. The FDA also reviews required reports of adverse events
involving such devices. The FDA has extensive enforcement authority, including
the power to seize products, restrain sales or prohibit the operation of
manufacturing facilities until the noted deficiencies are corrected to the FDA's
satisfaction. The FDA can also monitor recalls of products from consumer
locations.
Recent developments such as the enactment of the Safe Medical Devices Act of
1990 and increased enforcement actions reflect a trend toward more stringent
product regulation by the FDA. One result is an increase in the typical time
elapsed between the filing of an application and the receipt of FDA clearance or
approval of commercial release of a medical device. In addition, the FDA now
requires more clinical data with such applications, which can increase the cost
of obtaining such clearance to market. Furthermore, rigorous regulatory action
may be taken in response to deficiencies noted in inspections or to any product
performance problems.
Medical device laws are also in effect in many of the countries in which Medical
Systems does business outside the U.S. These range from comprehensive device
approval requirements to requests for product data or certifications. The number
and scope of these requirements are increasing. This trend toward increasing
product regulation is evident in the European Community, where efforts are under
way to harmonize the regulatory systems. Such regulatory systems include ISO
9000, ICE 601 and OE marks.
Uncertainty Related to Health Care Reform
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery and payment systems. Legislative debate is
expected to continue in the future, and the Company cannot predict what impact
the adoption of any federal or state health care reform measures or future
private sector reform may have on its Medical Systems business.
GENERAL - ALL SEGMENTS
Employees
As of September 30, 1995, the Company had 1,174 employees, including 151 in
research, development and engineering, 103 in administration, 87 in marketing
and sales, 817 in operations and 16 in corporate. The Company believes that its
continued success depends on its ability to attract and retain highly qualified
personnel. The Company's employees are not represented by collective bargaining
agreements, other than employees at the Defense Systems Camden, Arkansas
Ordnance Manufacturing Plant, who are represented by the International
Association of Machinists under an agreement expiring in May 1996. To date, the
Company has not experienced any work stoppages and considers its employee
relations to be good.
Significant Customers
During fiscal 1995, 1994 and 1993, the U.S. Government and other Government
contractors accounted for approximately 50%, 57% and 62%, respectively of the
Company's total net sales.
Competition
The Company operates in highly competitive industries. Many of the Company's
existing competitors in each market, and also a number of potential entrants
into these markets, have significantly greater financial resources and
manufacturing capabilities, are more established, have larger marketing and
sales organizations and larger technical staffs. There can be no assurance that
other companies will not develop more sophisticated, more cost-effective or
otherwise superior products.
In its principal markets, the Company believes that competition is based
primarily on design, performance, reliability, price, delivery, service and
support. The Company believes it competes favorably with respect to these
factors.
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Research and Development
The Company believes that its future success will depend in part on its ability
to continue to enhance its existing products, and to develop and introduce new
products that maintain technological leadership, meet a wider range of customer
needs and achieve market acceptance. Accordingly, the Company's internally
funded research, development and related engineering expenditures were
approximately $5.0 million, $7.2 million and $5.7 million in fiscal 1995, 1994
and 1993, respectively. In addition, customer funded research and development
expenditures charged to cost of sales were $9.3 million, $10.4 million and $9.2
million, respectively, for the same periods.
Patents and Licenses
The Company primarily relies upon trade secrets and know-how to develop and
maintain its competitive position. Retention of data rights by a U.S. Government
contractor is frequently difficult because the contractor is often compelled to
negotiate transfer of the data rights to the Government as part of the contract
for production of the product. In addition, under certain of the Company's U.S.
Government contracts, the Government may require that proprietary information be
disclosed directly to competitors, subject to certain restrictions upon its use.
The Company holds 103 U.S. patents and 49 foreign patents with expiration dates
ranging from March 1996 to August 2013. Because many of these patents relate to
technology that is important to certain of the Company's products, the Company
considers these patents to be significant to its business. There can be no
assurance, however, that any patent will provide adequate protection for the
technology or product it covers.
The Company believes that, because of the rapid pace of technological change as
well as the impact of Government requirements, factors such as technical
expertise, frequent product enhancements, new product introductions and customer
service and support are generally more important to its business than patents.
The Company filed for several patents in the past fiscal year; however, there
can be no assurance that patents will issue from any present or future
applications filed by the Company or, if patents issue, that any claims allowed
will be sufficiently broad to protect the Company's technology. The Company is
still engaged in arbitration with respect to the license for its quartz rate
sensors (see Note M to Consolidated Financial Statements).
Environmental Matters
The Company uses certain hazardous materials in its research and manufacturing
operations and, as a result, is subject to stringent federal, state and local
regulations governing the storage, use and disposal of such materials. Although
the Company believes that it is currently in material compliance with such laws
and regulations, current or future laws and regulations could require the
Company to make substantial expenditures for remedial action, reduction of
chemical exposure, waste treatment or disposal. There can be no assurance that
the operations, business, competitive position, earnings or assets of the
Company will not be materially and adversely affected by the interpretation and
enforcement of current or future environmental laws and regulations. (The State
of California has filed a claim related to waste disposal, which claim is
discussed in Note M to Consolidated Financial Statements and Item 3 of this Form
10-K.)
Government Regulation
The Company is subject to significant regulation by the U.S. Government with
respect to a variety of matters affecting its business, including the matters
set forth below and as discussed in the U.S.
Government Contracts sections above.
Facility Security Clearance.
The Company has several facility security clearances from the U.S. Government. A
portion of the Company's net sales in fiscal 1995, 1994 and 1993 was derived
from work for which this clearance was required. Continuation of this clearance
requires that the Company remain free from foreign ownership, control or
influence (FOCI). In addition, the Company is required to comply with the
regulations promulgated by the Defense Investigative Service (DIS), which
relate, in large part, to the Company's control of classified documents and
other information. Loss of such security clearances and the related loss of U.S.
Government contracts would have a materially adverse effect on the Company's
results of operations. Management does not believe that there is presently any
substantial risk of FOCI or DIS noncompliance that would cause any of its
security clearances to be revoked.
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Regulation of Foreign Sales.
All Defense Systems' and certain of Sensors and Systems' exports are subject to
restrictions contained in the U.S. Department of State's International Traffic
in Arms Regulations and require export licenses in order to be sold abroad.
Non-defense related foreign sales are generally governed by the Bureau of Export
Administration of the U.S. Commerce Department which also frequently requires
export licenses. The Company's net sales to foreign customers constituted
approximately 8%, 8% and 5% of revenues for fiscal 1995, 1994 and 1993,
respectively. To date, the Company has not experienced any significant
difficulties in obtaining the requisite licenses. In addition, the Company is
subject to the Foreign Corrupt Practices Act, which prohibits payments or offers
of payments to foreign officials for the purpose of influencing an act or
decision by a foreign government, politician or political party in order to
assist in obtaining, retaining or directing business to any person.
Risk Factors
Defense Spending & Government Contracting
A significant portion of the Company's net sales has been derived from contracts
with departments and agencies of the U.S. Government and with other Government
contractors. In fiscal 1995, 1994 and 1993, such contracts accounted for
approximately 50%, 57% and 62%, respectively, of the Company's total net sales.
The Company believes that the success of the Company's business will continue to
be dependent, in part, upon its ability to participate in various Government
programs. There can be no assurance that the U.S. Government will continue its
commitment to programs to which the Company's products are applicable or that
the Company will continue to be awarded contracts under such programs. Please
refer to the discussion regarding competition in the segment discussion above.
Reductions in the federal funds available for projects the Company is performing
have in the past, and may in the future have an adverse impact on the Company's
results of operations.
The Company's contracts involving the U.S. Government are subject to various
other risks, including termination for the convenience of the Government;
potential disclosure of Company confidential information to competitors as part
of the establishment by the Government of second-source manufacturing
arrangements or competitive bidding; the failure or inability of prime
contractors or Government designated subcontractors to perform under their
contracts; and increased or unexpected costs causing losses or reduced profits
under fixed-price contracts.
Other Risk Factors
For additional risk factors affecting the Sensors and Systems segment see:
Significant Customers and Marketing, and U.S. Government Contracts, in the
segment discussion above.
For additional risk factors affecting the Defense Systems segment see:
Competition, U.S. Government Contracts, Major Programs and Subcontractors in the
segment discussion above.
For additional risk factors affecting the Medical Systems segment see:
Government Regulation and Uncertainty Related to Health Care Reform in the
segment discussion above.
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The executive officers and directors of the Company and their ages as of
December 1, 1995 are as follows:
Name Age Position
- --------------------------------------------------------------------------------
Charles Crocker 56 President, Chief Executive Officer &
Chairman of the Board of Directors
Gary D. Wrench 62 Senior Vice President, Chief Financial
Officer & Director
Dr. Lawrence A. Wan 57 Vice President of Corporate Technology
Robert R. Corr 49 Secretary, Treasurer & Controller
Richard M. Brooks (1) (2) 67 Director
George S. Brown (2) 74 Director
C. Joseph Giroir, Jr. (1) (2) 56 Director
William G. Howard, Jr. (1) 54 Director
Peter G. Paraskos 67 Director
- --------------------------------------------------------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Crocker, a founder of the Company, has served as Chairman of the Board of
Directors of the Company since October 1974. At the request of the Board of
Directors, Mr. Crocker assumed the positions of President and Chief Executive
Officer, effective October 1, 1995, following the retirement of Mr. Paraskos.
Mr. Crocker is President of Crocker Capital, an investment company. He served as
President of a predecessor company, Crocker Capital Corporation (a Small
Business Investment Company), from 1970 to 1985, and as General Partner of
Crocker Associates, a venture capital investment partnership, from 1970 to 1990.
He currently serves as a director of Fiduciary Trust Company International,
Superconductor Technologies, Inc. and Pope & Talbot, Inc. Mr. Crocker holds a
B.S. from Stanford University and an M.B.A. from the University of California,
Berkeley.
Mr. Wrench has served as Senior Vice President and Chief Financial Officer of
the Company since July 1993 and as a Director of the Company since February
1986. He served as Vice President of the Company and President and Chief
Executive Officer of Motion Systems Company, Inc., a wholly owned subsidiary of
the Company, from April 1985 to July 1993. Other experience includes twenty
years with Hughes Aircraft Company including an assignment as President of
Spectrolab, Inc., a Hughes subsidiary. Mr. Wrench holds a B.A. from Pomona
College and an M.B.A. from the University of California, Los Angeles.
Dr. Wan was appointed Vice President, Corporate Technology for the Company in
April 1991. From 1984 until 1990, Dr. Wan served as Vice President, Engineering
for Systron Donner Corporation. Between 1979 and 1984, he held various technical
and general management positions with Systron Donner Corporation. From 1968 to
1979, he served as Chief Executive Officer for Sycom, Inc. a commercial
electronics company which he founded. From 1964 to 1968, he worked for Hughes
Aircraft Company, where he headed the Radar Systems Section of the Hughes Ground
Systems Group. In 1962, Dr. Wan and two other professors established an
Engineering School at University of California, Santa Barbara, where he also
taught Engineering. Dr. Wan has a B.S., M.S. and Ph.D in Engineering and Applied
Sciences from Yale University.
Mr. Corr was named Secretary of the Company in February 1995 and has served as
Controller since November 1989 and Treasurer since November 1987. From 1978 to
1987, he was employed by AMPEX Corporation, an electronics and magnetic media
company, in various financial positions, most recently as Assistant Controller
in the Corporate Division. From 1975 to 1978, he was an Auditor for Arthur
Andersen & Co. Mr. Corr received a B.B.A. from Loyola University and is a
Certified Public Accountant in the State of California.
Mr. Brooks has been a director of the Company since November 1987. He is
currently an independent financial consultant. From 1987 to 1990, he served as
President of SFA Management Corporation, the managing general partner of St.
Francis Associates, an investment partnership. He currently serves as a director
of Longs Drug Store Corporation, Granite Construction Incorporated and the
Western Farm Credit Bank, a private company. Mr. Brooks holds a B.S. from Yale
University and an M.B.A. from the University of California, Berkeley.
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Mr. Brown, a founder of the Company, has served as a director of the Company
since October 1974. Mr. Brown served as President and Chief Executive Officer of
the Company from October 1974, until his retirement from that position in July
1990, when he became a consultant to the Company. Prior to founding the Company,
Mr. Brown served from 1971 until 1974 as Executive Vice President and General
Manager of Baldwin Electronics, Inc., a subsidiary of D.H. Baldwin Company and
the predecessor of the Company. Mr. Brown holds a B.S.E.E. from the University
of Oklahoma.
Mr. Giroir has served as a director of the Company since 1978. He served as the
Secretary of the Company from 1974 to early 1995. He is currently a member of
the law firm of Giroir & Gregory, a Professional Association. From 1965 to 1988,
Mr. Giroir was a member of Rose Law Firm, a Professional Association. Both law
firms have rendered services to the Company. Mr. Giroir holds a B.A. and an
L.L.B. from the University of Arkansas and an L.L.M. from Georgetown University.
Dr. Howard has been a director of the Company since December 1992. He is
currently an independent consulting engineer in microelectronics and
technology-based business planning. From 1987 to 1990, Dr. Howard served as
Senior Fellow of the National Academy of Engineering and, prior to that time,
held various technical and management positions with Motorola, Inc., most
recently as Senior Vice President and Director of Research and Development. Dr.
Howard holds a B.E.E. and an M.S. from Cornell University and a Ph.D. in
electrical engineering and computer sciences from the University of California,
Berkeley. He is a member of the National Academy of Engineering and a fellow of
the Institute of Electrical and Electronics Engineers and of the American
Association for the Advancement of Science.
Mr. Paraskos retired as President and Chief Executive Officer of the Company
effective October 1, 1995. He remains a Director of the Company, as well as
Chairman of Defense Systems Company, and has agreed to act as a consultant to
the Company. Mr. Paraskos served as President, Chief Executive Officer and a
Director of the Company from July 1990. Mr. Paraskos joined BEI in connection
with the Company's acquisition from Thorn EMI of substantially all the assets of
four of the six divisions of the Systron Donner Corporation. From 1986 to 1990,
Mr. Paraskos served as President and Chief Executive Officer of the Systron
Donner Corporation, a manufacturer of avionics and aerospace sensors and
subsystems, and served in positions as Executive Vice President and Chief
Operating Officer and in general management from 1983 to 1986. Mr. Paraskos
holds two degrees in Engineering from Columbia University and has served in the
Marine Corps as an infantry officer, fighter pilot and test pilot. He is a
member of the Board of Nominations of the Aviation Hall of Fame and a life
member of the Society of Experimental Test Pilots.
The Company has a classified Board of Directors, which may have the effect of
deterring hostile takeovers or delaying changes in control or management of the
Company. For purposes of determining their term of office, directors are divided
into three classes, with the term of office of the first class to expire at the
1996 annual meeting of stockholders, and the term of office of the second class
to expire at the 1997 annual meeting of stockholders and the term of office of
the third class to expire at the 1998 annual meeting of stockholders. Class I
consists of Mr. Giroir and Mr. Wrench; Class II consists of Mr. Brooks, Mr.
Howard, and Mr. Paraskos; and Class III consists of Mr. Crocker and Mr. Brown.
Directors elected to succeed those directors whose term expires will be elected
for a three year term of office. All directors hold office until the next annual
meeting of stockholders, at which their term expires, and until their successors
have been duly elected and qualified. Executive officers serve at the discretion
of the Board. There are no family relationships among any of the officers and
directors.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased office space in
San Francisco, California, under a lease which expires in 1998. The Company owns
or operates 11 other facilities which relate to the Sensors and Systems, Defense
Systems and Medical Systems segments and maintains office space in various
locations throughout the United States for sales and technical support. None of
the owned principal properties is subject to any encumbrance material to the
consolidated operations of the Company. In addition to its executive offices,
the Company's principal facilities are as follows:
Location Description of Facility
- --------------------------------------------------------------------------------
Sensors and Systems Segment
Maumelle, Arkansas Owned 50,000 square foot manufacturing,
engineering, administrative and research
and development facility.
Concord, California Owned 101,000 square foot manufacturing,
engineering and administrative
facilities. Leased 15,000 square foot
manufacturing and engineering facility.
Tustin, California Leased 80,000 square foot manufacturing,
engineering and administrative facility.
Goleta, California Owned 22,000 square foot manufacturing,
engineering and administrative facility.
Campbell, California Subleased 5,000 square foot
manufacturing, administrative and
research and development facility.
San Marcos, California Leased 35,000 square foot manufacturing,
engineering and administrative
facilities.
Sylmar, California Subleased 83,000 square foot
manufacturing, engineering and
administrative facility.
- --------------------------------------------------------------------------------
Defense Systems Segment
East Camden, Arkansas Leased 413,000 square foot
manufacturing, warehousing, and
administrative facility.
Euless, Texas Owned 72,000 square foot manufacturing,
engineering and administrative facility
and subleased 2,000 square foot
warehouse facility, used primarily for
record storage.
- --------------------------------------------------------------------------------
Medical Systems Segment
Hackensack, New Jersey
Leased 10,000 square foot manufacturing
and engineering facility and 2,000
square foot administrative and marketing
facility.
Chatsworth, California Leased 6,000 and 1,600 square foot
manufacturing, engineering and
administrative facilities.
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ITEM 3. LEGAL PROCEEDINGS
BEI Systron Donner Company vs. General Precision Industries, Inc., et al.
In connection with the acquisition of assets from Systron Donner Corporation
during fiscal 1990, a subsidiary of the 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. 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.
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 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. The arbitration panel bifurcated the issues
in the arbitration, and issued an interim ruling in February 1995. In that
interim ruling, which will become final at the close of the arbitration, the
Panel concluded that the license agreement was not subject to termination, that
non-recurring engineering revenues were not royalty-bearing, and that $1 million
of the $4.3 million discussed above is due only if certain conditions are met in
the future. The Panel also concluded that the Company is entitled to ownership
of an accelerometer patent that the former Shareholders developed. Further, in
September 1995, the panel ruled that certain development costs incurred by the
Company could not be used to offset accrued royalties. As a result, in September
1995, the Company accrued $3.5 million for royalties and related costs based on
its understanding of the amounts due under the panel's September ruling. The
estimate of royalties and related amounts due under the license agreement are
based on the Company's proposal to the panel and are significantly less than
amounts proposed by the licensor. Under the panel's February ruling, $3.3
million of the $4.3 million became due. This amount, which is considered part of
the original acquisition cost of the technology, was accrued in February 1995,
paid in October 1995, and is being amortized over the remaining term of the
license.
The second phase of the arbitration continues with further arguments having
occurred in December 1995. This phase involves the final determination of
royalty amounts due for unit sales of product using the acquired technology and
other matters including the parties' respective claims for attorneys' fees. In
the event that the arbitration panel rules that the Company's liability is more
or less than the $3.5 million accrued, an adjustment to the September 30, 1995
estimate will be required. While the final 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 a
material adverse impact on the financial position of the Company.
State of California Department of Toxic Substances Control vs. Southland Oil,
Inc., et al.
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 sought
recovery of response costs incurred by the State at a waste oil recycling
facility in Commerce, California (the "Site").
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The litigation with the State was recently settled in principle, requiring a
dismissal of the action following the payment by defendants to the State of $2.6
million to settle all past and future response costs at the Site (as well as all
other alleged damages). The State will be required, pursuant to the settlement,
to perform whatever future investigation and cleanup activities are required at
the Site under either state or federal law. While the litigation has not yet
been dismissed, the Company anticipates that it will be once settlement
documents are executed.
The defendants believe that there are additional parties that should be liable
for the settlement amount, and some of the defendants (including the Company)
have filed a third party claim against these other parties.
There has not yet been an allocation of the $2.6 million settlement amount
either among the defendants or between the defendants and the third party
defendants. Recent formulas that have been proposed for settlement and that have
been discussed by the defendants and the third party defendants would result in
the Company's share of the settlement amount being set at less than $20,000.
The division of the Company against which the claim was 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 would encompass this claim in
the event that it were to exceed $100,000. While the outcome of this matter
cannot be determined with certainty, management believes, after consultation
with legal counsel, that the ultimate resolution will not have a material
adverse impact on the financial position of the Company.
CooperSurgical, Inc. vs. BEI Medical Systems Company, Inc. et al.
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 its president Richard Turner, a former employee of the
Cooper Companies, and others. In May 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 1994 order. In November 1994 the Court
vacated the restraint order.
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 was submitted in February 1995. BEI's experts stated that if
CooperSurgical were entitled to damages, those damages would total less than
$100,000, and would be more than offset by BEI Medical Systems' counterclaim
against CooperSurgical. Discovery has been completed. The trial which was
originally scheduled to begin in November will be reset for 1996. 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.
Other
The Company has pending various other legal actions arising in the normal course
of business. Management believes that none of these legal actions will have a
material impact on the Company's operating results or financial condition.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
BEI's common stock was initially offered to the public at $9 per share in July
1989. The Company's common stock has been traded on the NASDAQ National Market
System under the NASDAQ symbol "BEII" since August 1, 1989. Set forth below are
the high and low closing sale prices on the National Market System for the
periods indicated. Such quotations do not reflect retail markups, markdowns or
commissions.
Cash
1995 Fiscal Year Dividend
(ended 09/30/95) High Low Declared
------------------------------------------------------------
Fourth Quarter $8.25 $6.50 $0.02
Third Quarter $7.25 $5.50 $0.02
Second Quarter $5.88 $5.00 $0.02
First Quarter $5.75 $5.00 $0.02
------------------------------------------------------------
1994 Fiscal Year
(ended 10/01/94)
------------------------------------------------------------
Fourth Quarter $6.00 $5.00 $0.02
Third Quarter $6.63 $5.50 $0.02
Second Quarter $7.25 $6.00 $0.02
First Quarter $8.38 $5.75 $0.02
------------------------------------------------------------
As of November 29, 1995, there were approximately 900 holders of record of the
Company's common stock. The Board of Directors has declared and the Company has
paid four cash dividends of $.02 per share of common stock in each of fiscal
1995 and 1994. The Board of Directors has declared a dividend of $.02 per share
of common stock to stockholders of record at December 15, 1995, payable December
29, 1995 for the first quarter of fiscal 1996. Payment of dividends is within
the discretion of the Company's Board of Directors, will be subject to continual
review and will depend, among other factors, upon the earnings, capital
requirements, operating results and financial condition of the Company from time
to time. There are no restrictions on the Company's ability to pay dividends
provided the covenants set forth in its bank credit agreement and Senior Note
agreement are met (see Notes E and G to Consolidated Financial Statements). The
covenants primarily concern certain operating ratios and minimum balances of
tangible net worth.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five fiscal years presented below is derived
from the audited Consolidated Financial Statements of the Company. The data
should be read in conjunction with the Consolidated Financial Statements,
related notes and other financial information included herein.
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Years Ended
--------------------------------------------------------------
September 30 October 1 October 2 October 3 September 28
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Net sales $144,903 $138,658 $146,719 $156,622 $146,226
Net income (loss) (4,391) (1,744) 3,778 7,180 6,314
Earnings (loss) per
common share and
common equivalent
share (0.65) (0.26) 0.56 1.05 0.94
Cash dividends per
common share $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
Weighted average
shares outstanding 6,759 6,657 6,783 6,836 6,741
BALANCE SHEET DATA:
Working capital $ 35,923 $ 40,189 $ 35,667 $ 16,036 $ 15,177
Total assets 113,738 112,432 108,528 96,472 95,832
Long-term debt
(excluding current
portion) 30,157 30,421 20,050 3,153 6,423
Stockholders' equity 53,319 57,829 59,606 55,560 50,540
- --------------------------------------------------------------------------------
21
<PAGE>
ITEM 7. 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.
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.2 70.4 68.4
- --------------------------------------------------------------------------------
Gross profit 25.8 29.6 31.6
Operating expenses:
Selling, general and administrative expenses 23.7 25.5 24.1
Provision for royalty and related expenses 2.4 -- --
Research, development and related expenses 3.4 5.2 3.9
- --------------------------------------------------------------------------------
Income (loss) from operations (3.7) (1.1) 3.6
Other income 0.7 0.7 1.2
Interest expense 1.7 1.7 1.0
- --------------------------------------------------------------------------------
Income (loss) before income taxes (4.7) (2.1) 3.8
Provision for income taxes (credit) (1.7) (0.8) 1.2
- --------------------------------------------------------------------------------
Net income (loss) (3.0)% (1.3)% 2.6%
- --------------------------------------------------------------------------------
See Notes A and N to the Consolidated Financial Statements for information on
acquisitions and dispositions and segment data, respectively.
FISCAL YEARS 1995, 1994 AND 1993
NET SALES
In fiscal 1995, the Company's net sales increased 4.5% to $144.9 million from
$138.7 million in fiscal 1994.
Sensors and Systems segment net sales increased 9.9% to $90.5 million from $82.4
million. This increase reflects the continued growth in sales of commercial
product lines, including those for industrial, automotive and medical markets.
Offsetting the increase from the Sensors and Systems segment, the Defense
Systems segment net sales decreased 4.3% to $45.6 million from $47.6 million.
The decline is primarily due to the decline in sales under a completed rocket
development contract for the Advanced Rocket System. This contract represented
approximately 6% of Defense Systems sales in fiscal 1995 compared to 11% in
fiscal 1994. This contract has no further funding in fiscal 1996. The principal
product of the Defense Systems segment is the HYDRA 70 (H 70) Rocket produced
under a competatively bid fixed price contract. Fiscal 1995 sales of H 70
related products was consistent with the prior year.
As discussed in detail at Note C to Consolidated Financial Statements, "HYDRA 70
Rocket Contract and Related Contingencies," the Defense Systems segment has
certain disputes pending with the U.S. Government. In September 1995, management
of the Company reached a decision to exit the rocket manufacturing line of
business which makes up a substantial portion of the Defense Systems segment.
The current backlog of H 70 rockets will be shipped in fiscal 1996.
Medical Systems sales remained relatively flat at $8.8 million in fiscal 1995, a
1.9% increase from $8.7 million in fiscal 1994.
In fiscal 1994, the Company's net sales decreased 5.5% to $138.7 million from
$146.7 million in fiscal 1993. Sensors and Systems segment net sales decreased
7.9% to $82.4 million from $89.4 million primarily reflecting decreased sales of
accelerometers and nonrecurring engineering (NRE) contracts substantially as a
result of U.S. Government-contract cutbacks. Also contributing to the decline
was the absence of the Company's Seaton Wilson division which was sold at the
22
<PAGE>
end of fiscal 1993 (see Note A to Consolidated Financial Statements,
"Acquisitions and Dispositions"). Partially offsetting these factors were
increases in sales of several commercial product lines.
Defense Systems segment net sales decreased 5.0% to $47.6 million in fiscal 1994
from $50.1 million in fiscal 1993. The decrease was primarily the result of
lower overall shipments of H 70 products, including certain lines of rockets and
warheads, shipments of which were delayed in the first half of fiscal 1994 in
connection with submunition fuze production issues. H 70 shipments in fiscal
1994 represented approximately 90% of Defense Systems sales. Partially
offsetting the decrease were increased billings for the Advanced Rocket System.
Medical Systems segment net sales increased 20.5% to $8.7 million from $7.2
million in fiscal 1993. The increase was primarily the result of a full year of
sales for Zinnanti Surgical Instruments, Inc. acquired during fiscal 1993 (see
Note A to Consolidated Financial Statements, "Acquisitions and Dispositions").
The Company's sales to international customers were approximately 8.3%, 7.5% and
5.5% of the Company's net sales for fiscal 1995, 1994 and 1993, respectively.
International sales can vary significantly as a percentage of sales depending on
the timing of shipments and size of orders.
COST OF SALES AND GROSS PROFIT
Cost of sales as a percentage of net sales was 74.2%, 70.4% and 68.4% in fiscal
1995, 1994 and 1993, respectively.
The increase in cost of sales as a percentage of net sales in fiscal 1995 and
fiscal 1994 primarily reflects substantial increases in the Defense Systems
segment cost of sales. This increase in fiscal 1995 resulted from a lower priced
product mix and from the Company's decision to exit the rocket manufacturing
line of business. In the fourth quarter of fiscal 1995, cost of sales for the
Defense Systems segment included provisions for additional contract completion
costs of $1,468,000, facilities shutdown of $500,000 and severance costs of
$750,000 to reflect the wind up of rocket related business (see Note C to
Consolidated Financial Statements,"HYDRA 70 Rocket Contract and Related
Contingencies").
During fiscal 1995, the Sensors and Systems segment also experienced a higher
cost of sales as a percentage of sales primarily in overhead resulting from
increased costs of fixed price development programs in the government sector as
well as the increased costs on current year royalties for quartz products.
In addition to the impact of competitive bid pricing in Defense Systems segment,
cost of sales in fiscal 1994 was adversely affected by the warranty costs
associated with the rework of a potentially non-conforming material (see Note C
to Consolidated Financial Statements, "HYDRA 70 Rocket Contract and Related
Contingencies"). The fiscal 1994 increase in cost of sales as a percentage of
sales in the Defense Systems segment was offset in part by the decrease in cost
of sales as a percentage of sales in the Sensors and Systems segment. Medical
Systems segment cost of sales as a percentage of sales increased slightly.
Downward pressure on gross profit margins is expected to continue, especially
for military contracts. 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. Management is
continuing measures intended to reduce costs and improve average margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net sales were
23.7%, 25.5% and 24.1% in fiscal 1995, 1994 and 1993, respectively.
Fiscal 1995 selling, general and administrative expenses of $34.3 million
included $1.1 million for the settlement of a U.S. Government Administrative
contract claim. Spending was reduced in both the Defense and Medical segments as
well as Corporate headquarters consistent with efforts to reduce operating
losses. The Sensors and Systems segment experienced higher selling, general and
administrative expenses to support sales growth in commercial product lines. In
addition to selling, general and administrative expense, the Company took a
charge in the fourth quarter of fiscal 1995 in the amount of 2.4% of net sales
($3.5 million) for royalty and related costs incurred on the basis of an interim
arbitration ruling (see Note M to Consolidated Financial Statements,
"Contingencies and Litigation").
23
<PAGE>
Total fiscal 1994 selling, general and administrative expenses of $35.4 million
did not change from fiscal 1993. The selling, general and administrative
expenses as a percentage of net sales increased primarily due to substantially
increased levels of spending in the Medical Systems segment resulting from the
acquisition of Zinnanti Surgical Instruments Company, Inc. and associated
spending for Medical Systems selling activities and due to increased legal
costs. The percentage of spending to sales in the other segments was essentially
unchanged.
RESEARCH, DEVELOPMENT AND RELATED EXPENSES
The Company's internally funded research, development and related expenses as a
percentage of net sales were 3.4%, 5.2% and 3.9% for fiscal 1995, 1994 and 1993,
respectively.
The Company eliminated a separate Corporate Research and Development function at
the beginning of fiscal 1995 resulting in lower overall costs for internally
funded research. Research and Development spending was concentrated in the
Sensors and Systems segment to support the growth of the commercial product
lines. Consequently, certain programs were phased out while emphasis on
development of sensors for the automotive industry was increased.
The increase as a percentage of net sales in fiscal 1994 primarily resulted from
increased investment in new product development in the Sensors and Systems
segment and lower overall net sales.
The Company believes that the continued timely development of new products and
enhancements to its existing products is essential to maintaining its
competitive position. Accordingly, the Company anticipates that such expenses
will increase in absolute amount, but may fluctuate as a percentage of sales
depending on the Company's success in acquiring customer or, in some cases, U.S.
Government funding.
INTEREST EXPENSE AND OTHER INCOME
Interest expense in fiscal 1995 remained consistent with fiscal 1994, increasing
slightly to $2.5 million from $2.4 million in fiscal 1994. Interest is paid
primarily on the Senior Note debt and a bank credit line. There was no new long
term debt issued during fiscal 1995; however, the Company paid a full year's
interest on Senior Notes issued in November 1993 compared to only ten months
interest in fiscal 1994.
Other income in fiscal 1995, 1994, and 1993 is comprised of royalty income from
H 70 licenses and interest income earned on highly liquid investments. Total
other income in fiscal 1995 was essentially unchanged from the prior year;
however, the H 70 royalties from the Defense Systems segment declined slightly
while interest income on invested cash increased due to positive inflows of cash
primarily from the resumption of normal progress payments on the H 70 contract
which were delayed in fiscal 1994.
Fiscal 1993 other income includes the impact of the net gain on sale of assets
related to the Seaton-Wilson division (see Note A to the Consolidated Financial
Statements, "Acquisitions and Dispositions").
INCOME TAX PROVISION
The Company's effective tax (benefit) rate was (35.7%), (40.0%) and 32.1%,
respectively for fiscal 1995, 1994 and 1993. The effective tax rate reflects the
statutory federal tax rate and the weighted average tax rate of the states in
which the Company conducts business. The fiscal 1995 effective tax rate is lower
than the effective rate in fiscal 1994 due to losses in certain states where
realization of the benefits of the losses is uncertain. The effective tax
benefit for fiscal 1994 reflects a favorable settlement of an IRS examination.
The effective tax rate for fiscal 1993 was affected favorably by the adoption of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (see Note H to Consolidated Financial Statements, "Income Taxes").
DEFERRED INCOME TAXES
At September 30, 1995, the Company had net deferred tax assets of $2,220,000
composed of deferred tax assets of $6,104,000, net of the valuation allowance of
$1,220,000, and deferred tax liabilities of $3,884,000. The Company believes it
is likely that the benefits of the deferred tax assets of $6,104,000 will be
realized through the reduction of future taxable income.
Management has considered appropriate factors in assessing the probability of
realizing these deferred tax benefits. These factors include the deferred tax
liabilities of $3,884,000 and the presence of significant taxable income in
fiscal 1993.
24
<PAGE>
Management also considered the nature of certain of the items which created the
deferred tax assets. The accruals established for exiting the rocket business
and certain litigation matters are nonrecurring and create deferred tax assets
which are expected to be realized in 1996 as the accruals are paid (see Note C
"HYDRA 70 Rocket Contract and Related Contingencies" and Note M "Contingencies
and Litigation" to Consolidated Financial Statements). Approximately $4.0
million of pre-tax income would result in the realization of deferred tax assets
which exceed deferred tax liabilities and allowable refunds of prior year's
taxes paid. Continuing expansion of commercial product lines and declining
losses in the Defense Systems segment are expected to result in sufficient
taxable income for the realization of the portion of the deferred tax assets
dependent on future income.
The valuation allowance is established primarily for state net operating losses
of the Medical Systems segment which cannot be offset against income of the
Company or its subsidiaries in other states. These states have relatively short
loss carryover periods of three to five years.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, operating activities provided $12.6 million in cash. The
consolidated net loss of nearly $4.4 million was offset by non-cash charges for
depreciation and amortization of $5.4 million and $2.8 million, respectively.
Defense Systems experienced cash inflows from the resumption of normal progress
payments for materials used in the H 70 program allowing the shipment of nearly
$10.2 million in inventory which was built up during fiscal 1994. The $4.8
million in cash flow from increases in trade accounts payable, accrued expenses
and other liabilities includes $6.8 million in milestone payments and accrued
royalties related the GPI arbitration discussed in Note M to the Consolidated
Financial Statements, "Contingencies and Litigation." The milestone payment of
$3.3 million was made in October 1995.
Investing activities, which used approximately $3.2 million in cash, included
the purchase of capital equipment primarily in the Sensors and Systems segment.
This level of spending is consistent with the growth of the segment.
Cash was used in financing activities to reduce long term debt in connection
with scheduled payments stemming from the acquisitions of Meditron and Zinnanti
Surgical Instruments in previous years. The Company declared and paid dividends
on common stock and purchased treasury stock during the year.
The Company had no material capital commitments at September 30, 1995 except as
discussed in Note M to the Consolidated Financial Statements, "Contingencies and
Litigation."
In 1991, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value of Financial
Instruments." The Company will be required to adopt SFAS 107 in fiscal year
1996. Accordingly, the Company plans to adopt SFAS 107 when required, and will
disclose the fair value for all of its financial instruments, if practicable.
Management does not anticipate a material impact on the consolidated financial
statements as a result of adoption of SFAS 107.
As of September 30, 1995, primarily as a result of the 1995 loss, the Company
was not in compliance with a financial covenant in the Senior Note Agreement.
The senior note holders waived the requirements of this covenant as of September
30, 1995.
Based on the financial condition of the Company at September 30, 1995,
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.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Electronics, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
September 30 October 1
dollars in thousands except par values 1995 1994
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 11,690 $ 4,197
Trade receivables:
United States Government 5,054 2,488
Commercial customers, less allowances for doubtful
accounts (1995--$451; 1994--$398) 13,806 16,015
- --------------------------------------------------------------------------------
18,860 18,503
Inventories--Note D 20,482 33,185
Refundable income taxes 498 887
Other current assets 2,374 2,692
Deferred income taxes--Note H 3,106 1,324
Current assets of H 70 Rocket line of business, net--Note C 6,820 --
- --------------------------------------------------------------------------------
Total current assets 63,830 60,788
Property, plant and equipment--Notes G and L
Land 4,093 4,325
Structures 7,216 10,135
Equipment 33,814 41,583
Leasehold improvements 1,396 1,253
- --------------------------------------------------------------------------------
46,519 57,296
Less allowances for depreciation and amortization 23,062 28,026
- --------------------------------------------------------------------------------
23,457 29,270
Other assets
Tradenames, patents and related assets, less
amortization (1995--$4,945; 1994--$3,513) 6,662 8,061
Technology acquired under license agreements,
less amortization (1995--$2,342; 1994--$1,546)--Note M 8,125 5,621
Goodwill, less amortization (1995--$1,024; 1994--$732) 4,833 5,156
Non-current assets of H 70 Rocket line of business, net--
Note C 3,428 --
Other 3,403 3,536
- --------------------------------------------------------------------------------
26,451 22,374
- --------------------------------------------------------------------------------
$113,738 $112,432
================================================================================
See notes to consolidated financial statements.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
BEI Electronics, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
September 30 October 1
dollars in thousands except par values 1995 1994
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term debt--Note E $ -- $ --
Trade accounts payable 8,092 7,826
Accrued expenses and other liabilities--Note F 16,602 11,951
Current portion of long-term debt--Note G 259 822
Current liabilities of H 70 Rocket line of business--Note C 2,954 --
- --------------------------------------------------------------------------------
Total Current Liabilities 27,907 20,599
Long-term debt, less current portion--Note G 30,157 30,421
Deferred income taxes--Note H 886 1,604
Other liabilities 1,469 1,979
Stockholders' Equity--Notes I, J and K
Preferred stock
($.001 par value; authorized 2,000,000 shares; none issued) -- --
Common Stock
($.001 par value; authorized 20,000,000 shares; issued
and outstanding; 1995--9,246,183; 1994--9,109,499) 9 9
Additional paid-in capital 24,112 23,533
Retained earnings 41,721 46,653
- --------------------------------------------------------------------------------
65,842 70,195
Less: Treasury stock, at cost (1995--2,440,372 shares;
1994--2,420,872 shares) (11,793) (11,660)
Unearned restricted stock--Note J (730) (706)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 53,319 57,829
Commitments and contingencies--Notes C, K, L and M -- --
- --------------------------------------------------------------------------------
$113,738 $112,432
================================================================================
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Electronics, Inc. and Subsidiaries
Years Ended
------------------------------------
September 30 October 1 October 2
dollars in thousands except per share amounts 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $144,903 $138,658 $146,719
Cost of sales 107,542 97,565 100,407
- --------------------------------------------------------------------------------
37,361 41,093 46,312
- --------------------------------------------------------------------------------
Selling, general and administrative
expenses--Note C 34,261 35,354 35,354
Provision for royalty and related
expenses--Note M 3,500 -- --
Research, development and related expenses 4,963 7,246 5,737
- --------------------------------------------------------------------------------
42,724 42,600 41,091
- --------------------------------------------------------------------------------
Income (loss) from operations (5,363) (1,507) 5,221
Other income 990 1,016 1,805
Interest expense (2,457) (2,417) (1,457)
- --------------------------------------------------------------------------------
Income (loss) before income taxes (6,830) (2,908) 5,569
Federal and state income taxes--Note H
Current (credit) 61 (569) 1,940
Deferred (credit) (2,500) (595) (149)
- --------------------------------------------------------------------------------
(2,439) (1,164) 1,791
- --------------------------------------------------------------------------------
Net income (loss) ($4,391) ($1,744) $3,778
================================================================================
Earnings (loss) per common and common
equivalent share--Note I ($0.65) ($0.26) $ 0.56
================================================================================
Weighted average shares outstanding--Note I 6,758,745 6,656,959 6,783,365
================================================================================
Dividends per common share--Note I $0.08 $0.08 $0.08
================================================================================
See notes to consolidated financial statements.
28
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
Years Ended
-----------------------------------
September 30 October 1 October 2
dollars in thousands 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows form operating activities:
Net income (loss) ($ 4,391) ($ 1,744) $ 3,778
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,390 5,449 5,009
Amortization 2,795 2,490 2,021
Provision for losses on trade receivables 145 95 86
Loss on sale of assets 86 84 34
Gain on disposition of business--Note A -- -- (501)
Credit for deferred income taxes (2,500) (595) (149)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Trade receivables (1,170) 5,103 (1,434)
Inventories 9,234 (10,098) (13,986)
Progress payments on U.S. Government contracts 29,496 35,480 30,572
Billings related to progress payments (31,876) (28,201) (22,740)
Other current assets 198 (477) (812)
Trade accounts payable, accrued expenses and other
liabilities 4,778 (2,273) 1,309
Federal and state income taxes 389 (1,803) (652)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 12,574 3,510 2,535
Cash flows from investing activities:
Proceeds from disposition of business--Note A -- -- 3,500
Purchases of property, plant and equipment (3,075) (9,130) (2,697)
Increase in other assets (100) (1,217) (796)
Cash paid for acquisitions--Note A -- -- (2,293)
- --------------------------------------------------------------------------------------
Net cash used in investing activities (3,175) (10,347) (2,286)
Cash flows from financing activities:
Borrowings on short-term debt 6,000 9,500 42,245
Payments on short-term debt (6,000) (9,500) (55,745)
Proceeds from long-term debt -- 11,200 16,800
Principal payments on long-term debt and other
liabilities (1,550) (1,513) (2,721)
Proceeds from issuance of common stock 318 641 1,136
Purchase of treasury stock (133) (333) (345)
Payment of cash dividends (541) (533) (523)
- --------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (1,906) 9,462 847
- --------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 7,493 2,625 1,096
Cash and cash equivalents at beginning of year 4,197 1,572 476
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 11,690 $ 4,197 $ 1,572
======================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
29
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
Additional Unearned
Common paid-in Retained Treasury restricted
dollars in thousands stock capital earnings stock stock Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 3, 1992 $9 $ 20,858 $ 45,675 ($10,982) $55,560
Net income for 1993 3,778 3,778
Stock options exercised 491 491
Employee Stock Purchase Plan
offering--Note K 472 472
Restricted Stock Plan--Note J 976 (803) 173
Purchase of treasury stock--
(53,000 shares at $6.50
average per share) (345) (345)
Cash dividends (523) (523)
- -----------------------------------------------------------------------------------------------
Balances at October 2, 1993 9 22,797 48,930 (11,327) (803) 59,606
Net loss for 1994 (1,744) (1,744)
Stock options exercised 290 290
Employee Stock Purchase Plan
offering--Note K 347 347
Restricted Stock Plan--Note J 99 97 196
Purchase of treasury stock--
(57,100 shares at $5.84
average per share) (333) (333)
Cash dividends (533) (533)
- -----------------------------------------------------------------------------------------------
Balances at October 1, 1994 9 23,533 46,653 (11,660) (706) 57,829
Net loss for 1995 (4,391) (4,391)
Stock options exercised 65 65
Employee Stock Purchase Plan
offering--Note K 254 254
Restricted Stock Plan--Note J 260 (24) 236
Purchase of treasury stock--
(19,500 shares at $6.80
average per share) (133) (133)
Cash dividends (541) (541)
- -----------------------------------------------------------------------------------------------
Balances at September 30, 1995 $9 $24,112 $41,721 ($11,793) ($730) $53,319
===============================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
30
<PAGE>
Notes to Consolidated Financial Statements
BEI Electronics, Inc. and Subsidiaries
September 30, 1995
Note A
Acquisitions and Dispositions
On February 26, 1993, the Company purchased for cash (see Consolidated
Statements of Cash Flows) and notes to the seller, all outstanding stock of
Zinnanti Surgical Instruments, Inc. ("Zinnanti") headquartered in Chatsworth,
CA. Zinnanti is engaged in the marketing of products used to perform minimally
invasive surgery. The assets are used to carry on substantially the same
business activities. In connection with the acquisition of Zinnanti, the Company
acquired assets with a fair value of $9.0 million and assumed liabilities and
incurred purchase notes of $6.7 million. If the acquisition had occurred at the
beginning of fiscal 1993, the effect on consolidated net sales, net income and
net income per share would not have been material. The acquisition was accounted
for under the purchase method. Accordingly, the acquired assets and liabilities
were recorded at their estimated fair values at the date of acquisition.
Operating results are included in the consolidated statement of operations from
the acquisition date.
On September 30, 1993, the Company sold for cash the Seaton-Wilson division of
the Sensors and Systems segment (see Consolidated Statements of Cash Flows). The
pre-tax gain on the disposition of $501,000 ($300,000 after tax) was included in
other income in 1993. Seaton-Wilson manufactured and sold pneumatic and
hydraulic valves and specialized disconnect systems designed for aerospace and
defense applications.
Note B
Summary of Significant Accounting Policies
Fiscal Year: The Company's fiscal year ends on the Saturday nearest September
30. Fiscal years 1995, 1994 and 1993 each contained 52 weeks.
Consolidation: The consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk: The Company sells a significant portion of its
products directly to the U.S. Government or to U.S. Government prime
contractors. The Company's remaining products are sold to commercial customers
throughout the United States and in various foreign countries. Substantially all
foreign sales are denominated in U.S. dollars. The Company performs ongoing
credit evaluations of its commercial customers and generally does not require
collateral. The Company maintains reserves for potential credit losses.
Historically, such losses have been within the expectations of management.
U.S. Government and Long-Term Contracts: Fixed price contracts are accounted for
by the percentage of completion method, with percentage of completion determined
primarily by units delivered. Units are considered delivered when accepted by
the customer. Sales under cost reimbursement contracts are recognized as costs
are incurred and include a proportion of the fees expected to be realized on the
contracts. Amounts related to billed retainages, amounts not billed and amounts
of uncertain claims are immaterial.
Revenue Recognition: Revenue for products not sold under long term contracts is
recognized as units are shipped or as services are provided.
Inventories: Costs incurred under U.S. Government contracts in process are
carried at cost less anticipated losses, if any, on the contracts. The U.S.
Government has title to, or a security interest in, certain inventories as a
result of progress payments on contracts. Other inventories are carried
principally at the lower of cost (first-in, first-out method) or market.
Provisions for contract costs in excess of inventory are reflected as accrued
contract costs in current liabilities.
31
<PAGE>
Property, Plant and Equipment: Property, plant and equipment are recorded at
cost. Depreciation and amortization are provided in amounts sufficient to
amortize the cost of such assets over their estimated useful lives by the
straight-line method for structures and leasehold improvements and by
accelerated or straight-line methods for equipment.
Tradenames, Patents and Related Assets: Consists primarily of patents,
tradenames and related non-competition agreements acquired in purchase
acquisitions. Patents and non-competition agreements are being amortized over
their term. Tradenames are amortized over twenty-five years.
Goodwill and Technology Acquired:
Goodwill consists of the excess of cost over fair value of net tangible assets
acquired in purchase acquisitions. Goodwill is amortized by the straight-line
method over 20 years. The carrying value of goodwill will be reviewed if the
facts and circumstances suggest that it may be impaired.
Technology acquired consists primarily of exclusive rights under a license
agreement to make, use and sell products utilizing quartz rate sensing
technology. Technology acquired, including capitalized legal fees, is amortized
on a straight-line basis over the average remaining life of the underlying
patents at the date of acquisition, or the estimated useful life of the
technology, whichever is less.
Impairment is determined based on undiscounted future cash flows over the
amortization period. If impairment is indicated, the carrying value of goodwill
or technology acquired would be reduced by the estimated short-fall in
discounted cash flows.
Earnings Per Share: Earnings per share are computed based on the weighted
average number of shares of common stock (less treasury stock) outstanding
during the year, adjusted to include common stock equivalents attributable to
dilutive stock options.
Research and Development Costs: Company-sponsored research and development costs
include research and development efforts related to U.S. Government products and
services. U.S. Government contractual arrangements limit the amounts of research
and development and bid and proposal costs recoverable under U.S. Government
contracts. Company-sponsored product development costs are charged to expense
when incurred. Customer-sponsored research and development costs incurred
pursuant to contracts are accounted for as other contract costs.
Postretirement Benefits: The Company does not provide postretirement benefits
other than pensions under a plan. Liabilities for postretirement benefits under
individual contracts are recorded over the term of employment.
Financial Instruments: In 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures about Fair Value of Financial Instruments". The Company is required
to adopt the Statement in fiscal 1996. Management does not expect adoption of
SFAS No. 107 to have a material impact on the consolidated financial statements
of the Company.
Impairment of Assets: The Company plans to adopt Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective
October 1, 1995. Under SFAS No. 121, impairment losses are recognized when
information indicates the carrying amount of long-lived assets, identifiable
intangibles and goodwill related to those assets will not be recovered through
future operations or sale. Impairment losses for assets to be held or used in
operations will be based on the excess of the carrying amount of the asset over
the asset's fair value. Assets held for disposal, except for discontinued
operations, will be carried at the lower of carrying amount or fair value less
cost to sell. SFAS No. 121 will be applied prospectively from the date of
adoption and, based on current circumstances, management does not believe the
effect of adoption will be material.
Reclassifications: Certain reclassifications have been made to the fiscal 1994
and 1993 financial statements to conform to the fiscal 1995 presentation.
32
<PAGE>
Note C
HYDRA 70 Rocket Contract and Related Contingencies
The principal product of the Company's Defense Systems business segment is the
HYDRA 70 (H 70) Rocket produced under a competitively bid fixed price contract.
Contract production is conducted in Camden, Arkansas and Euless, Texas. Rockets
and components are subjected to various tests and inspections by the U.S.
Government. Production is based on "build to print" technical data packages
("TDP") supplied by the U.S. Government for each significant component. Certain
production lots of fuzes which are components of some rockets have been
determined by the Government not to meet required acceptance test
specifications. Management of the Company believes that the fuzes have been
manufactured in accordance with Government supplied technical data packages and
that any failure to achieve required test specifications is due to the technical
data packages. The Company also believes that the fuzes perform in a manner
equivalent to fuzes manufactured by the Company and other manufacturers and
accepted by the Government in many prior years.
As a result of the above noted conditions, the Company has experienced delays in
production and delivery of rockets which contain the subject fuzes. As a result
of delays the Company has incurred and may continue to incur additional costs
relating to materials, labor and overhead. Based upon the lack of constructive
response from the government to date in addressing the TDP issues, the Company
has reevaluated the estimated cost to complete the H 70 contract and has
recorded a reduction in gross margin on the H 70 contract of $1,468,000 in the
fourth quarter of fiscal 1995. The gross margin on the contract for remaining
production in 1996 would be less than 2% based on the adjusted cost to complete.
In September 1995, management of the Company reached a decision to exit the
rocket manufacturing line of business which makes up a substantial portion of
the Company's Defense Systems segment.
The Company's current backlog of rocket contracts will extend into late fiscal
1996. Assets of the rocket business will be disposed of by sale or liquidation.
The Company expects that the sale or other disposition of the assets of the
rocket line of business will be completed in fiscal 1996. Management believes
the net proceeds from the disposition of assets of the rocket line of business
will equal or exceed the carrying value of the assets.
As a result of the decision to exit the rocket line of business, the Company
will incur costs relating to the closure and abandonment of the leased facility
in Camden, Arkansas including employee severance and related benefits, and lease
and leasehold costs. The Company will also incur similar costs related to its
owned facility in Euless, Texas. The Company has accrued $1,250,000 as exit
costs at September 30, 1995 composed of employee severance of $750,000,
leasehold abandonment of $250,000 and owned facility costs of $250,000. These
costs are included in cost of sales in the consolidated statements of
operations.
Sales and cost of sales for the HYDRA 70 rocket system line of business were as
follows for the fiscal periods indicated.
(dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Sales $38,517 $38,292 $42,253
Cost of Sales 39,979 36,251 32,852
- --------------------------------------------------------------------------------
Non-H 70 sales in the Defense Systems segment include sales under a cost-plus
fee advanced rocket development contract which has no further funding in 1996.
Sales under this contract were $2,893,000, $5,021,000 and $4,640,000 for fiscal
1995, 1994 and 1993 respectively.
Sales for other non-H 70 products (rocket control systems) in the Defense
Systems segment were $4,171,000, $4,306,000 and $3,231,000 for fiscal 1995, 1994
and 1993, respectively.
In October 1995, the Company's Defense Systems subsidiary received notification
from the Procuring Contracting Officer for the HYDRA 70 Rocket Systems Contract
that the Government considered Defense Systems' "failure to maintain
satisfactory fuze production along with projected manufacturing cost overrun
conditions endangering performance of the subject contract." The notice further
advised that the Government may terminate the contract for default unless
evidence was provided showing that this condition could be cured.
33
<PAGE>
Counsel for Defense Systems responded to the notification in early November
1995. The response set forth Defense Systems' position that termination for
default is not an appropriate Government option due to Defense Systems'
compliance with the contract and the Government's responsibility for fuze
technical difficulties, as a result of defective technical data provided to
Defense Systems.
Defense Systems had previously filed, in August 1995, a claim against the
Government relative to the fuze technical data problems experienced on previous
contracts. The amount of the claim was approximately $5 million. Defense Systems
also believes it has rights for additional claims against the Government arising
out of the current H 70 contract. Due to the uncertainties inherent in the
formal claims process, the Company has not recorded any recoveries for the
aforementioned claims in the accompanying financial statements.
In the event that the Government goes forward with a termination for default,
the Company will contest such termination for the purpose of converting it to a
termination for convenience by the Government.
As of October 31, 1995, the amount of unliquidated progress payments relative to
the subject contract was $17 million. If, contrary to the belief of management
of the Company and Defense Systems, a termination for default were to be
instituted by the Government and upheld, Defense Systems could be required to
refund unliquidated progress payments and fund the cost of completion of the
contract by another supplier. Such a result would have a material adverse impact
on the Company.
Management of the Company and of Defense Systems, after consultation with legal
counsel specializing in government procurement law, is of the opinion that the
final resolution of the issues which gave rise to the Government's notice as to
possible termination for default will not have a material adverse effect on the
financial condition or results of operations 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 H 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 rockets 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 the end of fiscal 1994. The Company provided for the cost of warranty
replacement of the affected parts in all undelivered rocket motors in 1994. This
rework effort was completed in fiscal 1995.
For previously delivered rocket motors, the customer conducted 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 were
completed in fiscal 1995 and a determination was made that the performance and
reliability of the affected part was satisfactory and that no further rework was
required. The outcome of the Justice Department portion of the investigation is
not presently determinable; however, management believes, after consultation
with legal counsel, that the outcome of this matter will not have a material
impact on the financial position or results of operations of the Company.
34
<PAGE>
<TABLE>
Note D
Inventories
<CAPTION>
(dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished products $1,607 $2,515
Work in process 6,085 5,570
Materials 9,991 9,047
Costs incurred under long-term contracts,
including U.S. Government contracts 26,269 36,054
Unliquidated progress payments (17,621) (20,001)
- -----------------------------------------------------------------------------------------------------------------------
26,331 33,185
Inventories included in current assets
of H 70 Rocket line of business, net of progress payments of $17,621 5,849 --
- -----------------------------------------------------------------------------------------------------------------------
Net inventories $20,482 $33,185
=======================================================================================================================
</TABLE>
Note E
Bank Credit Agreements
At September 30, 1995 and October 1, 1994, the Company had a $15 million
unsecured credit line with a bank. There were no borrowings under the line at
these dates. Based on the borrowing capacity limitations contained in the Senior
Notes described in Note G, approximately $3.8 million could be borrowed under
the credit line at September 30, 1995. Interest on borrowings is based upon
either the Prime Commercial Lending Rate of Canadian Imperial Bank of Commerce
("CIBC") or the rate which would be offered by CIBC to prime banks in the
interbank Eurodollar market depending on the term of borrowing.
Under the line of credit, the bank will also issue standby letters of credit. At
September 30, 1995, $3.7 million was available to fund letters of credit issued
on behalf of the Company. There were two undrawn letters of credit outstanding
under this facility totaling $0.1 million at September 30, 1995 of which one
will expire no later than October 31, 1995 and one will expire no later than
February 23, 1996.
The credit agreement, which expires in June 1996 if not extended or renewed by
the lender, has covenants concerning certain financial ratios and minimum
balances of net worth. At September 30, 1995, the Company was in compliance with
these covenants.
<TABLE>
Note F
Accrued Expenses and Other Liabilities
<CAPTION>
(dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee compensation $2,082 $1,948
Commissions 649 496
Vacation 2,176 2,127
Payroll and other taxes 404 450
Contract costs 1,348 516
Customer advances 514 972
Royalties and related costs 4,066 164
Other 7,668 5,278
- -----------------------------------------------------------------------------------------------------------------------
18,907 11,951
Accrued expenses included in current liabilities of H 70 Rocket line of
business 2,305 --
- -----------------------------------------------------------------------------------------------------------------------
Accrued Expenses and Other Liabilities $16,602 $11,951
=======================================================================================================================
</TABLE>
35
<PAGE>
<TABLE>
Note G
Long-Term Debt
<CAPTION>
(dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
6.73% Series A Senior Notes; due in annual installments of $3,360
from October 1, 1996 through October 1, 2000 $16,800 $16,800
6.73% Series B Senior Notes; due in annual installments of $2,240
from November 15, 1996 through November 15, 2000 11,200 11,200
Mortgage note payable with interest at 7.96%; due in monthly installments of $14
until 1998 when the remaining balance of approximately $1,700 is due;
collateralized by property with a book
value of approximately $1,820 at September 30, 1995 1,785 1,807
Note payable to related parties with interest at 5.0%; paid in 1995 -- 500
Note payable to the previous owner of Zinnanti Surgical Instruments,
Inc. with interest at 5.0%; payable in monthly installments through
1998 380 488
Note payable to a related party with interest at the lesser of 1.0% below the
Bank of America reference rate or 8.0%; due in annual
installments of $60 plus interest through 1998 180 240
Capitalized equipment lease obligations 71 208
- -----------------------------------------------------------------------------------------------------------------------
30,416 31,243
Less current portion (259) (822)
- -----------------------------------------------------------------------------------------------------------------------
$30,157 $30,421
=======================================================================================================================
</TABLE>
Annual maturities of long-term debt, excluding capitalized equipment lease
obligations (see Note I), are as follows: fiscal 1996--$188,000;
1997--$5,804,000; 1998--$9,174,000; 1999--$7,339,000; 2000--$5,600,000;
thereafter -- $2,240,000.
Interest of approximately $2,413,000, $2,423,000 and $1,359,000 was paid during
fiscal 1995, 1994 and 1993, respectively.
The Senior Note Agreement contains covenants concerning certain financial
ratios, dividend payments and minimum balances of net worth. At September 30,
1995, the Company was not in compliance with a covenant which requires a
specified fixed charges coverage ratio. The Senior Note holders waived the
requirements of this covenant as of September 30, 1995.
Note H
Income Taxes
The Company files a consolidated federal income tax return which includes all
its eligible subsidiaries. In accordance with the tax allocation arrangement
between the Company and its subsidiaries, income taxes are allocated generally
as if the Company and its subsidiaries filed separate U.S. and state income tax
returns.
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilites for financial reporting
purposes and amounts used for income tax purposes.
36
<PAGE>
Significant components of the Company's deferred tax liabilities and assets as
of September 30, 1995 and October 1, 1994 are as follows (in thousands):
1995 1994
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and property basis difference $2,422 $2,462
Amortization of intangibles 179 283
Prepaid expenses 358 495
Accrued expenses 379 392
Other 546 284
- --------------------------------------------------------------------------------
Total deferred tax liabilities 3,884 3,916
Deferred tax assets
Accrued expenses 2,604 1,407
Inventory valuation 1,254 749
Contract reserves 565 64
State net operating loss carryovers 1,223 905
Other 1,678 1,114
- --------------------------------------------------------------------------------
Total deferred tax assets 7,324 4,239
Valuation allowance for deferred tax assets 1,220 603
- --------------------------------------------------------------------------------
Total deferred tax assets 6,104 3,636
- --------------------------------------------------------------------------------
Net deferred tax (assets) liabilities ($2,220) $280
================================================================================
The valuation allowance for deferred tax assets increased by a net $617,000
during the year ended September 30, 1995. The valuation allowance was increased
for the uncertainty of realization of net operating losses of subsidiaries in
certain states, and decreased as a result of net operating losses in other
states becoming more likely of realization. State net operating loss carryovers
expire generally in five to seven years.
<TABLE>
Significant components of the provision for income taxes are as follows:
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current (credit)
Federal (148) (835) 1,684
State 87 266 256
- -----------------------------------------------------------------------------------------------
Total Current 61 (569) 1,940
Deferred (credit)
Federal (2,199) (95) (107)
State (301) (500) (42)
-----------------------------------------------------------------------------------------------
Total Deferred (2,500) (595) (149)
- ------------------------------------------------------------------------------------------------
Total income tax expense (benefits) ($2,439) ($1,164) $1,791
================================================================================================
</TABLE>
<TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective rate is presented below.
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax (credit) at the statutory rate of 34% ($2,322) $(989) $1,893
Federal income tax effect of state income taxes 132 80 (73)
Goodwill amortization 100 92 92
Adoption of FAS 109 -- -- (200)
Other 39 (113) (135)
- -------------------------------------------------------------------------------------------------------------------------
Federal income taxes (credit) (2,051) (930) 1,577
State income taxes (credit) (388) (234) 214
- -------------------------------------------------------------------------------------------------------------------------
Provision(credit) for income taxes ($2,439) ($1,164) $1,791
=========================================================================================================================
</TABLE>
The 1994 tax provision includes a benefit of approximately $130,000 for the
favorable resolution of completed Internal Revenue Service examinations of 1990
and 1991.
37
<PAGE>
Income taxes of approximately $1,420,000, $1,601,000, and $2,781,000, were paid
during fiscal 1995, 1994 and 1993 respectively. Refunds of approximately
$1,400,000 were received in fiscal 1995.
Note I
Stockholders' Equity
The preferred stock may be issued from time to time in one or more series. The
Board of Directors of the Company is authorized to establish from time to time
the number of shares to be included in each series, and to designate the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences.
During fiscal 1992 and 1990 respectively, the Board of Directors of the Company
authorized the purchase from time to time in open market transactions of up to
300,000 and 500,000 additional shares of common stock. As of September 30, 1995,
784,424 shares had been repurchased at a cost of $5,510,000. These shares are
included as treasury stock at September 30, 1995.
Note J
Stock Option and Restricted Stock Plans
In 1982, the Company's stockholders voted to adopt an incentive stock option
plan. The plan provided for option prices based on the fair market value of the
stock on the date the option is granted. The Incentive Stock Option Plan of 1982
terminated December 15, 1991; no further shares can be granted and the options
outstanding at September 30, 1995 will expire if not exercised by 1998.
<TABLE>
Transactions relating to the Incentive Stock Option Plan of 1982 are summarized
as follows:
<CAPTION>
Number of shares Price per share
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at October 3, 1992 40,000 $2.88 - $3.75
Exercised (4,000) $2.88
- -------------------------------------------------------------------------------------------------
Options outstanding at October 2, 1993 36,000 $3.13 - $3.75
Exercised (8,000) $3.13
- -------------------------------------------------------------------------------------------------
Options outstanding at October 1, 1994 28,000 $3.75
Exercised --
- -------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1995 28,000 $3.75
=================================================================================================
</TABLE>
In November 1987, the Company's stockholders voted to adopt an additional
incentive stock option plan and a supplemental (nonqualified) stock option plan.
The incentive stock option plan provides for option prices based on the fair
market value of the stock on the date the option is granted, as determined by
the Board of Directors. The supplemental stock option plan requires that the
exercise price of each option shall not be less than 50% of the fair market
value on the date the option is granted. Under both plans the options are
generally exercisable in three approximately equal installments commencing one
year from the date of grant with accumulation privileges.
Shares issued pursuant to options granted under these two plans shall not exceed
1,250,000 in the aggregate.
38
<PAGE>
<TABLE>
Transactions relating to the Incentive and Supplemental Stock Option Plans of
1987 are summarized as follows:
<CAPTION>
Number of shares Price per share
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at October 3, 1992 889,972 $2.88 - $9.13
Granted 74,365 $6.38 - $7.75
Exercised (108,505) $2.88 - $4.38
Terminated (35,505) $2.88 - $9.13
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding at October 2, 1993 820,327 $2.88 - $9.13
Granted 3,000 $6.13
Exercised (26,121) $2.88 - $7.25
Terminated (129,741) $3.75 - $9.13
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding at October 1, 1994 667,465 $2.88 - $9.13
Granted 31,000 $5.00
Exercised (16,814) $2.88 - $4.38
Terminated (71,256) $4.38 - $9.13
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1995 610,395 $2.88 - $9.13
=======================================================================================================================
</TABLE>
As of September 30, 1995, options for 551,668 shares were exercisable and
344,975 shares were available for stock option grants under the 1987 plans.
In February 1992, the Company's Board of Directors approved the 1992 Restricted
Stock Plan, ratified by the Company's shareholders in February, 1993, and
authorized up to 350,000 shares to be issued to certain key individuals subject
to forfeiture if employment terminated prior to the end of prescribed periods.
The effective date of the plan was January 1, 1992. As of September 30, 1995,
244,926 shares had been granted and of these 212,139 shares are outstanding. Of
the outstanding shares 58,252 have fully vested. There are 137,861 shares
reserved for issue. The market value at the date of grant of shares awarded
under the plan is recorded as unearned restricted stock. The market value of
shares granted is amortized to compensation expense over the periods of vesting.
Compensation expense of $236,000, $196,000 and $181,000 was recorded in fiscal
1995, 1994 and 1993, respectively.
Note K
Employee Benefit Plans
The Company has a defined contribution retirement plan for the benefit of all
eligible employees. The plan qualifies under Section 401(k) of the Internal
Revenue Code thereby allowing eligible employees to make tax deductible
contributions to the plan. The plan provides for a minimum annual employer
contribution of 1% of total employee compensation and an employer matching
contribution equal to 25% of the participant's contribution to the plan up to a
maximum employer matching contribution of 1% of compensation. Additional
contributions are at the discretion of the Board of Directors. The Company's
contributions to the plan for fiscal 1995, 1994 and 1993 were approximately
$736,000, $777,000, and $847,000, respectively.
The Company also has an employee stock purchase plan. The purchase plan
qualifies as an employee stock purchase plan under Section 423 of the Internal
Revenue Code. Under the purchase plan, the Board of Directors may authorize the
participation by employees (excluding certain highly compensated employees) in
offerings of its common stock. Under the purchase plan, employees may have up to
10% of their salary withheld to be used to purchase shares of common stock at a
price equal to not less than 85% of the fair market value of the stock at
specified applicable dates. As of September 30, 1995, 421,275 shares have been
issued and 178,725 shares were reserved for purchase over the ten year life of
the purchase plan.
39
<PAGE>
Note L
Leases and Commitments
Total rental expense attributable to property, plant and equipment amounted to
approximately $2,436,000, $3,082,000, and $3,984,000 for fiscal 1995, 1994 and
1993 respectively.
<TABLE>
The future minimum payments for capital and operating leases consisted of the
following at September 30, 1995:
<CAPTION>
(dollars in thousands) Capital leases Operating leases
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
1996 $72 $2,031
1997 -- 1,868
1998 -- 1,436
1999 -- 799
2000 -- 372
Thereafter -- 1,860
- -----------------------------------------------------------------------------------------------------------------------
Total minimum lease payments $72 $8,366
Amounts representing interest 1
- -----------------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments $71
=======================================================================================================================
Assets recorded under capital leases consists of:
(dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Equipment $564 $564
Less accumulated amortization (468) (334)
- -----------------------------------------------------------------------------------------------------------------------
$96 $230
=======================================================================================================================
</TABLE>
Lease amortization is included in depreciation and amortization of property,
plant and equipment.
Operating leases consist principally of leases for structures and land. Certain
of the operating leases contain various options for renewal and/or purchase of
the related assets for amounts approximating their fair market value at the date
of exercise of the option.
Note M
Contingencies and Litigation
BEI Systron Donner Company vs. General Precision Industries, Inc. et al.
- ------------------------------------------------------------------------
In connection with the acquisition of assets from Systron Donner Corporation
during fiscal 1990, a subsidiary of the 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.
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
40
<PAGE>
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 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. The arbitration panel bifurcated the issues
in the arbitration, and issued an interim ruling in February 1995. In that
interim ruling, which will become final at the close of the arbitration, the
Panel concluded that the license agreement was not subject to termination, that
non-recurring engineering revenues were not royalty-bearing, and that $1 million
of the $4.3 million discussed above is due only if certain conditions are met in
the future. The Panel also concluded that the Company is entitled to ownership
of an accelerometer patent that the former Shareholders developed. Further, in
September 1995, the panel ruled that certain development costs incurred by the
Company could not be used to offset accrued royalties. As a result, in September
1995, the Company accrued $3.5 million for royalties and related costs based on
its understanding of the amounts due under the panel's September ruling. The
estimate of royalties and related amounts due under the license agreement are
based on the Company's proposal to the panel and are significantly less than
amounts proposed by the licensor. Under the panel's February ruling, $3.3
million of the $4.3 million became due. This amount, which is considered part of
the original acquisition cost of the technology, was accrued in February 1995,
paid in October 1995, and is being amortized over the remaining term of the
license.
The second phase of the arbitration continues with final arguments scheduled in
December 1995. This phase involves the final determination of royalty amounts
due for unit sales of product using the acquired technology and other matters
including the parties' respective claims for attorneys' fees. In the event that
the arbitration panel rules that the Company's liability is more or less than
the $3.5 million accrued, an adjustment to the September 30, 1995 estimate will
be required. While the final 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 a material
adverse impact on the financial position of the Company.
State of California Department of Toxic Substances Control vs. Southland Oil,
- --------------------------------------------------------------------------------
Inc. et al.
- -----------
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 litigation with the State was
recently settled in principle, requiring a dismissal of the action following the
payment by defendants to the State of $2.6 million to settle all past and future
response costs at the Site (as well as all other alleged damages). The
defendants believe that there are additional parties that should be liable for
the settlement amount, and some of the defendants (including the Company) have
filed a third party claim against these other parties. There has not yet been an
allocation of the $2.6 million settlement amount either among the defendants or
between the defendants and the third party defendants. Recent formulas that have
been proposed for settlement and that have been discussed by the defendants and
the third party defendants would result in the Company's share of the settlement
amount being set at less than $20,000. While the outcome of this matter cannot
be determined with certainty, management believes, after consultation with legal
counsel, that the ultimate resolution will not have a material adverse impact on
the financial position of the Company.
CooperSurgical, Inc. vs. BEI Medical Systems Company, Inc. et al.
- -----------------------------------------------------------------
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 its president Richard Turner, 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. On November 28, 1994,
the Court vacated the restraint order.
41
<PAGE>
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 was submitted in February 1995. BEI's experts stated that if
CooperSurgical were entitled to damages, those damages would total less than
$100,000, and would be more than offset by BEI Medical Systems' counterclaim
against CooperSurgical. Discovery has been completed. The trial which was
originally scheduled to begin in November will be reset for 1996. 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.
Other
- -----
The Company has pending various legal actions arising in the normal course of
business. Management believes that none of these legal actions will have a
material impact on the Company's operating results or financial condition.
42
<PAGE>
Note N
Business Segment Data
The Company operates principally in three business segments, the Sensors and
Systems segment, the Defense Systems segment and the Medical Systems segment.
The Sensors and Systems segment includes precision sensors, control devices and
systems used in a wide variety of equipment and machinery for aerospace,
industrial, automotive and medical applications requiring high accuracy and
reliability. These products are produced by BEI Sensors and Systems Company. The
Defense Systems segment produces primarily rocket motors, combat and training
warheads, special ordnance components and rocket control systems. See Note C
regarding the Company's decision to exit the rocket manufacturing line of
business. These systems are produced by BEI Defense Systems Company. The Medical
Systems segment consists primarily of electrosurgical units and instruments used
in minimally invasive surgery and procedures. These products are either
manufactured by BEI Medical Systems Company or purchased from the manufacturer
and marketed by BEI Medical Systems Company.
<TABLE>
Intersegment sales are not significant. Identifiable assets by business segment
include both assets directly identified with those operations and an allocable
share of jointly used assets. General corporate assets consist primarily of
cash.
The following information reflects business segment data:
<CAPTION>
(dollars in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Sensors and Systems $90,475 $82,361 $89,391
Defense Systems 45,581 47,619 50,124
Medical Systems 8,847 8,678 7,204
- -------------------------------------------------------------------------------------------------------------------------
Net sales $144,903 $138,658 $146,719
=========================================================================================================================
Operating profit (loss)
Sensors and Systems 4,729 8,557 7,232
Defense Systems (2,358) (210) 5,760
Medical Systems (3,068) (3,710) (1,920)
- -------------------------------------------------------------------------------------------------------------------------
(Loss) income from operations ($697) $4,637 $11,072
=========================================================================================================================
Corporate expenses (4,666) (6,144) (5,851)
Other income 990 1,016 1,805
Interest expense (2,457) (2,417) (1,457)
- -------------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes ($6,830) ($2,908) $5,569
=========================================================================================================================
Identifiable assets
Sensors and Systems 74,028 68,199 60,476
Defense Systems 18,198 28,790 31,399
Medical Systems 12,944 14,854 15,631
General corporate assets 8,568 589 1,022
- -------------------------------------------------------------------------------------------------------------------------
Total assets $113,738 $112,432 $108,528
=========================================================================================================================
Depreciation and amortization expense
Sensors and Systems 5,850 5,462 5,027
Defense Systems 894 1,127 1,089
Medical Systems 1,441 1,350 914
- -------------------------------------------------------------------------------------------------------------------------
$8,185 $7,939 $7,030
=========================================================================================================================
Capital expenditures for property plant and equipment
Sensors and Systems 2,635 8,080 1,756
Defense Systems 51 830 727
Medical Systems 389 220 214
- -------------------------------------------------------------------------------------------------------------------------
$3,075 $9,130 $2,697
=========================================================================================================================
</TABLE>
Net sales to customers in foreign countries amounted to $11,961,000,
$10,436,000, and $8,057,000 in fiscal 1995, 1994 and 1993, respectively. In
fiscal 1995, 1994 and 1993, foreign sales did not exceed 10% of consolidated net
sales in any individual geographic area.
43
<PAGE>
Net sales to the U.S. Government for the Sensors and Systems segment's products
amounted to $28,930,000, $32,718,000, and $42,374,000 in fiscal 1995, 1994 and
1993, respectively. Net sales to the U.S. Government for the Defense Systems
segment's products amounted to $44,012,000, $46,043,000, and $49,122,000 in
fiscal 1995, 1994 and 1993, respectively.
Note O
Quarterly Results of Operations (Unaudited)
<TABLE>
The tables below present unaudited quarterly financial information for fiscal
1995 and 1994:
<CAPTION>
(dollars in thousands except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------
Three months ended
- -------------------------------------------------------------------------------------------------------------------------
Dec 31, Apr 1, Jul 1, Sep 30,
1994 1995 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $36,698 $36,531 $36,634 $35,040
Gross profit 9,912 8,690 10,858 7,901
Net income(loss) (445) (402) 403 (3,947)(1)
Earnings(loss) per common share (0.07) (0.06) 0.06 (0.58)
- -------------------------------------------------------------------------------------------------------------------------
Jan 1, Apr 2, Jul 2, Oct 1,
1994 1994 1994 1994
- -------------------------------------------------------------------------------------------------------------------------
Net sales $29,414 $28,288 $41,699 $39,257
Gross profit 8,987 9,110 11,390 11,606
Net income(loss) (923) (1,121) 177 123
Earnings(loss) per common share (0.14) (0.17) 0.03 0.02
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Net loss for the fourth quarter of fiscal 1995 includes after tax charges
of $2.1 million related to the GPI arbitration (see Note M to Consolidated
Financial Statements) and $750,000 related to the Company's decision to
exit the rocket manufacturing line of business and $910,000 related to an
adjustment for the estimated cost to complete the H-70 contract (see Note
C to Consolidated Financial Statements).
</FN>
</TABLE>
44
<PAGE>
The Board of Directors and Shareholders
BEI Electronics, Inc.
We have audited the accompanying consolidated balance sheets of BEI Electronics,
Inc. and subsidiaries as of September 30, 1995 and October 1, 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BEI Electronics, Inc. and
subsidiaries at September 30, 1995 and October 1, 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
San Francisco, California
November 3, 1995
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to directors and executive
officers is set forth in Part I of this Report. Additional
information required by this Item is incorporated herein by
reference to the section entitled "Compliance with Section
16(a) of the Securities and Exchange Act of 1934" related to
the Company's 1996 Annual Meeting of Stockholders to be filed
by the Company with the Securities and Exchange Commission
(the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the sections entitled "Executive Compensation"
and "Certain Transactions" of the Company's Definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein
by reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of the Company's
Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein
by reference to the sections entitled "Certain Transactions"
and "Compensation Committee Interlocks and Insider
Particpation" of the Definitive Proxy Statement.
46
<PAGE>
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K.
<CAPTION>
Form 10-K
Page Number
<S> <C>
(a)(1) Index to Consolidated Financial Statements.
The following Consolidated Financial Statements of BEI Electronics, Inc. and its
subsidiaries are filed as part of this Form 10-K:
Report of Ernst & Young LLP, Independent Auditors 46
Consolidated Balance Sheets -
September 30, 1995 and October 1, 1994 26
Consolidated Statements of Operations -
Years ended September 30, 1995, October 1, 1994
and October 2, 1993 28
Consolidated Statements of Cash Flows -
Years ended September 30, 1995, October 1, 1994
and October 2, 1993 29
Consolidated Statements of Stockholders' Equity -
Years ended September 30, 1995, October 1, 1994
and October 2, 1993 30
Notes to Consolidated Financial Statements -
September 30, 1995 31
(a)(2) Index to Financial Statement Schedule.
The following Consolidated Financial Statement Schedule of BEI Electronics, Inc. and
its subsidiaries for each of the years ended September 30, 1995, October 1, 1994 and
October 2, 1993 is filed as part of this Form 10-K:
Schedule II Valuation and Qualifying Accounts S-1
Report of Ernst & Young LLP, Independent Auditors S-2
as to Schedule
Consent of Ernst & Young LLP, Independent Auditors S-3
</TABLE>
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
47
<PAGE>
<TABLE>
<CAPTION>
(a)(3) Listing of Exhibits
Exhibit Numbers Description
--------------- -----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation (i)
3.2 Amended by-laws of the Company as of May 25, (xii)
1995
4.1 Reference is made to exhibits 3.1, 3.2, 10.14, 10.17
and 10.19
10.1 * Registrant's 1982 Incentive Stock Option Plan, as (iii)
amended and standard option grant form used in
connection with the plan.
10.2 * Registrant's 1987 Incentive Stock Option Plan, as (iii)
amended and standard option grant form used in
connection with the plan
10.3 * Additional standard option grant form used in (ii)
connection with Registrant's 1987 Incentive Stock
Option Plan, as amended
10.4 * Registrant's 1987 Supplemental Stock Option Plan, as (v)
amended November 12, 1990, and standard option
grant form used in connection with the plan
10.5 * Option grant forms used in connection with options (i)
granted to certain employees on May 1, 1989
10.6 * Description of Management Incentive Bonus Plan (i)
10.7 * Consulting Agreement, dated July 3, 1990, between (iv)
BEI Electronics, Inc. and George S. Brown
10.8 * Extension to Consulting Agreement, effective June 30, (viii)
1993, between BEI Electronics, Inc. and George S.
Brown
10.9 * Registrant's 1992 Restricted Stock Plan and standard (vi)
form of restricted stock agreement used in connection
with the plan
10.10 HYDRA 70 Rocket Systems Contract, dated April 20, (vii)
1992
10.11 Credit Agreement, dated June 1, 1993, between BEI (viii)
Electronics, Inc., Defense Systems Company, Inc.,
Motion Systems Company, Inc., New SD, Inc., BEI
Medical Systems Company, Inc. and Canadian
Imperial Bank of Commerce
<PAGE>
10.12 * Personal Service Contract, dated June 14, 1993, (viii)
between BEI Electronics, Inc. and William G.
Howard, Jr.
10.13 First Amendment to Credit Agreement, dated (ix)
September 23, 1993, between BEI Electronics, Inc.,
Defense Systems Company, Inc., Motion Systems
Company, Inc., New SD, Inc., BEI Medical Systems
Company, Inc. and Canadian Imperial Bank of
Commerce
10.14 Note Agreement, dated August 15, 1993, between (ix)
BEI Electronics, Inc. and Principal Mutual Life
Insurance Company, Principal National Life Insurance
Company, Berkshire Life Insurance Company and
TMG Life Insurance Company
10.15 * 1989 Employee Stock Purchase Plan, adopted June 1, (ix)
1989, as Amended through November 18, 1993
10.16 Second Amendment to Credit Agreement, dated April (x)
1, 1994, between BEI Electronics, Inc., Defense
Systems Company, Inc., Motion Systems Company,
Inc., New SD Inc., BEI Medical Systems Company,
Inc. and Canadian Imperial Bank of Commerce
10.17 First Amendment to Note Agreement, dated April 1, (x)
1994, between BEI Electronics, Inc. and Principal
Mutual Life Insurance Company, Principal National
Life Insurance Company, Berkshire Life Insurance
Company and TMG Life Insurance Company
10.18 Third Amendment to Credit Agreement, dated (xi)
September 30, 1994, between BEI Electronics, Inc.,
Defense Systems Company, Inc., BEI Sensors &
Systems Company, Inc., BEI Medical Systems
Company, Inc. and Canadian Imperial Bank of
Commerce
10.19 Second Amendment to Note Agreement, dated (xi)
September 30, 1994, between BEI Electronics, Inc.
and Principal Mutual Life Insurance Company,
Principal National Life Insurance Company, Berkshire
Life Insurance Company and TMG Life Insurance
Company
10.20 Fourth Amendment to Credit Agreement, dated June (xii)
1, 1995, between BEI Electronics, Inc., BEI Sensors
& Systems Company, Inc., Defense Systems
Company, Inc., BEI Medical Systems Company, Inc.
and Canadian Imperial Bank of Commerce
10.21 * Consulting Agreement, dated September 30, 1995,
between BEI Electronics, Inc. and Peter G. Paraskos 57
11.1 Statement regarding computation of per share
earnings 60
<PAGE>
21.1 Subsidiaries of the Registrant 61
23.1 Consent of Ernst & Young LLP, Independent Auditors
(Reference is made to page S-3) 55
24.1 Power of Attorney (Reference is made to the
Signature Page) 51
27.1 Financial Data Schedule 62
* Indicates management contracts or compensatory plans or arrangements
filed pursuant to Item 601(b)(10) of regulation S-K.
(i) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 33-29032).
(ii) Incorporated by reference. Previously filed as an exhibit to
Amendment No. 1 to the Registrant's Registration Statement on Form
S-1 (File No. 33-29032).
(iii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated December 30, 1989.
(iv) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated June 30, 1990.
(v) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated September 29, 1990.
(vi) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-8 (File No. 33-46766).
(vii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated October 3, 1992.
(viii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated July 3, 1993.
(ix) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated October 2, 1993.
(x) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated April 2, 1994.
(xi) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated October 1, 1994.
(xii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated July 1, 1995.
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1995.
50
<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, thereunto duly authorized in the City of San
Francisco, County of San Francisco, State of California, on December 21, 1995.
By: /s/ Robert R. Corr
-------------------------------
Robert R. Corr
Secretary, Treasurer and Controller
(Principal Accounting Officer)
BEI ELECTRONICS, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Crocker and Gary D. Wrench, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
51
<PAGE>
<TABLE>
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.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/Charles Crocker President, Chief Executive December 21, 1995
- -------------------------- Officer and Chairman of the Board of
(Charles Crocker) Directors (Principal Executive Officer)
/S/Gary D. Wrench Senior Vice President, Chief December 21, 1995
- -------------------------- Financial Officer and Director
(Gary D. Wrench)
/S/Peter G. Paraskos Director December 21, 1995
- --------------------------
(Peter G. Paraskos)
/S/William G. Howard, Jr. Director December 21, 1995
- --------------------------
(William G. Howard, Jr.)
/S/Richard M. Brooks Director December 21, 1995
- --------------------------
(Richard M. Brooks)
/S/George S. Brown Director December 21, 1995
- --------------------------
(George S. Brown)
/S/C. Joseph Giroir, Jr. Director December 21, 1995
- --------------------------
(C. Joseph Giroir, Jr.)
/S/Robert R. Corr Secretary, Treasurer, Controller December 21, 1995
- -------------------------- and Chief Accounting Officer
(Robert R. Corr)
</TABLE>
52
<PAGE>
<TABLE>
SCHEDULE II
BEI ELECTRONICS, INC. AND SUBSIDIARIES
----------------
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
----------- -------- ------------ -------- --------
Additions
------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End of
Description of Period Expenses --Describe --Describe Period
- ----------- ---------- ---------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands)
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 398 $ 145 $ -- $ 92(E) $ 451
Valuation allowance for deferred
tax assets 603 617 -- -- 1,220
-------- ------- ------- -------- --------
Total $ 1,001 $ 762 $ -- $ 92 $ 1,671
======== ======= ======= ======== ========
Year ended October 1, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 303 $ 95 $ -- $ -- $ 398
Valuation allowance for deferred
tax assets 428 430 -- 255(D) 603
-------- ------- ------- -------- --------
Total $ 731 $ 525 $ -- $255 $ 1,001
======== ======= ======= ======== ========
Year ended October 2, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $ 285 $ 86 $ 55(A) $123(B) $ 303
Valuation allowance for deferred
tax assets -- 434(C) -- 6(D) 428
-------- --------- ------- -------- --------
Total $ 285 $ 520 $ 55 $129 $ 731
======== ========= ======= ======== ========
<FN>
(A) Additions due to the acquisition of Zinnanti Surgical Instruments ($26)
and to debit memos written off against sales ($29)
(B) Uncollectible accounts written off, net of recoveries ($76) and reduction
due to the disposition of assets of the Seaton- Wilson diviison ($47)
(C) Allowance established at adoption of Financial Accounting Standards 109,
"Accounting for Income Taxes"
(D) Allowance adjustment resulting from evaluation of the realizability of
the related deferred tax assets
(E) Uncollectible accounts written off, net of recoveries ($2)
</FN>
</TABLE>
S-1
53
<PAGE>
Report of Independent Auditors as to Schedule
The Board of Directors and Shareholders
BEI Electronics, Inc.
We have audited the consolidated financial statements of BEI Electronics, Inc.
and subsidiaries as of September 30, 1995 and October 1, 1994, and for each of
the three years in the period ended September 30, 1995, and have issued our
report thereon dated November 3, 1995. Our audits also included the financial
statement schedule listed in Item 14(a) of this Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
Ernst & Young LLP
San Francisco, California
November 3, 1995
S-2
54
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-31459), as amended, pertaining to the 1982 Incentive Stock Option
Plan, the 1987 Incentive Stock Option Plan, the 1987 Supplemental Stock Option
Plan, and the 1989 Employee Stock Purchase Plan of BEI Electronics, Inc. and
subsidiaries of our reports dated November 3, 1995, with respect to the
consolidated financial statements and schedule of BEI Electronics, Inc., and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
September 30, 1995.
Ernst & Young LLP
San Francisco, California
December 22, 1995
S-3
55
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
- ------- ----------- ------------
4.1 Reference is made to exhibits 3.1 and 3.2
10.21 Consulting Agreement dated September 30, 1995 57
11.1 Statement regarding computation of per share earnings 60
21.1 Subsidiaries of the Registrant 61
23.1 Consent of Ernst & Young LLP 55
Independent Auditors
24.1 Power of Attorney 51
27.1 Financial Data Schedule 62
56
EXHIBIT 10.21
CONSULTING AGREEMENT
THIS AGREEMENT is entered into by and between BEI Electronics, Inc. (hereinafter
referred to as the "Company") and Peter G. Paraskos (hereinafter referred to as
the "Consultant").
FOR AND IN CONSIDERATION of the terms hereof, it is hereby mutually agreed as
follows:
1. Consulting Services. Consultant agrees to provide advice,
consultation and other assistance to the Company regarding
management of the Company as may from time to time by
requested by the Company, including, without limitation,
continuing his service as a member of the Board of Directors
of the Company during the term hereof (the "Consulting
Activities").
2. Term. This agreement shall become effective as of the date
signed and shall terminate after one year on the anniversary
date.
3. Time Commitment: Location. Consultant agrees to devote
approximately one-third of his business time to Consulting
Activities on behalf of the Company. The Consultant's base of
operations for performance of the Consulting Activities shall
be Concord, California. Consultant shall perform such
Consulting Activities at other locations upon reasonable
advance notice from the Company and subject to mutual
agreement between the Company and Consultant with respect to
scheduling. During the term of this Agreement, the Company
agrees to provide Consultant with an office and secretarial
services.
4. Exclusivity. Consultant agrees that, in consideration of the
compensation set forth herein, during the term of this
Agreement he will not perform services relating to the
Company's actual or demonstrably planned business or within
the scope of Consulting Activities for any person or entity
other than the Company.
5. Compensation. The Company agrees to pay Consultant at the rate
of $8,333.33 per month for Consulting Activities on behalf of
the Company.
6. Expenses. Consultant shall be entitled to reimbursement by the
Company for all reasonable out-of-pocket expenses, including,
without limitation, travel, telephone, facsimile, copying and
postal expenses, incurred in the conduct of Consulting
Activities on behalf of the Company, to be billed to the
Company by the Consultant on a monthly basis and to be
reimbursed promptly thereafter by the Company.
7. No Conflicts. Consultant represents and warrants that his
performance of this Agreement does not conflict with any
written or oral agreement into which he has entered.
8. Reports. Consultant shall keep the Company fully informed of
Consultant's activities under this Agreement and, at the
request of the Company, shall discuss all matters relating to
the conduct of Consultant's activities hereunder with
personnel designated by the Company. If requested by the
Company, Consultant shall provide the Company with written
reports describing Consultant's activities under this
Agreement.
57
<PAGE>
9. Confidential Information. The term "Confidential Information" shall
mean all information the Company desires, for business reasons, to hold
in confidence. By way of illustration but not limitation, Confidential
Information includes (a) inventions, developments, designs,
improvements, trade secrets, formulae, processes, devices, instruments,
techniques, know-how and data; (b) plans for research, development, new
business plans, budgets and unpublished financial statements, licenses,
prices and costs; (c) information concerning suppliers and customers;
and (d) information regarding the skills and compensation of employees
of or other consultants to the Company. Consultant agrees to hold all
such Confidential Information in strictest confidence and not to
disclose or use any of the Company's Confidential Information, except
(i) as such use or disclosure may be required in connection with work
for the Company, (ii) as such information has come to be in the public
domain; or (iii) as regulations, court or administrative orders.
Consultant further agrees to assign to the Company any rights he or she
has or may acquire in such Confidential Information to the Company and
agrees that all Confidential Information shall be the sole property of
the Company and its assigns.
10. Independent Contractor. In performance of the Consulting Activities
contemplated herein, Consultant is, and shall be deemed to be for all
purposes, an independent contractor (and not an agent of the Company)
under any and all laws whether existing or future, including, without
limitation, Social Security laws, state unemployment insurance laws and
withholding tax laws and with respect to the payments and reports of
any taxes and/or contributions under such laws. Consultant will not be
authorized to make any material representation, contract or commitment
on behalf of the Company unless specifically requested or authorized to
do so in writing by an officer of the Company.
11. Notices. All notices hereunder shall be in writing and shall be
delivered personally or by first class mail sent postage prepaid to the
parties hereto at their respective addresses as set forth below. Either
party may change its address by written notice. Any notice hereunder
shall be deemed delivered upon personal delivery or 72 hours after
deposit in the U.S. Postal Service system. Notice shall be sent to the
parties at the respective addresses that follow:
Notice to Consultant: Notice to the Company:
Peter G. Paraskos BEI Electronics, Inc.
150 Emmons Canyon Lane One Post Street, Suite 2500
Danville, CA 94526 San Francisco, CA 94104
Attn: Mr. Charles Crocker
12. Waiver. Failure on any occasion by either party to enforce any
provision of this Agreement shall not prevent its enforcement by such
party on any other occasion.
58
<PAGE>
13. Entire Agreement. This Agreement constitutes the sole agreement of the
parties hereto relating to the subject matter hereof and supersedes all
prior agreements with respect to the subject matter hereof. This
Agreement shall not be amended, altered or modified other than by
written agreement between the parties hereto.
14. Severability. If any term, provision, covenant or condition of this
Agreement is determined to be invalid, void or unenforceable by a body
having competent jurisdiction over this Agreement, the remainder of the
provisions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
15. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to contracts entered
into in California by California residents and to be performed entirely
within California.
16. Effective Date. September 30, 1995
CONSULTANT
/s/Peter G. Paraskos
- ----------------------------
Peter G. Paraskos
ACCEPTED:
BEI ELECTRONICS, INC.
By: /s/Charles Crocker
-------------------------
Charles Crocker
Chairman
59
EXHIBIT 11.1
<TABLE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
-------------
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
YEAR ENDED
----------
September 30 October 1 October 2
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(in thousands except per share data)
Weighted average shares outstanding 6,759 6,657 6,526
Net effect of dilutive stock options based
on the treasury stock method using
fair market value -- -- 257
---------- ---------- ---------
Total weighted average shares outstanding 6,759 6,657 6,783
========== ========== =========
Net income $ (4,391) $(1,744) $ 3,778
---------- ---------- ---------
Earnings per common share and common
equivalent share $ (0.65) $ (0.26) $ 0.56
========== ========== =========
</TABLE>
60
EXHIBIT 21.1
BEI ELECTRONICS, INC. AND SUBSIDIARIES
---------
LIST OF SUBSIDIARIES
1. Defense Systems Company, Inc., a Delaware company, doing business in Texas
and Arkansas as BEI Defense Systems Company.
2. BEI Sensors & Systems Company, Inc., a Delaware company, doing business in
California, Arkansas and Massachusetts as BEI Sensors & Systems Company,
previously named BEI Sensors & Motion Systems Company, Inc.
3. BEI International, Inc., a Delaware company.
4. BEI Export Sales Co., Inc., a U.S. Virgin Islands company.
5. BEI Properties, Inc., an Arkansas company.
6. BEI Medical Systems Company, Inc., a Delaware company, doing business in
California and New Jersey.
61
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 11,690
<SECURITIES> 0
<RECEIVABLES> 19,311
<ALLOWANCES> 451
<INVENTORY> 20,482
<CURRENT-ASSETS> 63,830
<PP&E> 46,519
<DEPRECIATION> 23,062
<TOTAL-ASSETS> 113,738
<CURRENT-LIABILITIES> 27,907
<BONDS> 30,157
<COMMON> 9
0
0
<OTHER-SE> 53,319
<TOTAL-LIABILITY-AND-EQUITY> 113,738
<SALES> 144,903
<TOTAL-REVENUES> 144,903
<CGS> 107,542
<TOTAL-COSTS> 107,542
<OTHER-EXPENSES> 42,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,457
<INCOME-PRETAX> (6,830)
<INCOME-TAX> (2,439)
<INCOME-CONTINUING> (4,391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,391)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
