UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 28, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
------- -------
Commission file number 0-17885
B E I E L E C T R O N I C S, I N C.
----------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 71-0455756
- ------------------------------------ -----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
-------------------------------
(Address of principal executive offices)
(415) 956-4477
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 7,041,009 shares as of January 14, 1997
Page 1 of 13
<PAGE>
BEI ELECTRONICS , INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--December 28, 1996 and 3
September 28, 1996
Condensed Consolidated Statements of Operations--Quarter ended 4
December 28, 1996 and December 30, 1995
Condensed Consolidated Statements of Cash Flows--Quarter ended 5
December 28, 1996 and December 30, 1995
Notes to Condensed Consolidated Financial Statements-- 6
December 28, 1996
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the
Company during the quarter ended December
28, 1996.
SIGNATURES 13
Page 2 of 13
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 28, September 28,
1996 1996
(Unaudited) (Note)
(dollars in thousands)
- ------------------------------------------------------------------ -----------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,379 $ 17,329
Trade receivables, net 18,617 18,945
Inventories, net -- Note B 23,481 22,911
Other current assets 5,499 5,480
Current assets of Hydra 70 Rocket line of business, net -- Note C 1,180 4,360
-------- --------
Total current assets 60,156 69,025
Property, plant and equipment, net 23,700 23,305
Acquired technology -- Note E 6,698 6,939
Goodwill 4,468 4,542
Other assets, net 9,275 9,571
Non-current assets of Hydra 70 Rocket line of business --Note C 1,569 1,629
-------- --------
$105,866 $115,011
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 7,181 $ 6,672
Accrued expenses and other liabilities 14,572 15,163
Current portion of long-term debt 5,810 5,809
Current liabilities of Hydra 70 Rocket line of business -- Note C 1,387 3,279
-------- --------
Total current liabilities 28,950 30,923
Long-term debt, less current portion 18,712 24,348
Deferred income taxes and other liabilities 2,058 2,250
Minority interest in consolidated subsidiary 1,544 1,518
Stockholders' equity less treasury stock 54,602 55,972
-------- --------
$105,866 $115,011
======== ========
<FN>
See notes to condensed consolidated financial statements.
Note: The balance sheet at September 28, 1996 has been derived from the audited
consolidated balance sheet at that date.
</FN>
</TABLE>
Page 3 of 13
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
-----------------------------------------------
December 28, December 30,
1996 1995
(dollars in thousands except per share amounts)
- ---------------------------------------------------- ------------------------------------------------
<S> <C> <C>
Net sales $27,081 $34,666
Cost of sales 17,087 24,547
------------------ -----------------
9,994 10,119
Selling, general and administrative expenses 9,462 7,813
Research, development and related expenses 1,328 1,220
------------------ -----------------
Income (loss) from operations (796) 1,086
Interest expense 496 647
Other income 200 112
------------------ -----------------
Income (loss) before income taxes (1,092) 551
Provision (benefit) for income taxes (381) 198
------------------ -----------------
Net income (loss) $(711) $353
================== =================
Earnings (loss) per common share and common share
equivalents -- Note D $(0.10) $0.05
================== =================
Weighted average shares outstanding 6,997 7,074
================== =================
Dividends per common share $0.02 $0.02
================== =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 4 of 13
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarter Ended
------------------------------
December 28, December 30,
1996 1995
(dollars in thousands)
- -------------------------------------------------------- -------------------------------
<S> <C> <C>
Net cash provided (used) by operating activities $1,976 $ (2,908)
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,511) (970)
Increase in other assets (89) (11)
---------- ----------
Net cash used in investing activities (1,600) (981)
Cash flows from financing activities:
Payments on long-term debt (5,606) (40)
Proceeds from issuance of common stock 168 62
Purchase of treasury stock (748) --
Payment of cash dividends (140) (138)
---------- ----------
Net cash used in financing activities (6,326) (116)
---------- ----------
Net decrease in cash and cash equivalents (5,950) (4,005)
Cash and cash equivalents at beginning of period 17,329 11,690
---------- ----------
Cash and cash equivalents at end of period $11,379 $7,685
========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 5 of 13
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 28, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
September 27, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's annual report on Form 10-K for
the year ended September 28, 1996.
NOTE B--INVENTORIES
December 28, September 28,
1996 1996
(dollars in thousands)
- ----------------------------------------------------- --------------------------
Finished products $ 1,980 $ 1,405
Work in process 7,730 6,803
Materials 13,126 11,660
Costs incurred under long-term contracts,
including U.S. Government contracts 2,581 3,840
Unapplied progress payments (860) (451)
-------- --------
$ 24,557 $ 23,257
Inventories included in current assets of Hydra 70
Rocket line of business, net of progress payments of
$860 and $451 1,076 346
-------- --------
Net inventories $ 23,481 $ 22,911
======== ========
NOTE C -- HYDRA 70 ROCKET CONTRACT
In September 1995, management of the Company reached the decision to exit the
rocket manufacturing line of business which made up a substantial portion of the
Defense Systems segment. The principal product comprising this line of business
was the HYDRA 70 (H 70) Rocket. For further information, see Note C to
Consolidated Financial Statements for the fiscal year ended September 28, 1996.
Page 6 of 13
<PAGE>
During the fiscal year ended September 28, 1996, the Company accrued an
additional $700,000 to provide for shut down costs such as employee severance
and facilities closure and took a charge of $313,000 to reflect management's
estimate of the fair market value of the H 70 facility based on current market
conditions. The Defense Systems segment was shut down at the end of FY 1996 and
remaining sales of non-H 70 products are now classified with the Sensors &
Systems segment.
<TABLE>
NOTE D--EARNINGS PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS
<CAPTION>
Quarter Ended
------------------------------------------------
December 28, December 30,
1996 1995
(dollars in thousands except per share amounts)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average shares outstanding 6,997 6,831
Net effect of dilutive stock options
based on the treasury stock method * 243
------ ------
Total weighted average shares outstanding 6,997 7,074
====== ======
Net income (loss) $ (711) $ 353
====== ======
Earnings (loss) per common share and
common share equivalents $(0.10) $ 0.05
====== ======
</TABLE>
Earnings per common share and common share equivalents are computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the period.
*Loss per common share is based on the weighted average number of common shares
only, as any assumption of conversion of options would be antidilutive.
NOTE E--CONTINGENCIES AND LITIGATION
BEI Systron Donner Company vs. General Precision Industries, Inc., et al.
In early January 1997, BEI and the former shareholders of General Precision
Industries, Inc. (GPI) reached a confidential settlement of the last remaining
issues of the dispute that had been in arbitration
Page 7 of 13
<PAGE>
since 1992. Following the November 1996 ruling by the arbitration panel that GPI
may be due costs and expenses, the parties agreed in their January 1997
settlement on a final payment to fully resolve the dispute. The impact of the
settlement and related legal expenses in the first quarter of 1997 was an after
tax charge of approximately $1.1 million. The settlement and all remaining
amounts accrued for GPI under prior rulings by the panel, including royalties
for 1993 through 1996, were paid in the second quarter of FY 1997.
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. On October 16, 1995 the Court clarified
that the partial summary judgment of its May 16, 1994 order remains in effect.
On January 31, 1996, the Court issued a ruling which affirmed the legal basis
for BEI Medical Systems to assert a counterclaim for damages against
CooperSurgical regarding the parties' electrosurgical generator contract.
In June 1996, more than one year after fact and expert discovery closed in May
1995, CooperSurgical's counsel sent to BEI's counsel a letter purporting to
supplement CooperSurgical's previous responses to interrogatories. The June 1996
letter indicated that CooperSurgical's damages for one particular aspect of the
claim were between $24 and $50 million with respect to a claim for which
CooperSurgical's experts had previously estimated damages of $3.4 million. BEI
will vigorously oppose any CooperSurgical attempt whatsoever to introduce at
trial any evidence of a damage claim based upon its June, 1996 purported
supplement.
Management has vigorously defended its rights in this action and believes after
discussion with legal counsel that the CooperSurgical claims are exaggerated. In
1995 expert witnesses for BEI prepared a formal response to the damage
computations CooperSurgical previously submitted. 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' counterclaims
against CooperSurgical, if BEI Medical Systems were successful in its
counterclaims. Several trial dates were set during 1996, all of which were
postponed by the court due in part to the illness and subsequent retirement of
the then-presiding judge. The trial is currently scheduled for June 1997. BEI,
after consultation with counsel, believes that the additional damage figures
stated in the June 1996 letter from CooperSurgical's counsel are unfounded.
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. None of these legal actions is expected to have a material effect on
the Company's operating results or financial condition.
Page 8 of 13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section.
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
Quarter Ended
---------------------------
December 28, December 30,
1996 1995
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0%
Cost of sales 63.1 70.8
----- -----
Gross profit 36.9 29.2
Operating expenses
Selling, general and administrative expenses 34.9 22.5
Research, development and related expenses 4.9 3.5
----- -----
Income (loss) from operations (2.9) 3.2
Interest expense 1.8 1.9
Other income 0.7 0.3
----- -----
Income (loss) before income taxes (4.0) 1.6
Provision for income taxes (credit) (1.4) 0.6
----- -----
Net income (loss) (2.6)% 1.0%
===== =====
Quarters ended December 28, 1996 and December 30, 1995
Net sales for the first quarter of fiscal 1997, ended December 28, 1996,
decreased $7.6 million or 21.9% from the same period in fiscal 1996.
The Defense Systems segment, which was primarily a Hydra 70 Rocket (H 70)
business, shut down its major product line at the end of fiscal 1996. The
segment's sales declined from $10.2 million in the first quarter of fiscal 1996
to zero in the current quarter of fiscal 1997. H 70 sales represented $8.9
million of the decline. The remaining sales of non-H 70 products were not
significantly changed from the comparable period in 1996 and are now classified
with the Sensors & Systems segment.
Sensors & Systems segment sales volume increased $0.9 million or 3.7% in the
first quarter of 1997 from the first quarter of 1996. The sales increase
reflects an improvement in commercial sales, specifically in the industrial and
automotive markets. This was offset, in part, by declines in sales to
Page 9 of 13
<PAGE>
government customers.
Consolidated cost of sales as a percentage of net sales in the first quarter of
fiscal 1997 decreased 10.9% to 63.1% from 70.8% in the comparable period of
fiscal 1996, primarily due to the closure of the major product line in the
Defense Systems segment which eliminated the segment's sales and corresponding
cost of sales during the first quarter of 1997 (see the discussion of sales
above). In the first quarter of fiscal 1996, the cost of sales percentage for
the Defense Systems segment represented 36.6% of total cost of sales. Therefore,
the product mix in cost of sales shifted significantly from government customers
with a lower gross margin to commercial products in the first quarter of fiscal
1997. Medical Systems segment cost of sales declined as a percentage of sales on
increased volume. Sensors & Systems segment cost of sales as a percentage of
sales increased slightly due to higher sales of lower margin products being
produced in volume for the first time for automotive applications.
Selling, general and administrative expenses as a percentage of net sales
increased in the first quarter of fiscal 1997 versus the comparable period of
fiscal 1996, due to the impact of the settlement and other related costs
associated with the resolution of the arbitration with GPI (see Notes to
Condensed Consolidated Financial Statements, Note E--Contingencies and
Litigation).
Research, development and related expenses as a percentage of net sales for the
first quarter of fiscal 1997 increased versus the comparable period of fiscal
1996 due to increased spending in both the Medical Systems segment and the
Sensors & Systems segment.
Liquidity and Capital Resources
During the first quarter of fiscal 1997, total cash provided by operations was
$2.0 million, and was affected by the net loss of $0.7 million and the positive
impact of non-cash charges to income from depreciation of $1.1 million and
amortization of $0.8 million. Cash generated from operating activities included
receivables collections of $4.2 million. Inventory purchases of $1.7 million
were partly offset by reductions in progress payments on government contracts of
$0.4 million resulting in a net cash outflow of $1.3 million. Trade payables and
accrued expenses decreased cash by a net $2.1 million, including the payment of
$3.8 million of amounts accrued in fiscal 1996 due to the GPI arbitration (see
discussion under Notes to Condensed Consolidated Financial Statements, Note
E--Contingencies and Litigation).
Cash used for investing activities of $1.6 million consisted primarily of
capital expenditures. The level of capital expenditures for fiscal 1997 is
consistent with the current volume of business, but is expected to increase as
production is ramped up to meet the demand for automotive sensors.
Cash flows from financing activities consisted primarily of $5.6 million in
scheduled payments made on long-term debt. The Company also used $0.7 million to
purchase treasury stock on the open market. Proceeds from the issuance of common
stock of $0.2 million were partially offset by dividend payments of $0.1
million.
The Company had no material capital commitments at December 28, 1996.
Based on the financial condition of the Company at December 28, 1996, management
believes that
Page 10 of 13
<PAGE>
the existing cash balances, cash generated from operations, and available lines
of credit will be sufficient to meet the Company's planned needs for the
foreseeable future. If the Company requires additional capital, it anticipates
that such capital will be provided by bank or other borrowings, although there
can be no assurances that funds will be available on terms as favorable as those
applicable to the Company's currently outstanding debt.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
Page 11 of 13
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the
Company during the quarter ended December
28, 1996.
Page 12 of 13
<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 February 3, 1997.
BEI ELECTRONICS, INC.
By: /s/ Robert R. Corr
------------------------------------
Robert R. Corr
Secretary, Treasurer and Controller
(Principal Accounting Officer)
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
financial statements for the period ending December 28, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<CASH> 11,379
<SECURITIES> 0
<RECEIVABLES> 18,617
<ALLOWANCES> 0
<INVENTORY> 23,481
<CURRENT-ASSETS> 60,156
<PP&E> 23,700
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,866
<CURRENT-LIABILITIES> 28,950
<BONDS> 18,712
<COMMON> 9
0
0
<OTHER-SE> 54,593
<TOTAL-LIABILITY-AND-EQUITY> 105,866
<SALES> 27,081
<TOTAL-REVENUES> 27,081
<CGS> 17,087
<TOTAL-COSTS> 17,087
<OTHER-EXPENSES> 10,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 496
<INCOME-PRETAX> (1,092)
<INCOME-TAX> (381)
<INCOME-CONTINUING> (711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (711)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
