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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, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-22799
BEI TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3274498
- ----------------------------------- ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
One Post Street, Suite 2500
San Francisco, California 94104
(Address of principal executive officers) (Zip code)
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(415) 956-4477
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(Registrant's telephone number, including area code)
Securities registers pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
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 21, 2000 was $164,520,749 (A).
As of November 21, 2000, 14,321,090 shares of Registrant's Common Stock were
outstanding.
(A) Based upon the closing sale price of the Common Stock on November 21, 2000
as reported on the NASDAQ National Market System. Excludes 3,071,808 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on November 21, 2000.
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 2001 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.
TABLE OF CONTENTS
Page
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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.........18
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................................18
Item 6. Selected Financial Data.....................................19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............20
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..23
Item 8. Financial Statements and Supplementary Data.................24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................42
PART III
Item 10. Directors and Executive Officers
of the Registrant...........................................42
Item 11. Executive Compensation......................................42
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................42
Item 13. Certain Relationships and Related Transactions..............42
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.....................................42
Signatures ...................................................................46
2
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. When
used herein, the words, "intend," "anticipate," "believe," "estimate" and
"expect" and similar expressions as they relate to the Company are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements 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 Item 1, "Business" as well as Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PART I
ITEM 1. BUSINESS
Introduction
BEI Technologies ("Technologies" or the "Company") was incorporated in
Delaware in June 1997 and became publicly held on September 27, 1997 as a result
of the distribution of shares in Technologies to all the stockholders of BEI
Electronics, Inc., (since renamed BEI Medical Systems Company, Inc.,
("Electronics")) on September 24, 1997 (the "Distribution"). The principal
business and continuing operations of Technologies are conducted within one
business segment and are carried out by its divisions which design, manufacture
and sell electronic devices that provide vital sensory input for the control
systems of advanced machinery and automation systems. These sensors, most of
which are concerned with physical motion, provide information that is essential
to logical, safe and efficient operation of sophisticated machinery.
The Company's long-term strategy is to provide, on a global basis,
selected advanced intelligent sensors and sensor based subsystems utilizing
proprietary technologies. Management believes that intelligent sensory input to
machine control systems and computers will be increasingly crucial to the
productive functioning of a modern economy. Accordingly, Technologies' goal is
to maintain, develop and acquire a diverse offering of advanced sensor products,
and manufacture and sell these with complementary products. The Company targets
technology-based markets for subsystems and end products in which its
traditional sensors, micromachined sensors and complementary products play an
enabling role. The Company's near term initiatives include: (a) increased global
penetration of the quartz "yaw" sensor for the automotive industry (as described
below); (b) development and commercialization of other internally developed
technologies that have broad industrial and commercial applications for motion
control, pressure, rate and position sensing; and (c) expansion of product lines
through synergistic acquisitions of complementary technologies.
A key feature of the Company's strategy is to be recognized worldwide
as the most capable source for the sensor categories it has selected. The
Company's traditional emphasis has been on producing highly engineered motion
sensing components and assemblies. The Company believes it differentiates itself
by offering (a) superior technology to solve a customer problem (including
innovative proprietary technology); (b) quality service; and (c) engineering
expertise in recommending and prescribing technical solutions for its customers'
applications. The Company's products are not sold as commodities. Its strategy
is to provide technical solutions and customer service that, together with the
products themselves, create value and give the customer confidence that the
product has been expertly prescribed and applied.
By way of more specific examples, the Company's engineers regularly
address the following illustrative machine control requirements of customers:
(1) Many automobiles now have computer-controlled stability enhancement
systems to assist drivers in maintaining control of the vehicle in slippery
conditions. In some of these systems, one of the Company's sensors tells the
computer system the present direction and angle of the steering wheel, while
another of the Company's sensors instantly measures and reports the presence of
yaw forces which if not corrected could cause the vehicle to spin out or
fishtail. The automation system relies on these sensors to compare the driver's
indicated directions with the actual result and can then take corrective action
automatically. To this end the Company provides special GyroChip quartz sensors.
(2) After a power outage, an elevator system needs to know exactly
where each car is before permitting motion to resume. (Is the car between floors
or not? Are the doors open or closed?) In both the foregoing examples, the
Company's encoders could measure speed, distance or exact location.
(3) An antenna on a moving ship needs to be actively stabilized so that
the antenna will continuously point at a satellite or another ship's pencil beam
laser signal. For such an application the Company might provide its proprietary
GyroChip quartz rate sensor. It might also provide motor-encoders and actuators
to drive the compensating action of such a system.
3
(4) A pick and place robot needs to know how far its elbow and wrist
joints have moved in order to control the speed and position of its "hand."
Factory automation customers typically use optical encoders in pick and place
robots and other position control applications.
(5) Advanced control systems in tractors, trucks, automobiles and
construction equipment need to know position data in order to assure efficient
and clean combustion and safe and reliable gear changes and other automated
functions. The Company's potentiometers provide the necessary data for steering,
throttle and seat position as well as for positioning tools on industrial or
off-road equipment.
(6) Semiconductor production equipment requires extremely fast yet
accurate control of start-move-stop action on x-y positioners and tools. The
Company's magnetic actuators provide the energizing force for such tasks and, by
incorporating a linear encoder, can measure travel and location.
(7) Process automation systems and various medical systems require
compact, high reliability pressure measurement and fast acting valves, for which
the Company provides silicon pressure sensors and/or magnetic actuators.
Customers and Markets
The foregoing examples illustrate a few of the thousands of machine
control situations for which the products of the Company are used. Customers who
buy the Company's products are makers and users of many different kinds of
machinery and systems used in diverse markets and industries. Important market
categories include factory automation, process automation, transportation
(including cars, trucks, mass transit, construction and farm equipment), health
care and scientific equipment, and military, aviation, space and
telecommunications applications.
The Company considers its large number of customers and the vast scope
of existing and potential applications for its products to be a source of the
Company's existing business strength and an opportunity for continued long-term
growth.
The Company's brands have been well established in North America for
many years and were distributed during the past fiscal year through
Technologies' direct sales force to more than 8,250 different commercial
customers, principally in the United States. These customers include both end
users and original equipment manufacturers. The Company ships 90% of sales to
commercial customers, with approximately 50% to the automotive market and 40% to
other industrial markets. The value of individual orders from industrial
customers is typically less than $100,000.
Sales from continuing operations to the U.S. Government (or prime
contractors who manage government funded projects) represented approximately 9%
of the Company's net sales in fiscal 2000, 12% in fiscal 1999 and 17% in fiscal
1998. One customer accounted for approximately 37% and 20% of net sales in
fiscal year 2000 and 1999, respectively, but no single customer accounted for
more than 10% of net sales in fiscal 1998. In fiscal 2000, approximately 45% of
the Company's sales occurred in foreign markets with less than 4% sold in
foreign currency.
The Company also seeks to use its proprietary sensor capabilities to
create value-added subsystems or products. The goal is to make such high margin
products, enabled by the Company's proprietary technology, a growing part of the
Company's business. For example, the Company can provide position feedback
inside a magnetic actuator creating a "smart" actuator.
Products and Proprietary Systems
The Company's main product groups may be categorized as follows;
1. Traditional sensors and complementary products;
2. Micromachined sensors; and
3. Engineered subsystems (such as inertial measurement units, scanner
assemblies, electronic servo control systems and trackballs).
A more detailed description of the products and systems designed,
manufactured and sold by the Company follows below.
4
Traditional Sensors and Complementary Products
Shaft Encoders. Shaft encoders translate the motion of rotating shafts
directly into digitally coded electronic signals. These digitally coded signals
facilitate interpretation of the sensed motion by microcomputer processors that
are used to control the operation of machinery and equipment. The Company offers
a wide array of shaft encoders to serve a variety of applications. The most
common applications are for factory automation, office automation and
transportation equipment, but specialized versions are also used for military
and space hardware. Value-added assemblies which employ shaft encoders include
servo motors and servo drive electronic control systems.
Precision Potentiometers. Similar in basic function to encoders,
potentiometers measure motion by analog (not digital) changes in electrical
potential. These changes may sometimes be subsequently translated into digital
code. Potentiometers are used as economical motion or position-sensing devices
for throttle, steering, suspension, and seat and mirror position controls in
automobiles and in some 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. Combining the Company's
potentiometer technology with its proprietary shaft encoder technology has
resulted in a highly engineered steering wheel position sensor used for
intelligent stability control systems for automobiles and steer-by-wire off-road
transportation programs.
Magnetic Actuators. Magnetic actuators are used in place of cams or
solenoids to achieve precise control of short stroke linear or limited rotary
motion. Actuators using very high-energy magnets are also produced for
specialized applications requiring intense force, torque or acceleration
relative to the size of the device.
Brushless DC Motors. Brushless DC Motors give high performance and
efficiency in compact, lightweight packages and ease of interface with
microprocessors. These 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 respiration
therapy equipment where the risk of dust from a brush motor could be troublesome
or where electrical noise could disrupt computers or computer-controlled
equipment.
Accelerometers. Accelerometers and rate sensors using traditional
mechanical technology (e.g., a moving mass suspended by a pivot and jewel
mechanism) rely on the movement of complex machined metallic parts to measure
motion.
Micromachined Sensors
Rate Sensors and Accelerometers. These products provide precise and
reliable measurement of minute linear and angular motion for control, guidance
and instrumentation. In general, these devices operate without need for direct
linkage to the driving mechanisms. Such measurements are required for heading
and attitude reference instruments in aircraft and missiles, stabilization of
satellites, pointing and control of antennae on aircraft, ships and other moving
platforms, navigation of oil well drill bit assemblies, and for intelligent
vehicle stability systems in the automotive industry. Technologies' produces
miniature, solid state rate sensors and accelerometers are based on innovative
and proprietary chemical micro-machining of a single element 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 costs.
BEI Technologies' GyroChip Sensors. The Company's family of GyroChip
quartz rate sensors, developed primarily to accommodate the need for reliable
and high precision yet economical gyros, have found use in such varied
applications as the navigation of autonomous (robotic) guided vehicles, ocean
buoy and sea-state monitoring, and stabilization of pointing systems for
antennas and optical systems. The most frequent use of GyroChip units (the
automotive quartz rate sensor or "AQRS") is as yaw sensors in stability control
or spinout prevention systems for automobiles. GyroChip sensors provide
performance suitable for commercial applications while offering ruggedness,
longer life and smaller size at a lower cost than military versions of quartz
rate sensors.
Pressure Sensors. Pressure sensors measure absolute or differential
pressure from vacuum to 10,000 psi. Various sensing technologies are used
including silicon micromachined systems used for commercial and industrial
markets. The Company provides standard products as well as application specific
solutions to pressure measurement requirements.
Micro-Electromechanical Systems ("MEMS"). MEMS are a new category of
ultra small devices, usually micro-machined from crystalline materials such as
quartz or silicon. The GyroChip sensors and other quartz devices discussed above
are examples of MEMS currently being sold by Technologies. Management expects
the Company's MEMS research and development programs to lead to new devices for
sensing motion, pressure and other physical parameters.
5
Engineered Subsystems:
Inertial Measurement Units ("IMU"). These subsystems are a fundamental
element of virtually all inertial navigation and position or attitude reporting
systems. Even systems that rely on the Global Positioning Satellite ("GPS")
network frequently must have an IMU built in to ensure a back up in case the GPS
signal is interrupted. Technologies' quartz rate sensors have made new
breakthroughs in size, reliability and cost for it's proprietary IMU subsystems.
Scanner Assemblies. Scanner assemblies are an integral subsystem of the
optics in military night vision systems that guide the infrared image to the
focal plane sensor array. These subsystems consist of spinning or reciprocating
mirrors, a motor and an encoder in a precision servo loop. The Company's motion
control know-how helps ensure that the scanner delivers jitter-free,
well-resolved images.
Servo Systems. Servo Systems are closed-loop electronic systems that
control the position or velocity of rotating shafts or other moving parts by
noting a desired rate of movement or position (usually input from computers or
control panels), monitoring the actual position or rate of movement (using an
appropriate encoder or other sensor) and constantly providing feedback that
indicates whether further action is required to achieve or maintain the desired
performance.
Trackballs. Technologies' trackballs have flexible and rugged designs
that allow them to be an integral part of a keyboard as well as stand-alone
cursor positioners. They are used in ultra-sound scanning machines, factory
automation and defense applications. The flexibility is provided by the
interface electronics design that accommodates various standard and customized
interfaces and rugged performance is provided by a proprietary ball sealing
technique that allows operation in harsh environments.
Backlog
Backlog figures for the Company at September 30, 2000 and at October 2,
1999, were $83,269,000 and $62,469,000, respectively.
The Company's commercial operations typically ship standard products
within 30 to 90 days after receipt of a purchase authorization. Management of
the Company believes that its competitive position depends in part on minimizing
the time that elapses between receipt and shipment of an order. Products that
require special analysis, design or testing, such as those produced for
customers in the aviation or space technology markets, are generally shipped
from six to eighteen months after receipt of the purchase authorization.
In the case of U.S. Government contracts, backlog includes only the
applicable portion of 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 at-will, traditionally with compensation for
work completed and costs incurred.
Backlog figures for the Company include aggregate contract revenues
remaining to be earned by the Company, principally over the next twelve months,
for scheduled deliveries under existing contracts. Some contracts undertaken by
Technologies extend beyond one year. Accordingly, portions of certain contracts
are carried forward from one year to the next as part of backlog. All orders
considered backlog for the Company as of September 30, 2000 are scheduled for
shipment during fiscal 2001. There can be no assurance that all existing
contract backlog will eventually result in revenue and, accordingly, the amount
of backlog at any date is not necessarily a reliable indicator of future revenue
or profitability trends.
Competition
Competitors for various products offered by the Company are found among
certain divisions or product lines of large, diversified companies such as
Danaher Corp., Litton, Rockwell International, Delphi Automotive Systems Corp.,
Mannesmann Group, and Panasonic. There are smaller or product-specific
companies, some of whose products compete with those of the Company, including
Sensor Systems LLC, CTS Corp., Dynamics Research Corp., Heidenhain, Kollmorgen,
Kulite Semiconductor, Servo Magnetics Corp., Bourns, Inc. and Druck Holdings,
P.L.C.
In its principal markets, the Company believes that competition is
based primarily on design, performance, reliability, price, delivery, service
and support. The Company believes that it competes favorably with respect to
these factors.
6
Manufacturing
The Company's manufacturing operations provide a mix of standard
products and custom products designed to meet the specialized requirements of a
particular customer. The Company's products, whether standard or custom, are
normally manufactured in response to customers' orders and are in general not
held as finished goods. Most are assembled from parts or subassemblies that are
proprietary to the Company.
Specialized or proprietary equipment is often used to produce the
Company's products. For example, a code pattern generator designed by and
proprietary to the Company is used to produce some shaft encoder parts.
Specialized quartz micromachining equipment is used for the production of
GyroChip units. High throughput automated or semi-automated equipment is used
for the production of GyroChip assemblies, brushless motors and potentiometers.
Some parts are fabricated under clean room conditions.
The Company's production of automotive yaw sensors required scaling-up
its production to the quantities demanded by the automobile market. The Company
is continuing to refine production engineering measures to support the
fabrication, assembly, and testing of new sensors in the appropriate quantities.
There can be no assurance that the Company will be able to produce the required
quantities on time or in sufficient amounts to satisfy demand. Failure to do so
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Risk Factors--Limited Volume
Manufacturing Experience."
Research and Development
The Company's major research and development focus has been to improve
performance and yield of existing products, with special emphasis on the quartz
sensors used in high accuracy IMU's and high volume yaw rate sensors for the
automotive industry. Substantial effort has also been devoted to the development
of efficient manufacturing methods necessary for competitive pricing of the
Company's products while maintaining the required quality for the automotive
market. Other development has focused on expanding applications of existing
sensors and utilizing the Company's various complementary products to create
additional capability and intelligence within the sensor package.
The Company is developing products for the future and continues to
produce prototypes incorporating silicon MEMS geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.
During the 2000 fiscal year, the Company invested in the development of
a new non contacting angular position sensor referred to as NCAPS. The
development was driven by the Company's perception of market demand for a
technology usable in high volume applications (e.g., steering sensors, torque
sensors, angular position measurement sensors), that would overcome the
limitations of contacting sensors as well as the limitations of currently
available non-contacting sensors. During fiscal 2000, the Company completed
development and testing efforts, and is presently developing pre-production
units. The design and architecture of the NCAPS (essentially a digitally
processed proprietary transceiver sensor unit) when combined with the Company's
existing manufacturing expertise, may lend itself to high volume production. The
Company believes applications for this technology may cover a wide spectrum
within the automotive, industrial and aerospace market sectors. A linear version
of NCAPS is also in development for use with the Company's voice coil actuators
manufactured for the motion control industry.
Management of 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 $8.9 million, $6.6 million and $6.4 million in
fiscal 2000, 1999 and 1998, respectively. In addition, customer-funded research
and development expenditures charged to cost of sales were $0.6 million, $0.4
million and $0.9 million, respectively, for the same periods. Development of the
Company's portfolio of quartz rate sensors, including the NCAPS, comprised most
of the prior years' customer-funded research and development expenditures. As
these sensors have moved from the development stage to production, there has
been a corresponding decrease in customer-funded research and development
expenditures.
Employees
As of September 30, 2000, the business units comprising Technologies
had 1,189 employees, including 143 in research, development and engineering, 134
in administration, 56 in marketing and sales, and 856 in operations. The Company
believes that its continued success depends on its ability to attract and retain
highly qualified personnel. The Company's employees are not covered by
collective bargaining agreements. The Company has not experienced any work
stoppages and considers its relationship with its employees to be good.
7
Intellectual Property
The Company relies primarily upon trade secrets and know-how to develop
and maintain its competitive position. In addition, the Company and its
subsidiaries have been issued 78 U.S. patents and 93 foreign patents with
expiration dates ranging from April 2001 to August 2017. 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.
While management believes that the Company's intellectual property
rights are important, management also believes that because of the rapid pace of
technological change in the industries in which the Company competes, factors
such as innovative skills, technical expertise, the ability to adapt quickly to
technological change and evolving customer requirements, product support and
customer relations are of equal competitive significance.
Environmental Matters
The Company uses certain controlled or hazardous materials in its
research and manufacturing operations and, as a result, is subject to federal,
state and local regulations governing the storage, use and disposal of such
materials. Management of the Company believes that it is currently in compliance
with such laws and regulations, and that the cost of such compliance has not had
a material effect on the Company's capital expenditures, earnings or competitive
position, and is not expected to have a material adverse effect in the
foreseeable future.
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 "Risk Factors--Government
Regulation" and "Risk Factors--Contracting with the U.S. Government" below.
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 2000, 1999 and 1998
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. 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.
Regulation of Foreign Sales
Certain of Technologies' 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 45%, 28% and
14% of revenues for fiscal 2000, 1999 and 1998, 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.
Recent Developments
At the close of business on October 30, 2000, Technologies declared a
distribution to its stockholders of approximately 42% of the outstanding
securities of OpticNet, Inc. ("OpticNet"), a formerly majority-owned subsidiary
of Technologies. OpticNet's business is focused on developing fiber optic
components and subsystems, such as optical switches, used in telecommunications
systems.
8
In the distribution, each holder of record of Technologies common stock
as of the close of business on October 30, 2000 received one share of OpticNet
common stock for every two shares of Technologies common stock held, and cash in
lieu of any fractional share of OpticNet common stock. As a separate matter, the
Board of Directors of Technologies also declared a one-for-one stock dividend to
its stockholders, also effective October 30, 2000, immediately following the
distribution of the shares in OpticNet. Immediately following the effectiveness
of the distribution of the OpticNet shares, stockholders of record as of the
close of business on October 30, 2000, received one additional share of the
common stock of Technologies for each share held as of such date, and cash in
lieu of any fractional share of Technologies common stock.
RISK FACTORS
Stockholders or investors considering the purchase of shares of the
Company's Common Stock should carefully consider the following risk factors, in
addition to other information contained in this Annual Report on Form 10-K.
Additional risks and uncertainties not presently known to the Company or that
the Company currently deems immaterial could also impair the Company's business
operations.
Competition
The principal competitive factors affecting the market for the
Company's products include product functionality, performance, quality,
reliability, price, compatibility and conformance with industry standards, and
changing customer systems requiring product customization. Several of the
Company's existing and potential competitors, including those noted above under
"Business - Competition", have substantially greater financial, engineering,
manufacturing and marketing resources than does the Company. Further, the
technologies offered by the Company may compete for customer acceptance with
technologies offered by other manufacturers, such as resolvers, inductosyns,
laser and fiber optic gyros and magnetic encoders. There can be no assurance
that other companies will not develop more sophisticated, more cost-effective or
otherwise superior products which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Rapid Technological Change; Research and Development Efforts
The market for the Company's products is affected by rapidly changing
technology and evolving industry standards and the emergence of new technologies
and protocols. The Company believes that its future success will depend upon its
ability to enhance its existing products and to further develop and introduce
new products that meet a wide range of evolving customer needs and can achieve
market acceptance. There can be no assurance that the Company will be successful
in these efforts. The Company has incurred, and the Company expects to continue
to incur, substantial expenses associated with the introduction and promotion of
new products. There can be no assurance that the expenses incurred will not
exceed research and development cost estimates or that new products will achieve
market acceptance and generate sales sufficient to offset development costs. In
order to develop new products successfully, the Company is dependent upon key
management and technical personnel who continuously contribute ideas to develop
new products and enhancements of the Company's existing products. There can be
no assurance that products or technologies developed by others will not render
the Company's products non-competitive or obsolete.
Limited Volume Manufacturing Experience
The Company is continuing the process of adding production capacity for
its automotive yaw rate sensors to respond to the high volume demand required by
the automobile market. The Company has relatively recent experience in
large-scale manufacturing and, accordingly, may not be able to manufacture
products and deliver them to customers as quickly and in the volumes they
require. A failure by the Company to manufacture and deliver products in a
timely fashion could harm the Company's reputation and cause the loss of
potential future sales and the Company could be forced to pay penalties to
customers in the event of contract breach for delivery failures. These types of
manufacturing delays can occur for various reasons, including a lack of
manufacturing capacity, the failure of a supplier to provide components in a
timely fashion or with acceptable quality, or an inability by the Company to
attract and retain qualified manufacturing personnel.
The Company is largely dependent on its Concord, California facility to
meet the volume of manufacturing required by the automobile market. In fiscal
2000, the Concord facility manufactured approximately 1.35 million automotive
quartz rate sensors for use in automobiles sold in the North American and
European markets. The Company has encountered difficulties in the past in
scaling up for high volume production of its GyroChip sensors, including
problems involving production yields, component supplies and shortages of
qualified personnel. There can be no assurance that future manufacturing
difficulties, which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.
9
Risks from Manufacturing and Design Defects; Ability to Meet Customers'
Performance Criteria
The Company has experienced manufacturing quality problems in the past
and could experience similar problems in the future. Certain of the Company's
products are designed for use in critical safety and mission critical systems.
During the Company's continuing efforts to increase manufacturing and production
capabilities to meet market demand, high quality standards for the Company's
products must be maintained, or risk customer dissatisfaction, damage to the
Company's reputation, or significant liability claims if the Company's products
contain undetected errors or inaccuracies. The Company attempts to contractually
limit exposure to liability claims by customers, but this may be insufficient in
the face of very large claims and does not preclude all potential claims. As a
result, product recalls or significant liability claims, whether or not
successful, could harm the Company's reputation and business.
Limited Manufacturing Experience; Scale-Up Risk; Product Recall Risk
Technologies is continuing the process of adding production capacity
for its automotive yaw rate sensors to respond to the demand for quantities
required by the automobile market. The Company has relatively recent experience
in large-scale manufacturing. The Company manufactured approximately 1.35
million units of its automotive quartz rate sensor in the Concord, California
facility, which supplied sensors to less than 5% of automobiles sold in the
North American and European markets in fiscal 2000. The Company has continued to
encounter difficulties in scaling up production of the GyroChip sensors,
including problems involving production yields, component supplies and shortages
of qualified personnel. There can be no assurance that future manufacturing
difficulties or product recalls, either of which could have a material adverse
effect on the Company's business, financial condition and results of operations,
will not occur.
Manufacturing Processes and Equipment
The Company manufactures certain products such as quartz rate sensors,
potentiometers and some shaft encoders using extremely complex proprietary
processes and equipment. The fabrication of these products requires
manufacturing efforts to occur in a highly controlled and ultra-clean
environment, and accordingly these products are extremely sensitive to changes
in manufacturing conditions. In the event of a production disruption, the
possibility exists that equipment could be irrevocably damaged or that process
disciplines and controls could be temporarily or permanently lost, which would
cause the Company to experience problems achieving acceptable manufacturing
yields. Such a disruption of production could have a material adverse effect on
the Company's business, financial condition and results of operations.
Dependence Upon Key Personnel
The Company depends to a significant degree on the continued
contribution of key management and technical personnel. The loss of the services
of one or more key employees could have a material adverse effect on the
Company. The Company's success also depends on its ability to attract and retain
additional highly qualified management and technical personnel. Skilled
technical personnel in the Company's industry are in short supply, and this
shortage is likely to continue for some time. As a result, competition for these
people is intense and they are often subject to offers from competing employers,
particularly in northern California where certain of the Company's facilities
are located and there is a high concentration of technology companies. There can
be no assurance that the Company will be able to retain its key employees, or
that it will be able to attract or retain additional skilled personnel as
needed. The Company does not currently maintain key person insurance on any
employee. See "Business-Employees" and "Business-Directors and Executive
Officers of the Company."
Dependence Upon Key Suppliers
Although the majority of the components used in Company products are
available from multiple sources, several components are built or provided to the
Company's specifications. Such components include quartz, supplied by Sawyer
Research Products, Inc.; scanner motors, supplied by Litton Industries, Inc.;
four types of ASIC's, supplied by National Semiconductor Corporation, Orbit
Semiconductor, Honeywell Inc. (recently acquired by General Electric) and
Semtech Corp.; and two types of LED's, supplied by Optek Technology, Inc. and
Opto Diode Corp. The Company currently relies on single suppliers for these
components. Any increase in the cost of the components used in the Company's
products could make the Company's products less competitive and lower the
Company's gross margin. Additionally, the Company's single source suppliers
could enter into exclusive agreements with or be acquired by one of the
Company's competitors, increase their prices, refuse to sell their products to
the Company, discontinue products or go out of business. To the extent
alternative suppliers are available to the Company, identifying them and
entering into arrangements with them is difficult and time consuming, and they
may not meet quality standards of the Company. Additionally, consolidations
among the Company's suppliers could result in other sole source suppliers. There
can be no assurance that there will not be a significant disruption in the
supply of such components in the future, or in the event of such disruption,
that the Company will be able to locate alternative suppliers of the
10
components with the same quality at an acceptable price. An interruption in the
supply of components used in the manufacture of the Company's products,
particularly as the Company scales up its manufacturing activities in support of
commercial sales, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence Upon Key Customers
Approximately 37% of the net sales of the Company in fiscal 2000 were
to Continental Teves for the automotive quartz rate sensor product used in
automobile stability control systems. Continental Teves integrates the Company's
sensor product into independently developed products and markets the integrated
systems to various customers in the automobile industry. This concentration of
sales is expected to expand in fiscal 2001 and beyond. The Company continues to
increase production of the GyroChip sensors (see "Business--Risk
Factors--Limited Volume Manufacturing Experience") to meet the requirements of
its contracts with Continental Teves. In addition, the Company is in discussion
with Continental Teves and other automotive customers that could lead to
extensions of existing contracts and to new contracts on favorable terms. There
can be no assurance that the Company will be able to retain or extend its
contracts with Continental Teves or other automotive customers, or obtain new
contracts on favorable terms, or that the product will continue to achieve
continuing growth beyond the end of the current contracts, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Government Regulation
Certain aspects of the industry in which the Company's products are
sold are regulated both in the United States and in foreign countries.
Imposition of public carrier tariffs, foreign taxation and the necessity of
incurring substantial costs and the expenditure of managerial resources to
obtain regulatory approvals, particularly in foreign countries where safety
standards differ from those in the United States, or the inability to obtain
regulatory approvals within a reasonable period of time, could have a material,
adverse effect on the Company's business, operating results and financial
condition. The Company's products must comply with a variety of equipment,
interface and installation standards promulgated by regulatory authorities in
different countries. Changes in government policies, regulations and interface
standards could require the redesign of products and result in product shipment
delays which could have a material, adverse impact on the Company's business,
operating results and financial condition.
Contracting with the U.S. Government
Approximately 9%, 12% and 17% of the net sales of Technologies in
fiscal 2000, 1999 and 1998, respectively, were derived from contracts with the
U.S. Government or under subcontract to other prime contractors to the U.S.
Government. Because a significant portion of Technologies' business is derived
from contracts with the Department of Defense or other agencies of the U.S.
Government, the Company's business is sensitive to changes in U.S. Government
spending policies which can have significant variations 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 U.S.
Government procurement policies or reductions in U.S. 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
U.S. Government regulations. The U.S. Government also has the right to review
retroactively the cost records under most U.S. Government contracts. Contract
prices may be adjusted in the event the U.S. Government determines that the
Company submits incomplete, inaccurate or obsolete cost or pricing data.
Government contracts and 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-fixed-fee contracts
provided approximately 5.9% of the Company's net sales in fiscal 2000. 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 U.S. 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 Technologies' contracts by the U.S. 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.
11
Portions of the Company's government business are sometimes classified.
As a result, the Company may be prohibited from disclosing the substance or
status of such business.
Dependence on Proprietary Intellectual Property
Success for the Company depends, in part, on the Company's ability to
protect its intellectual property. The Company relies on a combination of
patent, copyright, trademark and trade secret laws to protect its proprietary
technologies and processes. Nevertheless, such measures may not be adequate to
safeguard the proprietary technology underlying its products. In addition, the
Company's existing and any future patents that may be issued, could be
challenged, invalidated or circumvented, and any right granted thereunder may
not provide meaningful protection to the Company. The failure of any patents to
provide protection to the Company's technology might make it easier for
competitors to offer similar products and use similar manufacturing techniques.
Despite precautions, it may be possible for a third party to copy or otherwise
obtain and use the Company's products or technology without authorization,
develop similar technology independently or design around those patents issued
to the Company. In addition, effective patent, copyright, trademark and trade
secret protection may be unavailable or limited outside of the United States,
Europe and Japan. The Company may not be able to obtain any meaningful
intellectual property protection in such countries and territories.
Additionally, the Company may, for a variety of reasons, decide not to file for
patent, copyright, or trademark protection outside of the United States.
Further, at the request of customers, the Company occasionally incorporates a
customer's intellectual property into designs, in which case the Company will
have obligations with respect to the non-use and non-disclosure of that
intellectual property. However, the steps taken by the Company to prevent
misappropriation or infringement of Company intellectual property or that of
customers may not be successful. Moreover, costly and time intensive litigation
could be necessary to enforce the Company's intellectual property rights, to
protect the Company's trade secrets or to determine the validity and scope of
proprietary rights of others, including customers.
The industries in which the Company operates can be characterized by
their vigorous protection and pursuit of intellectual property rights. In this
regard, the invalidity of the Company's patents could be asserted and claims
made against the Company. Furthermore, in a patent or trade secret action, the
Company could be required to withdraw certain products from the market or
redesign products offered for sale or under development. The Company has also
entered into certain indemnification obligations in favor of customers and
strategic partners that could be triggered upon an allegation or finding of
infringement of other parties' proprietary rights. Irrespective of the validity
or successful assertion of such claims, the Company would likely incur
significant costs and diversion of resources with respect to the defense of such
claims. To address any potential claims or actions asserted in opposition, the
Company may seek to obtain a license under a third party's intellectual property
rights. Under such circumstances, a license may not be available on commercially
reasonable terms, if at all.
International Sales
Sales to customers located outside the United States accounted for
approximately 45% and 28% of the Company's net sales in fiscal 2000 and 1999,
respectively. The Company expects that international sales will continue to
represent a significant portion of the Company's product revenues and that the
Company will be subject to the normal risks of international sales, such as
export laws, currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collections and complying with a wide variety of foreign
laws. Although the Company has not previously experienced significant
difficulties under foreign law in exporting its products, there can be no
assurance that the Company will not experience such difficulties in the future.
In addition, because the Company primarily invoices its foreign sales in U.S.
dollars, fluctuations in exchange rates could affect demand for the Company's
products by causing its prices to be out of line with products priced in the
local currency. Such difficulties could have a material adverse effect on the
Company's international sales and a resulting material adverse effect on the
Company's business, operating results and financial condition.
Possible Volatility of the Company's Common Stock Price
The price of the Company's Common Stock has fluctuated widely in the
past. Sales of substantial amounts of the Company's Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Company's Common Stock. The management of the Company believes
that such past fluctuations may have been caused by the factors identified above
as well as announcements of new products, quarterly fluctuations in the results
of operations and other factors, including recent volatility in stock prices for
technology focused companies as a whole. These fluctuations, as well as general
economic, political and market conditions and other unrelated to operating
performance may adversely affect the market price of the Company's Common Stock.
The Company anticipates that prices for Technologies Common Stock may continue
to be volatile. Future stock price volatility for Technologies Common Stock
could provoke the initiation of securities litigation which may divert
substantial management resources and have an adverse effect on the Company's
business, operating results and financial condition.
12
Voting Control by Officers, Directors and Affiliates
At September 30, 2000 the Company's officers and directors and their
affiliates beneficially owned approximately over 25% of the outstanding shares
of the Company's Common Stock. Accordingly, together they had the ability to
significantly influence the election of the Company's directors and other
corporate actions requiring shareholder approval. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company.
Certain Charter Provisions
The Company's Board of Directors has authority to issue up to 2,000,000
shares of Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the shareholders. The rights of the holders of the Company's Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights, senior to the Common Stock,
and as a result, the issuance thereof could have a material adverse effect on
the market value of the Company's Common Stock.
13
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as
of December 1, 2000 are as follows:
Name Age Position
---- --- --------
Charles Crocker........................ 61 Chief Executive Officer and Chairman of the Board of Directors
Dr. Asad Madni......................... 53 President, Chief Operating Officer and Director
John LaBoskey.......................... 47 Senior Vice President and Chief Financial Officer
Dr. Lawrence A. Wan.................... 61 Senior Vice President and Chief Technology Officer
Robert R. Corr......................... 54 Vice President, Secretary, Treasurer and Controller
Gerald D. Brasuell..................... 52 Vice President and General Manager, BEI Systron Donner
David Pike............................. 47 Senior Vice President Divisional Administration and Human Resources
Richard M. Brooks(1)(2)................ 72 Director
George S. Brown(2)..................... 79 Director
C. Joseph Giroir, Jr.(1)(2)............ 61 Director
Dr. William G. Howard, Jr.(1).......... 59 Director
Gary D. Wrench ........................ 67 Director
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Directors
Mr. Brooks began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. From 1987 until his resignation as a result of the Distribution, he served
as a director of Electronics. He is currently an independent financial
consultant, and also serves as a director of Longs Drug Store Corporation,
Granite Construction, Inc. and the Western Farm Credit Bank, a private company.
Mr. Brooks holds a B.S. from Yale University and a M.B.A. from the University of
California, Berkeley.
Mr. Brown began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. He served as a director of Electronics from October 1974 until his
resignation as a result of the Distribution. Mr. Brown served as President and
Chief Executive Officer of Electronics from October 1974 until July 1990. 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 Electronics. Mr. Brown holds a B.S.E.E. from the University
of Oklahoma.
Mr. Crocker began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. He was a founder of Electronics and has served as Chairman of the Board of
Directors of Electronics since October 1974 and Chairman of the Board of
Directors of Technologies since October 1997. Mr. Crocker assumed the positions
of President and Chief Executive Officer of Technologies, effective October 1,
1997, after resigning as President and CEO of Electronics as a result of the
Distribution. Mr. Crocker served as President of 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 and
Pope & Talbot, Inc. Mr. Crocker also serves as director of OpticNet, Inc. Mr.
Crocker holds a B.S. from Stanford University and an M.B.A. from the University
of California, Berkeley.
Mr. Giroir began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. He was a director of Electronics from 1978 until his resignation as a
result of the Distribution. He served as the Secretary of Electronics from 1974
to early 1995. Mr. Giroir is the sole member of Giroir, PLC. He is also
President of Arkansas International Development Corporation II, LLC and Chairman
of the Board of Directors for Clinical Study Centers, LLC. Mr. Giroir holds a
B.A. and an L.L.B. from the University of Arkansas and an L.L.M. from Georgetown
University.
14
Dr. Howard began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. He was a director of Electronics from December 1992 until his resignation
as a result of the Distribution. 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. He currently serves as Chairman of
Credence Systems, Inc. and a director of RAMTRON International Corp.,
Thunderbird Technologies, Inc., and Xilinx, Inc. Dr. Howard holds a B.S.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.
Dr. Madni was appointed President and Chief Operating Officer of the
Company in May, 2000. He began serving as a Director and as a Vice President of
the Company in June 1997 prior to the Distribution and resulting spin-off of the
Company from Electronics in September 1997. Dr. Madni was appointed President of
BEI Sensors & Systems Company, Inc. in October 1993, which was formed by the
consolidation of BEI Motion Systems Company and the BEI Sensors & Controls
Group, of which Dr. Madni had been President since October 1992. Prior to
joining BEI Electronics in 1992, he served for 17 years in various senior level
technical and executive positions with Systron Donner Corporation, a
manufacturer of avionics and aerospace sensors and subsystems. He was most
recently Chairman, President and CEO of Systron Donner Corporation, a subsidiary
of Thorn/EMI. Dr. Madni's degrees include a Bachelor of Science and Master of
Science in Engineering from the University of California, Los Angeles, and a
Ph.D. in Engineering from California Coast University. He is also a graduate of
the Engineering Management Program from the California Institute of Technology,
the AEA/Stanford Executive Institute from Stanford University, and the Program
for Senior Executives from the Massachusetts Institute of Technology, Sloan
School of Management. He is a Chartered Engineer and Fellow of the Institute of
Electrical and Electronics Engineers, the Institution of Electrical Engineers,
the Institute for the Advancement of Engineering, the New York Academy of
Sciences, and the International Biographical Association.
Mr. Wrench began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in September
1997. He was Senior Vice President and Chief Financial Officer of Electronics
from July 1993 until his resignation as a result of the Distribution, and held
these same positions with Technologies until his retirement in May, 2000. He was
named a Director of Electronics in February 1986, and continues to serve as a
director of Electronics (now named BEI Medical Systems Company, Inc.). He also
serves as a director of OpticNet, Inc., and has served as Chief Financial
Officer of that company since May, 2000. From April 1985 to July 1993, he served
as Vice President of Electronics and President and Chief Executive Officer of
BEI Motion Systems Company, Inc., then a wholly owned subsidiary of Electronics
that is now a part of Sensors & Systems. Other experience includes twenty years
with Hughes Aircraft Company. Mr. Wrench holds a B.A. from Pomona College and a
M.B.A. from the University of California, Los Angeles.
Staggered Board of Directors
The Company has a staggered Board of Directors, which may have the
effect of deterring hostile takeovers or delaying changes in control of
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 Class I
directors to expire at the 2001 annual meeting of stockholders and the term of
office of the Class II directors to expire at the 2002 annual meeting of
stockholders, and the term of office of the Class III directors to expire at the
2003 annual meeting of stockholders. Class I consists of Mr. Brown and Mr.
Crocker; Class II consists of Mr. Giroir, Dr. Madni and Mr. Wrench; and Class
III consists of Mr. Brooks and Dr. Howard. Directors elected to succeed those
directors whose terms expire will be elected to a three-year term of office. All
directors hold office until the next annual meetings of stockholders at which
their terms expire and until their successors have been duly elected and
qualified. Executive officers serve at the discretion of the Board. There are no
family relationships between any of the officers and directors.
Executive Officers
In addition to Mr. Crocker and Dr. Madni, whose positions with
Technologies, experience and educational background are described under
Directors above, the following persons are also Executive Officers of
Technologies:
Mr. Brasuell is Vice President and General Manager of the Systron
Donner Inertial Division of BEI Technologies, Inc. Mr. Brasuell has served in
this position since October 1995. From 1985 until 1995 Mr. Brasuell held
executive staff level positions at Systron Donner Inertial Division in Program
Management and Contracts, Advanced Product Development and Manufacturing.
Between 1976 and 1986 Mr. Brasuell held various technical and management
positions at Systron Donner Inertial Division.
15
Mr. Corr was named a Vice President of Technologies in March 2000. He
has served as Treasurer, Controller and Secretary of Technologies since
September 1997 and held these same positions with Electronics prior to the
Distribution in September 1997. Mr. Corr resigned from his positions with
Electronics immediately prior to the Distribution. Mr. Corr served as Secretary
of Electronics in February 1995 and served as Controller from November 1989 and
as Treasurer from November 1987 until his resignation immediately prior to the
Distribution. From 1978 to 1987, he was employed by AMPEX Corporation, an
electronics and magnetic media company, in various financial positions. From
1975 to 1978, he was an auditor with Arthur Andersen LLP. Mr. Corr received a
B.B.A. from Loyola University and is a Certified Public Accountant in the State
of California.
Mr. John LaBoskey began serving as Senior Vice President and Chief
Financial Officer of the Company, in May, 2000. He was appointed Vice President
and Chief Financial Officer of BEI Sensors & Systems Company inc., in October
1993, which was formed by the consolidation of BEI Motion Systems Company and
the BEI Sensors & Controls Group, of which Mr. LaBoskey had served as Vice
President and Controller since 1992. Prior to joining Technologies in 1992, he
served for 7 years as Controller for Systron Donner Corporation, Microwave
Division, a manufacturer of avionics and aerospace sensors and subsystems. He
was most recently Director of Finance for Systron Donner Corporation, a
subsidiary of Thorn/EMI. Mr. LaBoskey's degrees include a Bachelor of Arts from
the University of California, Irvine, and a Masters in Business Administration
from the University of Colorado. He is also a graduate of the Executive Program
from the University of California, Los Angeles, Anderson School of Management.
He is a Certified Management Accountant (CMA) through the Institute of
Management Accountants (IMA), and Certified in Production and Inventory
Management (CPIM) through the American Production and Inventory Control Society
(APICS).
Mr. Pike serves as Senior Vice President of Divisional Administration
and Human Resources for Technologies. Mr. Pike joined Technologies in 1983, and
prior to his present position served in various operational, administrative and
financial positions with BEI Sensors & Systems Company, a subsidiary of
Technologies. Prior to joining Technologies, he was employed by Coastal Oil &
Gas and AFCO Metals in their respective financial departments. He received a
B.A. from Ouachita Baptist University in 1973 and is a Certified Public
Accountant in the State of Arkansas.
Dr. Wan serves as a Senior Vice President and Chief Technical Officer
for Technologies. Previously, Dr. Wan served as Vice President, Corporate
Technology for Electronics from April 1991, which position he resigned from
immediately prior to the Distribution in 1997. Dr. Wan presently also serves as
President of Sitek, Inc., a subsidiary of the Company and as a director of
Electronics (now named BEI Medical Systems Company, Inc.). He also serves as
Chairman of the Board of OpticNet, Inc. 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 that 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 holds B.S., M.S. and Ph.D.
degrees in Engineering and Applied Sciences from Yale University.
16
ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased office space in
San Francisco, California, under a lease that expires in 2003. The Company owns
or operates nine other facilities that relate to the business and maintains
office space in various locations throughout the United States and in Europe for
sales and technical support. None of the owned principal properties is subject
to any encumbrance material to the consolidated operations of the Company.
Management believes that its existing owned or leased facilities are adequate to
meet the Company's needs for the foreseeable future. In addition to its
executive offices, the Company's principal facilities are as follows:
Location Description of Facility
- --------------------------------------------------------------------------------
Maumelle, Arkansas Owns approximately 50,000 square foot
manufacturing, engineering, administrative and
research and development facility.
Concord, California Owns approximately 101,000 square foot
manufacturing, engineering and administrative
facilities.
Sylmar, California Leases approximately 74,000 square foot
manufacturing, engineering and administrative
facility.
Tustin, California Leases approximately 80,000 square foot
manufacturing, engineering and administrative
facility.
San Marcos, California Leases approximately 35,000 square foot
manufacturing, engineering and administrative
facilities.
Goleta, California Owns approximately 22,000 square foot
manufacturing, engineering and administrative
facility.
Campbell, California Leases approximately 5,000 square foot
manufacturing, administrative and research and
development facility.
Hayward, California Leases approximately 2,330 square foot
engineering facility.
Strasbourg, France Leases and subleases approximately 20,000
square foot manufacturing, engineering and
administrative facility.
- --------------------------------------------------------------------------------
17
ITEM 3. LEGAL PROCEEDINGS
The Company has pending various legal actions arising in the normal course of
business. Management believes that none of these legal actions, individually or
in the aggregate, will have a material impact on the Company's business,
financial condition, or results of operations.
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
The Company's common stock commenced regular way trading on the NASDAQ National
Market System under the symbol "BEIQ" on October 8, 1997. Set forth below are
the high and low closing sale prices on the National Market System for the
periods indicated, adjusted for the one-for-one stock dividend issued to
shareholders of record on October 30, 2000 (see Note 15 to the Consolidated
Financial Statements). Such quotations do not reflect retail mark-ups, markdowns
or commissions.
2000 Fiscal Year Cash Dividend
(ended 9/30/00) High Low Declared
- --------------------------------------------------------------------------------
Fourth Quarter $29.31 $11.19 $0.01
Third Quarter $14.47 $ 6.25 $0.01
Second Quarter $10.63 $ 5.25 $0.01
First Quarter $ 9.38 $ 5.63 $0.01
As of November 21, 2000, there were approximately 1,200 holders of
record of the Company's common stock. The Board of Directors declared and the
Company paid cash dividends of $0.01 per share of common stock in each fiscal
quarter of 2000. Payment of dividends is within the discretion of the Company's
Board of Directors, will be subject to periodic 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and Note 5 to the Consolidated Financial
Statements). The covenants primarily concern certain operating ratios and
minimum balances of tangible net worth.
18
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 and
their related Notes, and the other financial information included therein.
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended
September 30, October 2, October 3, September 27, September 28,
2000 1999 1998 1997(1) 1996(1)
-------- -------- -------- -------- --------
(amounts in thousands except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Income Data:
Net sales $219,216 $159,403 $124,264 $101,539 $ 96,746
Income from continuing operations
(before extraordinary item) 9,607 5,339 2,515 2,997 2,873
Diluted income from continuing
operations per share (before
extraordinary item and discontinued
operations) 0.65 0.37 0.17 0.21 0.21
Shares used in computing diluted
income per share (before
extraordinary item) 14,807(2) 14,508(2) 14,548(2) 14,134(2) 13,956(2)
Balance Sheet Data:
Working capital $ 41,808 $ 37,937 $ 36,124 $ 26,967 $ 27,775
Total assets 138,288 123,360 109,515 94,855 92,171
Long-term debt (excluding current
portion) 36,614 36,705 37,157 27,508 24,137
Stockholders' equity 49,096 45,843 40,194 36,617 33,246
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------
(1) Selected financial data for the years ended September 27, 1997 and September
28, 1996 is derived from results of Electronics prior to the Distribution
(2) Share numbers have been adjusted for the one-for-one stock dividend to
shareholders of record on October 30, 2000 (See Note 15 of the Consolidated
Financial Statements)
19
ITEM 7. 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 in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this section and in the "Business--Risk Factors--section of
this Report.
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. The table and the accompanying analysis
cover periods in which the businesses now carried on by Technologies were
operated by Electronics. However, the table and analysis have been prepared as
if the Company and its businesses were a separate entity for all periods
discussed.
Years Ended
-------------------------
2000 1999 1998
----- ----- -----
Net sales .............................................. 100.0% 100.0% 100.0%
Cost of sales .......................................... 72.3 69.7 68.9
----- ----- -----
Gross profit ........................................... 27.7 30.3 31.1
Operating expenses:
Selling, general and administrative expenses ...... 15.6 18.8 20.5
Research, development and related expenses ........ 4.1 4.2 5.1
----- ----- -----
Income from operations ................................. 8.0 7.3 5.5
Other income ........................................... 0.4 0.2 0.4
Interest expense ....................................... 1.2 1.9 2.4
----- ----- -----
Income from continuing operations before income taxes .. 7.2 5.6 3.5
Income taxes ........................................... 2.8 2.3 1.5
----- ----- -----
Income from continuing operations ...................... 4.4 3.3 2.0
Income from discontinued operations, net of
income taxes 0.0 0.0 0.1
----- ----- -----
Income before extraordinary item ....................... 4.4 3.3 2.1
Extraordinary item, net of income taxes ................ (0.0) (0.2) (0.0)
----- ----- -----
Net Income ............................................. 4.4% 3.1% 2.1%
===== ===== =====
Continuing Operations
Net Sales
During fiscal 2000, net sales for the Company increased 37.5% to $219.2
million from $159.4 in fiscal 1999, reflecting continuing increases in sales due
to the automotive industry's growing demand for the Company's GyroChip sensors
used in automotive stability systems. Sales to the automotive industry,
including those attributable to sales of the Company's GyroChip sensors,
increased 97.3% to $107.5 million from $54.5 million in fiscal 1999. Sales by
the Company to other industrial customers increased $7.2 million to $93.0
million from $85.8 million during fiscal 2000 resulting primarily from increases
to the sales of actuators to the semiconductor capital equipment industry during
fiscal 2000. Government related sales decreased $0.5 million in fiscal 2000 to
$18.7 million from $19.2 million during fiscal 1999.
During fiscal 1999, net sales increased 28.3% to $159.4 million from
$124.3 in fiscal 1998, reflecting continuing increases in sales due to the
automotive industry's growing demand for the Company's GyroChip sensors used in
automotive stability systems. Sales to the automotive industry, including the
GyroChip sales, increased 170.0% to $54.5 million from $20.2 million in fiscal
1998. Other industrial product sales increased $2.8 million to $85.8 million
from $83.0 million during fiscal 1999 and sales to the government decreased $1.8
million to $19.2 from $21.0 during fiscal 1999.
20
The Company's sales to international customers were approximately 45%,
28%, and 14% of the Company's net sales for fiscal 2000, 1999 and 1998,
respectively. The increase in international sales is attributable to increased
sales of the Company's GyroChip sensors and the Company's acquisition in August
1998 of Ideacod, S.A., a sensor manufacturer located in Strasbourg, France. The
vast majority of sales by the Company to non-U.S. customers are denominated in
U.S. Dollars.
Cost of Sales and Gross Profit
In fiscal 2000, cost of sales as a percentage of net sales increased
2.6 percentage points due to increased shipments of products having higher
average production costs. The Company also continued to expand its manufacturing
capacity for the production of GyroChip sensors resulting in higher costs for
employee hiring and training in fiscal 2000. Management continues to undertake
technological initiatives designed to increase manufacturing and production
efficiencies and attempts to maintain close relationships with vendors and
customers in an effort to reduce costs and increase margins.
In fiscal 1999, cost of sales as a percentage of net sales increased
0.8 percentage points due to increased shipments of products having higher
average production costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal 2000 increased
$4.3 million from $30.0 million in fiscal 1999 to $34.3 million as a result of
costs incurred to support the increase in sales during fiscal 2000. As a
percentage of sales, selling, general and administrative expenses decreased 3.2
percentage points to 15.6% in fiscal 2000 from 18.8% in fiscal 1999 as a result
of management's cost reduction efforts.
Selling, general and administrative expenses in fiscal 1999 increased
$4.5 million from $25.5 million in fiscal 1998 to $30.0 million as a result of
costs incurred to support the increase in sales during fiscal 1999.
Research, Development and Related Expenses
Research and development expenses in fiscal 2000 increased 34.8% to
$8.9 million from $6.6 million in fiscal 1999. This increase is primarily due to
spending incurred for research efforts focused on silicon
micro-electromechanical systems (MEMS) and costs of refocusing engineering
resources related to automotive GyroChip production from manufacturing support
in an attempt to achieve further product enhancement of existing GyroChip
sensors. Other research and development engineering efforts include the design
and development of non-contacting position and torque sensors (e.g. NCAPS) for
industrial and automotive applications.
Research and development expenses in fiscal 1999 increased 3.0% to $6.6
million from $6.4 million in fiscal 1998. Spending on MEMS product development
for a variety of markets was the principal focus.
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 expenses
associated with such efforts will increase in absolute amount, but may fluctuate
as a percentage of sales depending on the Company's success in acquiring
customers or, in some cases, U.S. Government funding of research and development
efforts.
Interest Expense and Other Income
Interest expense was $2.6 million, $3.0 million and $2.9 million in
fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, the decrease in
interest from fiscal 1999 resulted from a reduction in the amount and frequency
of borrowings on the Company's line of credit as a result of the Company's
increased cash flows. During fiscal 1999, interest expense was slightly higher
than in fiscal 1998 due to a higher average debt balance for the Company to fund
capital expenditures. The Company's average interest rate was lower in fiscal
2000 than in fiscal 1999 due to the reduced need for bank borrowings. The
Company's average interest rate was lower in fiscal 1999 due to a restructuring
of the Company's debt facilities in fiscal 1999 (see Note 5 to the Consolidated
Financial Statements).
Other income in fiscal 2000, 1999 and 1998 was comprised of royalties
and interest income earned on highly liquid investments. Other income was $1.0
million, $0.4 million and $0.4 million for fiscal 2000, 1999 and 1998,
respectively. The increase in fiscal 2000 resulted primarily from the sale in
the second quarter of an asset held for investment for $0.5 million, net.
21
Income Taxes
The Company's effective tax rate was 39.3%, 40.4% and 41.8% for fiscal
2000, 1999 and 1998, respectively. The effective tax rate primarily reflects the
statutory federal tax rate and the weighted average tax rate of the states in
which the Company conducts business. The decrease of 1.1 percentage points in
fiscal 2000 from fiscal 1999 and the decrease of 1.4 percentage points in fiscal
1999 from fiscal 1998 results from increased federal and state tax credits for
the Company during fiscal 2000 and fiscal 1999, respectively.
Deferred Income Taxes
At September 30, 2000, the Company had net current deferred income tax
assets of $6.2 million and net non-current deferred income tax assets of $3.2
million. Realization of the net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years to benefit from a
reversal of the underlying temporary differences.
Discontinued Operations
In August 1998, Technologies discontinued the operations of its wholly
owned subsidiary, Defense Systems Company ("Defense Systems"). In fiscal 1998,
income for Defense Systems was $0.1 million reflecting the wind-down of its
operations (see Note 2 to the Consolidated Financial Statements). Due to the
discontinuation of operation there was no income for Defense Systems in fiscal
years 2000 or 1999.
Liquidity and Capital Resources
During fiscal 2000, operations of the Company provided $23.6 million in
cash. Net income of $9.6 million plus non-cash charges for depreciation and
amortization of $6.1 million and $2.8 million, respectively, and net increases
in accounts payable, accrued expenses and other liabilities of $11.4 million
together with a decrease of $0.6 million in other assets provided $30.7 million
in cash. These cash inflows were offset by increases in trade receivables of
$3.5 million and income tax payable of $3.0 million and a gain of $0.4 million
on the disposition of assets.
Investing activities for the Company in fiscal 2000 consisted primarily
of the purchase of $8.4 million in capital equipment to support increased
production. The majority of the equipment purchased was for the production of
automotive sensors. The capital purchases were offset by the receipt of $1.9
million in cash from the disposal of equipment resulting in net cash used by
investing activities of $6.6 million.
Fiscal 2000 financing activities primarily consisted of the Company's
repurchase of its common stock for $7.6 million. In addition, the Company paid
$0.6 million in dividends and $0.6 million for debt repayment. These cash
outflows were offset by proceeds of $0.9 million from stock issuances related to
the exercise of options granted under the Company's 1997 Equity Incentive Plan
resulting in net cash used for financing activities of $7.9 million during
fiscal 2000 (See Note 8 to the Consolidated Financial Statements).
The Company anticipates that its existing capital resources, including
cash provided by operating activities and available bank borrowings, will be
adequate to fund the Company's operations for at least the next twelve months.
Effects of Inflation
Management believes that, for the periods presented, inflation has not
had a material effect on the Company's operations.
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the form of changes in foreign
exchange rates and changes in the prices of marketable equity securities held as
part of a deferred compensation plan (a "Rabbi" trust).
The Company has approximately $1,700,000 (translated from French francs
at September 30, 2000) permanently invested in the assets of Ideacod, S.A.,
located in Strasbourg, France. The potential loss in fair value resulting from a
hypothetical 10% adverse change in the foreign currency exchange rate amounts to
$170,000, which would not be material to the consolidated financial statements.
The Rabbi trust assets, consisting of cash equivalents and debt and
equity securities, are offset by an equivalent deferred compensation liability
to the trust participants. The liability fluctuates equally with changes in the
value of the assets. Because the liability completely offsets the assets of the
trust, changes in asset value have no effect on the Company's results of
operations or financial position.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
September 30, October 2,
dollars in thousands except share amounts 2000 1999
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 12,296 $ 3,181
Investments 7,252 6,467
Trade receivables:
Commercial customers, less allowance for doubtful
accounts (2000--$1,084; 1999--$597) 30,439 24,660
United States Government 2,628 4,895
-------- --------
33,067 29,555
Inventories - Note 3 31,084 31,036
Deferred income taxes - Note 6 6,148 4,646
Other current assets 1,715 2,547
-------- --------
Total current assets 91,562 77,432
Property, plant and equipment - Notes 5 and 9
Land 4,287 4,567
Structures 12,513 14,167
Equipment 61,909 57,747
Leasehold improvements 1,589 1,547
-------- --------
80,298 78,028
Less allowances for depreciation and amortization 44,288 42,906
-------- --------
36,010 35,122
Other assets
Tradenames, patents and related assets,
less amortization (2000--$3,082; 1999--$2,890) 1,201 1,402
Technology acquired under license agreements,
less amortization (2000--$7,115; 1999--$6,154) 3,093 4,054
Goodwill, less amortization (2000--$964; 1999--$510) 2,085 2,436
Deferred income taxes, non-current 3,214 1,680
Other 1,123 1,234
-------- --------
10,716 10,806
-------- --------
$138,288 $123,360
======== ========
See notes to consolidated financial statements
24
CONSOLIDATED BALANCE SHEETS (cont.)
BEI Technologies, Inc. and Subsidiaries
- ----------------------------------------------------------------------------------------
September 30, October 2,
dollars in thousands except share amounts 2000 1999
- ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 18,926 $ 15,484
Accrued expenses and other liabilities - Note 4 23,442 17,424
Deferred compensation liability 7,252 6,467
Current portion of long-term debt - Note 5 134 120
--------- ---------
Total current liabilities 49,754 39,495
Long-term debt, less current portion - Note 5 36,614 36,705
Other liabilities 2,824 1,317
Commitments and contingencies - Notes 9 and 10 -- --
Stockholders' equity - Note 7
Preferred stock
($.001 par value; authorized 2,000,000 shares; none issued) -- --
Common stock - Note 15
($.001 par value; authorized 20,000,000 shares; issued
and outstanding; 2000--14,308,776; 1999--14,909,576) 2,321 3,731
Retained earnings 49,193 44,498
Accumulated other comprehensive loss (398) (106)
--------- ---------
51,116 48,123
Less: Unearned restricted stock - Note 7 (2,020) (2,280)
--------- ---------
Total stockholders' equity 49,096 45,843
--------- ---------
$ 138,288 $ 123,360
========= =========
See notes to consolidated financial statements
25
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries
Years Ended
---------------------------------------------------------
September 30, October 2, October 3,
dollars in thousands except share and per share amounts 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 219,216 $ 159,403 $ 124,264
Cost of sales 158,526 111,180 85,562
--------- --------- ---------
Gross profit 60,690 48,223 38,702
Selling, general and administrative expenses 34,300 30,044 25,491
Research, development and related expenses 8,897 6,605 6,410
--------- --------- ---------
43,197 36,649 31,901
--------- --------- ---------
Income from operations 17,493 11,574 6,801
Other income 968 360 445
Interest expense (2,644) (2,974) (2,924)
--------- --------- ---------
Income before income taxes 15,817 8,960 4,322
Income taxes 6,210 3,621 1,807
--------- --------- ---------
Income from continuing operations 9,607 5,339 2,515
Income from discontinued operations, net of
income taxes -- -- 142
--------- --------- ---------
Income before extraordinary item 9,607 5,339 2,657
Extraordinary item, net of income taxes -- (326) --
--------- --------- ---------
Net income $ 9,607 $ 5,013 $ 2,657
========= ========= =========
See notes to consolidated financial statements
26
CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
BEI Technologies, Inc. and Subsidiaries.
Years Ended
--------------------------------------------------------------
September 30, October 2, October 3,
dollars in thousands except share and per share amounts 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Income Per Share - Note 14
Income from continuing operations per
common share $ 0.68 $ 0.37 $ 0.18
Income from discontinued operations per
common share -- -- 0.01
-------------- -------------- --------------
Income before extraordinary item per
common share 0.68 0.37 0.19
Loss from extraordinary item per common
share -- 0.02 --
-------------- -------------- --------------
Net income per common share $ 0.68 $ 0.35 $ 0.19
============== ============== ==============
Shares used in computing basic income per
common share - Notes 7 and 15 14,113,156 14,315,890 14,024,500
============== ============== ==============
Diluted Income Per Share - Note 14
Income from continuing operations per
common and common equivalent
share - Note 7 $ 0.65 $ 0.37 $ 0.17
Income from discontinued operations
per common and common equivalent
share - Note 7 -- -- 0.01
-------------- -------------- --------------
Income before extraordinary item per
common and common equivalent share $ 0.65 $ 0.37 $ 0.18
Loss from extraordinary item per common
and common equivalent share -- 0.02 --
-------------- -------------- --------------
Net income per common and common
equivalent share $ 0.65 $ 0.35 $ 0.18
============== ============== ==============
Shares used in computing diluted income
per common and common equivalent
share - Notes 7 and 15 14,806,504 14,508,968 14,548,070
============== ============== ==============
See notes to consolidated financial statements
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries
Years Ended
-------------------------------------------------
September 30, October 2, October 3,
dollars in thousands 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 9,607 $ 5,013 $ 2,657
Adjustments to reconcile net income to net cash provided
by operating activities:
Discontinued operations -- -- 1,111
Depreciation 6,067 6,220 4,537
Amortization 2,826 2,013 1,789
Deferred income taxes (3,036) (576) (1,171)
Loss (gain) on disposition of assets (415) 42 60
Other (126) 122 24
Changes in operating assets and liabilities:
Trade receivables (3,511) (6,244) (4,383)
Inventories (47) (1,657) (5,190)
Other current assets 831 (576) (1,171)
Trade accounts payable, accrued expenses and other liabilities 11,375 7,112 3,260
-------- -------- --------
Net cash provided by operating activities 23,571 10,182 2,792
Cash flows from investing activities:
Acquisition of a business, net of cash acquired -- -- (1,627)
Purchase of property, plant and equipment (8,408) (10,597) (6,890)
Proceeds from sale of assets 1,868 -- 5
Other (27) 10 (133)
-------- -------- --------
(6,567) (10,587) (8,645)
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from debt borrowings 1,472 40,300 22,017
Principal payments on debt and other financing (2,121) (40,457) (18,093)
Proceeds from issuance of common stock 903 55 768
Tax benefit from exercised stock options 31 726 264
Repurchase of stock (7,586) -- --
Payment of cash dividends (588) (595) (580)
-------- -------- --------
Net cash provided (used) by financing activities (7,889) 29 4,376
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 9,115 (376) (1,477)
Cash and cash equivalents at beginning of year 3,181 3,557 5,034
-------- -------- --------
Cash and cash equivalents at end of year $ 12,296 $ 3,181 $ 3,557
======== ======== ========
See notes to consolidated financial statements.
28
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
BEI Technologies, Inc. and Subsidiaries
Accumulated
Other Unearned
Common Retained Comprehensive Comprehensive restricted
dollars in thousands Stock earnings Income Income stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at September 27, 1997 7 38,003 -- -- (1,393) 36,617
Comprehensive income:
Net income for 1998 2,657 2,657 2,657
Other comprehensive income
Foreign currency translation gain,
net of income tax of $27 39 39 39
------
Comprehensive income $2,696
======
Restricted Stock Plan 1,093 (664) 429
Stock options exercised 768 768
Tax benefit from exercised stock options 264 264
Cash dividends (580) (580)
------- ------- ----- ------- -------
Balances at October 3, 1998 $ 2,132 $40,080 $ 39 $(2,057) $40,194
Net income for 1999 5,013 5,013 5,013
Other comprehensive income
Foreign currency translation loss,
net of income tax of $96 (145) (145) (145)
------
Comprehensive income 4,868
======
Restricted Stock Plan 818 (223) 595
Stock options exercised 55 55
Tax benefit from exercised stock options 726 726
Cash dividends (595) (595)
------- ------- ----- ------- -------
Balances at October 2, 1999 $ 3,731 $44,498 $(106) $(2,280) $45,843
Net income for 2000 9,607 9,607 9,607
Other comprehensive income
Foreign currency translation loss,
net of income tax of $96 (292) (292) (292)
------
Comprehensive income 9,315
======
Restricted Stock Plan 918 260 1,178
Stock options exercised 903 903
Tax benefit from exercised stock options 31 31
Treasury stock purchases (3,262) (4,324) (7,586)
Cash dividends (588) (588)
------- ------- ----- ------- -------
Balances at September 30, 2000 $ 2,321 $49,193 $(398) $(2,020) $49,096
======= ======= ===== ======= =======
See notes to consolidated financial statements.
29
Notes to Consolidated Financial Statements
BEI Technologies, Inc. and Subsidiaries
September 30, 2000
Note 1 Summary of Significant Accounting Policies
Basis of Presentation: BEI Technologies, Inc. ("Technologies" or the
"Company") was incorporated on June 30, 1997 in the State of Delaware, as a
wholly owned subsidiary of BEI Electronics, Inc. ("Electronics"). On September
27, 1997, Electronics distributed to holders of Electronics common stock one
share of common stock of the Company for each share of Electronics common stock
held on September 24, 1997 (the "Distribution"). In connection with the
Distribution, Electronics transferred to Technologies all of the assets,
liabilities and operations of its BEI Sensors & Systems Company, Inc. ("Sensors
& Systems") and Defense Systems Company, Inc. ("Defense Systems") business
segments. As further described in Note 2, on June 30, 1997, the Board of
Directors of Electronics also approved a formal plan to discontinue the
operations of its Defense Systems segment. The operations of Defense Systems
were discontinued as of July 4, 1998.
Effective as of the close of business on October 30, 2000, Technologies
declared a one-for-one stock dividend payable to stockholders of record as of
that date. The effect of the stock dividend was a doubling of shares of common
stock outstanding for the Company as of such date. All per share numbers and per
share data included within the Company's consolidated financial statements have
been adjusted as appropriate to reflect the stock dividend.
The accompanying financial statements present the consolidated
financial position and results of operations of the Company and its wholly-owned
subsidiaries. The financial position and results of operations of Sensors &
Systems and Defense Systems, former subsidiaries of Electronics and predecessor
entities to the Company are presented on a combined basis for all dates and
periods prior to the Distribution. All intercompany accounts and transactions
have been eliminated. The results of operations of the Sensors & Systems
business segment are presented as continuing operations and those of the Defense
Systems business segment through the end of the third quarter of fiscal 1998 are
presented as discontinued operations.
The Sensors & Systems business provides sensors, engineered subsystems
and associated components which are used for controlled precision machinery and
equipment in industrial, medical, automotive, aerospace and military
applications.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest
September 30. Fiscal years 2000 and 1999 each contained 52 weeks. Fiscal year
1998 contained 53 weeks.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from these estimates.
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's products are primarily sold
to commercial customers throughout the United States and in various foreign
countries and to the United States government. 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.
Revenue Recognition: Revenue from product sales is generally recognized
upon shipment provided that a purchase order has been received or a contract has
been executed, there are no uncertainties regarding customer acceptance, any fee
is fixed or determinable and collectibility is deemed probable. If uncertainties
regarding customer acceptance exist, revenue is recognized when such
uncertainties are resolved. The Company records a warranty liability on its
products at the time of revenue recognition.
Inventories: Inventories are carried principally at the lower of cost
(first-in, first-out method) or fair value and do not exceed net realizable
value.
30
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation and Amortization: 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, which range from 3 to 30 years, using the straight-line method for
structures and accelerated or straight-line methods for equipment. Leasehold
improvements are amortized over the shorter of the lease term or their estimated
useful life.
Other Assets: Tradenames, patents and related assets are being
amortized over their remaining lives at the date of acquisition up to a period
of seventeen years.
Technology acquired under license agreements consists primarily of the
cost of exclusive rights to make, use and sell products utilizing quartz rate
sensing technology. Technology acquired is being amortized over thirteen years,
which approximates its estimated useful life from the date of acquisition.
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.
Long-Lived Assets: The Company recognizes impairment losses on
long-lived assets, including property, plant and equipment and other assets,
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
the assets.
Research and Development: Costs to develop the Company's products are
expensed as incurred.
Recent Accounting Pronouncements: In June 1998, the Financial
Accounting Standards Board issued FAS No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." FAS 133 requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes
in the value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction and if so, the type of hedge transaction. FAS 133
must be adopted on January 1, 2001. Presently, the Company has no derivative
financial instruments and anticipates that adoption of this standard will have
no impact on the Company.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for certain Transactions involving Stock
Compensation", an interpretation of APB Opinion No. 25. The Interpretation is
effective on July 1, 2000. The Interpretation requires that stock options that
have been modified to reduce the exercise price be accounted for as variable.
The Company does not anticipate any significant impact from the adoption of this
interpretation.
Net Income (Loss) Per Share: Basic income per share is computed using
the weighted average number of shares outstanding. Diluted income per share is
computed using the weighted average number of shares outstanding, adjusted for
the incremental shares attributed to unvested stock and outstanding options to
purchase common stock calculated using the treasury stock method.
Acquisition: On August 7, 1998, Sensors & Systems acquired Ideacod,
S.A., a sensor manufacturer located in Strasbourg, France, for $1,627,000 in
cash and the assumption of $3,735,000 in liabilities, in a transaction accounted
for as a purchase. The results of Ideacod since the date of acquisition are
included in the accompanying consolidated financial statements. The impact of
the acquisition was not significant in relation to the Company's results of
operations.
The financial statements of Ideacod, S.A. have been translated into
U.S. dollars at fiscal year-end, using the exchange rates on those dates for
assets and liabilities and the average exchange rates during the period for
income and expenses. The resulting unrealized translation adjustments are
recorded as a component of other comprehensive income.
Reclassification: Certain reclassifications have been made to the 1999
and 1998 consolidated financial statements to conform with current year
presentations.
31
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 Discontinued Operations
In July 1998, Technologies discontinued the operations of its wholly
owned subsidiary, Defense Systems Company ("Defense Systems"). In fiscal 1998,
income for Defense Systems was $0.1 million reflecting the wind-down of its
operations. Due to the discontinuation of operation there was no income for
Defense Systems in fiscal years 2000 or 1999.
Note 3 Inventories
September 30, October 2,
2000 1999
-------- --------
(in thousands)
Finished products ..................................... $ 2,052 $ 1,521
Work in process ....................................... 5,880 10,165
Materials ............................................. 23,152 17,848
Costs incurred under long-term contracts, including
U.S. Government contracts .......................... -- 1,746
Unliquidated progress payments ........................ -- (244)
-------- --------
Total inventories ..................................... $ 31,084 $ 31,036
======== ========
Note 4 Accrued Expenses and Other Liabilities
September 30, October 2,
2000 1999
------- -------
(in thousands)
Employee compensation ................................ $ 3,915 $ 2,603
Vacation ............................................. 1,810 2,145
Accrued taxes ........................................ 2,561 3,163
Contract costs ....................................... 552 724
Accrued professional fees ............................ 1,020 827
Insurance ............................................ 1,303 909
Royalties and related costs .......................... 6,188 2,167
Customer advances .................................... 891 446
Commissions .......................................... 755 549
Other ................................................ 4,447 3,891
------- -------
Total accrued expenses and other liabilities ......... $23,442 $17,424
======= =======
Note 5 Long-Term Debt
September 30, October 2,
2000 1999
------- -------
(in thousands)
6.70% Senior Notes; due in annual installments
of $7,000 from November 16, 2001 through
November 16, 2005................................... $35,000 $35,000
Mortgage note payable with interest at 6.87%;
due in monthly installments of Principal and
interest of $14 until December, 2003 when the
remaining balance of approximately $1,400 is due;
collateralized by certain real property........... 1,655 1,681
Capitalized equipment lease obligations............. 93 144
------- -------
36,748 36,825
Less current portion................................ 134 120
------- -------
$36,614 $36,705
======= =======
32
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 16, 1998, the Company sold $35.0 million of senior notes in
a private placement. The notes have an interest rate of 6.7% and mature in
annual installments of $7.0 million beginning November 16, 2001 up to and
including November 16, 2005. The note agreement contains covenants regarding
certain operating ratios, limitations on debt, dividend payments and minimum net
worth. The proceeds from the senior notes were used to repay the pre-existing
senior notes and pay down outstanding borrowings on the Company's line of credit
as they matured. The prepayment penalty and the remaining unamortized loan fees
of $326,000, net of the related tax benefit, were charged in the first quarter
of fiscal 1999 as an extraordinary loss on the early extinguishment of the debt.
On December 16, 1998, the Company established a $12.0 million two year
line of credit with a bank and terminated the $25.0 million facility in place at
the end of fiscal 1998. Under the terms of line of credit, the amount available
to the Company increased $1.0 million to $13.0 million during fiscal 2000. No
borrowings were outstanding under the new line of credit at September 30, 2000.
On December 13, 1998, the mortgage note payable was refinanced with the original
lender and the due date extended from fiscal 1999 to fiscal 2003.
Maturities of long-term debt, adjusted for the effect of senior notes
and the mortgage refinancing and excluding capitalized equipment lease
obligation (see Note 9), are as follows: fiscal 2001 $134,000; fiscal 2002
$7,075,000; fiscal 2003 $7,064,000; fiscal 2004 $8,475,000; fiscal 2005
$7,00,000; thereafter--$7,000,000.
Interest of approximately $2,480,000, $2,354,000 and $2,535,000 were
paid during fiscal years 2000, 1999 and 1998, respectively.
Note 6 Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax liabilities and assets are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. Deferred tax assets and liabilities are
determined based on the differences between financial reporting and the tax
basis of assets and liabilities and are measured using the enacted tax rates and
laws known at this time and that will be in effect when the differences are
expected to reverse.
The provision for income tax expense consists of the following (in
thousands):
Year Ended
--------------------------------------------
September 30, October 2, October 3,
2000 1999 1998
-------- -------- --------
Current
Federal.......................................................... $ 7,504 $ 3,365 $ 2,581
State............................................................ 1,742 832 496
-------- -------- --------
Total Current............................................... 9,246 4,197 3,077
Deferred
Federal ........................................................ (2,500) (437) (1,038)
State ........................................................ (536) (139) (133)
-------- -------- --------
Total Deferred............................................. (3,036) (576) (1,171)
-------- -------- --------
Total income tax provision............................................ $ 6,210 $ 3,621 $ 1,906
======== ======== ========
Income tax expense attributable to continuing operations.............. 6,210 $ 3,621 $ 1,807
Income tax expense attributable to discontinued operations............ -- -- 99
-------- -------- --------
Total income taxes.................................................... $ 6,210 $ 3,621 $ 1,906
======== ======== ========
33
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant components of the Company's net deferred tax assets are as follows
(in thousands):
September 30, October 2,
2000 1999
------- -------
Deferred tax assets
Accrued expenses ................................... $ 7,282 $ 4,846
Inventory valuation ................................ 3,063 2,520
Contract reserves .................................. 709 461
Other .............................................. 527 525
------- -------
Total deferred tax assets .................. 11,581 8,352
------- -------
Deferred tax liabilities
Depreciation and property basis difference ......... 1,438 1,495
Other .............................................. 781 531
------- -------
Total deferred tax liabilities ................ 2,219 2,026
------- -------
Net deferred tax assets ....................... $ 9,362 $ 6,326
======= =======
Realization of the net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years to obtain benefit
from the reversal of the underlying temporary differences.
The differences between the provision for income taxes and the income
tax determined by applying the statutory federal income tax rate of 34.0% for
1998 and 1999, and 35.0% for 2000 (in thousands) are as follows:
September 30, October 2, October 3,
2000 1999 1998
------- ------- -------
Income tax at the statutory rate of 34% ...... $ 5,536 $ 3,046 $ 1,551
State income tax, net of federal tax ......... 789 457 240
Other ........................................ (115) 118 115
------- ------- -------
Total income taxes ........................... $ 6,210 $ 3,621 $ 1,906
======= ======= =======
Pursuant to the tax sharing agreement with Electronics, the Company's
income taxes prior to fiscal year 1998 were paid by Electronics. Cash paid for
income taxes in fiscal year 2000 and 1999 was $9,245,000 and $2,171,000,
respectively.
Note 7 Equity Incentive Plans
The Company has adopted the disclosure only alternative for its equity
incentive plan as described in FAS 123. The Company accounts for employee stock
awards using the intrinsic value method in accordance with APB Opinion No. 25.
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors in September 1997. The Incentive Plan provides
for the granting of incentive stock options to employees and nonstatutory stock
options, restricted stock purchase awards, and stock bonuses (collectively,
"Stock Awards") to consultants, employees and directors. The Company has
reserved 2,278,890 shares of common stock for issuance under the Incentive Plan
which included shares for substitute options granted to the option holders of
Electronics in connection with the Distribution.
34
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Option activity under the Technologies Incentive Plan is summarized
below:
Weighted average
Number of exercise price
Common shares per share
-------- ------
Options outstanding at September 27, 1997 678,890 $ 2.49
Granted ............................ 4,000 $ 8.35
Exercised .......................... (336,586) $ 2.17
-------- ------
Options outstanding at October 3, 1998 346,304 $ 2.81
Granted ............................ 168,000 $ 4.02
Exercised .......................... (29,928) $ 5.72
Terminated ......................... (150,294) $ 2.06
-------- ------
Options outstanding at October 2, 1999 ............ 334,082 $ 3.82
Granted ............................ 215,000 $ 7.24
Exercised .......................... (139,690) $11.67
Terminated ......................... (47,464) $ 5.12
-------- ------
Options outstanding at September 30, 2000 361,928 $ 5.72
======== ======
Weighted Average Weighted Average
Number Remaining Contractual Exercise Price Per
Exercise Prices Outstanding Life (Years) Share
- --------------- ----------- ------------ -----
$ 2.33...................................... 15,026 4.14 $ 2.33
$ 2.97...................................... 14,944 2.65 $ 2.97
$ 3.50...................................... 93,452 8.01 $ 3.50
$ 4.25...................................... 12,882 1.61 $ 4.25
$ 5.25...................................... 6,000 8.86 $ 5.25
$ 5.50...................................... 4,000 8.84 $ 5.50
$ 6.00...................................... 17,688 8.45 $ 6.00
$ 6.22...................................... 4,000 8.97 $ 6.22
$ 6.25...................................... 159,600 9.19 $ 6.25
$ 7.44...................................... 4,000 9.55 $ 7.44
$ 8.34...................................... 1,336 7.53 $ 8.34
$ 8.50...................................... 5,000 9.20 $ 8.50
$ 8.59...................................... 4,000 9.39 $ 8.59
$ 8.88...................................... 4,000 9.49 $ 8.88
$12.94...................................... 4,000 9.76 $12.94
$18.06...................................... 6,000 9.79 $18.06
$19.31...................................... 6,000 9.97 $19.31
- ------ ------- ---- ------
$ 2.33 - $19.31............................. 361,928 8.13 $5.77
As of September 30, 2000, options for 76,352 shares were vested and
exercisable at a weighted average exercise price of $3.56.
35
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the Incentive Plan, the holders of the 1,400,000 shares of
Electronics common stock which had been issued under the Electronics 1992
Restricted Stock Plan who became employees of Technologies received Technologies
common stock of equal value subject to forfeiture if employment terminated prior
to the end of prescribed vesting periods. The market value at the date of grant
of shares is recorded as unearned restricted stock and is amortized to
compensation expense over its vesting periods. As of September 30, 2000,
1,366,452 shares had been granted, of which 1,171,842 shares are outstanding,
and 628,904 shares have fully vested. Compensation expense of $1,178,000,
$595,000 and $429,000 for the amortization of the restricted stock was recorded
in fiscal years 2000, 1999 and 1998, respectively.
The Company computed the pro forma disclosures required under FAS No.
123 for options granted in fiscal years 2000, 1999 and 1998 using the
Black-Scholes option pricing model. The impact on the calculation of pro forma
results of operations and earnings per share required by FAS 123 was determined
to be immaterial for fiscal years 1999 and 1998. For fiscal year 2000, the
significant assumptions used in the Black-Scholes calculation were a risk-free
interest rate of 5.98%, a weighted average expected life of three years, a
volatility rate of 85%, and an expected dividend yield of 0.4%.
Options to acquire 215,000 shares were granted during fiscal 2000 with
a weighted average fair value of $5.08 per share. For the year ended September
30, 2000, the compensation cost of options under FAS 123 would have reduced net
income from $9.6 million to $ 9.3 million, and diluted earnings per share from
$0.71 to $0.63.
In addition to options, 145,000 shares of nonvested stock were granted
during fiscal year 2000, with a weighted average fair value of $7.55 per share.
The weighted average fair value of nonvested stock is amortized to compensation
expense over its related vesting period.
Note 8 Employee Benefit Plan
The Company has a defined contribution retirement plan for the benefit
of all eligible employees. Matching non-discretionary contributions are based on
a percentage of employee contributions. Contributions to the plan by the Company
for the benefit of its employees for fiscal years 2000, 1999 and 1998 were
approximately $960,000, $911,000, and $780,000 respectively.
The Company has a grantor trust to fund deferred compensation for
certain employees (a "Rabbi Trust".) As determined by the trustee, the assets in
the Rabbi trust, consisting of cash equivalents and debt and equity securities,
are recorded at current market prices principally based upon national exchange
and over-the-counter markets. The trust assets are available to satisfy claims
of the Company's general creditors in the event of its bankruptcy. The trust's
assets and the corresponding deferred compensation obligation are included in
the accompanying balance sheets at September 30, 2000 and October 2, 1999.
36
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9 Lease Commitments
Operating leases consist principally of leases for real properties 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. Capital leases were assumed as part of
the acquisition of a business. Assets recorded under capital leases consist of
land, buildings and equipment of $265,000, net of accumulated amortization of
$94,000. The future minimum payments for operating and capital leases consist of
the following at September 30, 2000 (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------ ------
2001 ................................................................... $88 $1,982
2002 ................................................................... 18 1,323
2003 ................................................................... -- 1,287
2004 ................................................................... -- 1,253
2005 ................................................................... -- 726
Thereafter............................................................... -- --
---- ------
Total minimum lease payments....................................... 106 $6,571
======
Less amounts representing interest................................. 13
----
Amounts included in long-term debt................................. $ 93
====
Total rental expense amounted to approximately $2,192,000,
$2,187,000,and $1,694,000 for fiscal years 2000, 1999 and 1998, respectively.
Note 10 Contingencies and Litigation
Claim against U.S. Government
The Company believes that its now discontinued subsidiary, Defense
Systems, suffered substantial monetary damages due to actions of the U.S.
Government in connection with the parties' H70 contract in effect during the
1992-1996 timeframe. As a result, Defense Systems filed a substantial claim
against the U.S. Government in 1996. Following attempts to negotiate a
settlement, Defense Systems filed an appeal of its claim that is now being
adjudicated before the Armed Services Board of Contract Appeals. Due to the
uncertainties inherent in the formal claims process, the Company has not
recorded any recovery of these claims in the accompanying financial statements.
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 financial condition or operating
results.
Note 11 Sales and Major Customers
The Company's operations are conducted within one business segment-the
production, manufacturing and sale of a full line of electronic devices that
provide vital sensory input for the control systems of advanced machinery for
the commercial automotive, government, and industrial industries. The sales to
major industries are as follows (in thousands):
September 30, October 2, October 3,
2000 1999 1998
-------- -------- --------
Commercial automotive sensors sales ........ $107,459 $ 54,459 $ 20,170
Government ................................. 18,723 19,172 21,046
Industrial sales ........................... 93,034 85,772 83,048
-------- -------- --------
Total sales from continuing operations ..... $219,216 $159,403 $124,264
======== ======== ========
37
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Although the Company is directly affected by the economic well being of the
above industries, management does not believe significant credit risk exists at
September 30, 2000.
The Company's foreign operations are conducted throughout Europe. A
summary of foreign vs. domestic sales follows (in thousands):
September 30, October 2, October 3,
2000 1999 1998
-------- -------- --------
Domestic sales ............................. $120,894 $114,766 $106,872
Foreign .................................... 98,322 44,637 17,392
-------- -------- --------
Total sales from continuing operations ..... $219,216 $159,403 $124,264
======== ======== ========
Foreign sales accounted for approximately 45%, 28%, and 14% of total sales for
fiscal 2000, 1999 and 1998, respectively.
In fiscal 2000 and fiscal 1999, one customer accounted for 37% and 20%,
respectively, of the Company's net sales. In fiscal 1998 no one customer
accounted for more than 10% of the Company's net sales.
Note 12 Quarterly Results of Operations (Unaudited)
The tables below present unaudited quarterly financial information for
fiscal years 2000 and 1999:
Continuing Operations
Three months ended
----------------------------------------------------------------
January 1, April 1, July 1, September 30,
2000 2000 2000 2000
------- ------- ------- -------
(dollars in thousands except per share amounts)
Net sales .............................................. $43,728 $54,217 $60,246 $61,025
Gross profit ........................................... 11,559 15,159 17,542 16,430
Net income ............................................. 1,256 2,291 2,993 3,067
Basic Income Per Share
Net income per share-basic ............................. $ 0.09 $ 0.16 $ 0.21 $ 0.22
Diluted Income Per Share
Net income per share-diluted ........................... $ 0.09 $ 0.15 $ 0.20 $ 0.21
38
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12 Quarterly Results of Operations (Cont.) (Unaudited)
January 2, April 3, July 3, October 2,
1999 1999 1999 1999
------- ------- ------- -------
Net sales.............................................................. $36,743 $39,047 $41,175 $42,438
Gross profit........................................................... 11,463 12,316 12,194 12,250
Income before extraordinary item....................................... 1,054 1,159 1,170 1,956
Loss from extraordinary item, net of income taxes...................... (326) -- -- --
Net income............................................................. 728 1,159 1,170 1,956
Basic Income Per Share
Income per share....................................................... $ 0.07 $ 0.08 $ 0.08 $ 0.14
Loss from extraordinary item........................................... $ (0.02) -- -- --
Net income per share-basic............................................. $ 0.05 $ 0.08 $ 0.08 $ 0.14
Diluted Income Per Share
Income per common and common equivalent share.......................... $ 0.07 $ 0.08 $ 0.08 $ 0.14
Loss from extraordinary item........................................... $ (0.02) -- -- --
Net income per share-diluted........................................... $ 0.05 $ 0.08 $ 0.08 $ 0.14
Note 13 Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (FAS 107),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. Whenever
possible, quoted market prices were used to develop fair values. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets, and, in many cases, could
not be realized in immediate settlement of the instrument. FAS 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments as of September 30, 2000 and as of October 2, 1999.
Cash, Cash Equivalents and Investments: The carrying amounts reported
in the balance sheet for cash, cash equivalents and investments approximate
those assets' fair values.
Long-Term Debt: The fair value of long-term debt has been estimated
based upon discounted future cash flows. The discount rate used included a risk
free rate derived from the Treasury yield curve plus a risk weighting
commensurate with the Company's borrowing position. The fair value of long-term
debt is approximately $35,787,000 and $35,300,000 compared with the carrying
amounts of $36,614,000 and $36,705,000 at September 30, 2000 and October 2,
1999, respectively.
39
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14 - Income Per Share
The following table sets forth the computation of basic and diluted
income per common share from continuing operations:
Year Ended
-----------------------------------
September 30, October 2, October 3,
2000 1999 1998
------- ------- -------
(in thousands, except per share amounts)
Numerator
Income from continuing operations before
extraordinary item, net of taxes $ 9,607 $ 5,339 $ 2,515
======= ======= =======
Denominator
Denominator for basic income per share
Weighted average shares, net of
nonvested shares (fiscal 2000--543 shares;
fiscal 1999--590 shares;
fiscal 1998--502 shares) 14,113 14,316 14,024
Effect of dilutive securities:
Nonvested shares 422 34 216
Employee stock options 272 158 308
------- ------- -------
Denominator for diluted earnings per share 14,807 14,508 14,548
======= ======= =======
Note 15 - Subsequent Events
At the close of business on October 30, 2000, Technologies declared a
distribution to its stockholders of approximately 42% of the outstanding
securities of OpticNet, Inc. ("OpticNet"), a formerly majority-owned subsidiary
of Technologies. OpticNet's business is focused on developing fiber optic
components and subsystems, such as optical switches, used in telecommunications
systems.
In the distribution, each holder of record of Technologies common stock
as of the close of business on October 30, 2000 received one share of OpticNet
common stock for every two shares of Technologies common stock held, and cash in
lieu of any fractional share of OpticNet common stock.
As a separate matter, the Board of Directors of Technologies also
declared a one-for-one stock split in the form of a stock dividend to its
stockholders, also effective October 30, 2000, immediately following the
distribution of the shares in OpticNet. Stockholders of record as of the close
of business on October 30, 2000 received one additional share of the common
stock of Technologies for each share of Technologies held as of such date.
Accordingly, all data shown in the accompanying consolidated financial
statements and notes have been retroactively adjusted to reflect this stock
split in the form of a dividend.
40
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
BEI Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BEI
Technologies, Inc. and subsidiaries as of September 30, 2000 and October 2,
1999, and the related consolidated statements of operations, stockholders'
equity and comprehensive income and cash flows for each of the three years in
the period ended September 30, 2000. 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 auditing standards generally accepted
in the United States. 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 Technologies, Inc. and
subsidiaries at September 30, 2000 and October 2, 1999, and the consolidated
results of their operations, stockholders' equity and comprehensive income and
their cash flows for each of the three years in the period ended September 30,
2000 in conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
San Francisco, California
October 30, 2000
41
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" of the Proxy Statement
related to the Company's 2001 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 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 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 Participation" of the
Definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K.
Form 10-K
Page Number
-----------
(a)(1) Index to Consolidated Financial Statements.
The following Consolidated Financial Statements of BEI
Technologies, Inc. and its Subsidiaries are filed as part
of this Form 10-K:
Report of Ernst & Young LLP, Independent Auditors 41
Consolidated Balance Sheets -
September 30, 2000 and October 2, 1999 24
Consolidated Statements of Operations - Years ended
September 30, 2000, October 2, 1999 and October 3, 1998 26
42
Consolidated Statements of Cash Flows - Years ended
September 30, 2000, October 2, 1999 and October 3, 1998 28
Consolidated Statement of Changes in Stockholders'
and Comprehensive Income Equity - Years ended
September 30, 2000, October 2, 1999 and October 3, 1998 29
Notes to Consolidated Financial Statements -
September 30, 2000 30
(a)(2) Index to Financial Statement Schedule.
The following Consolidated Financial Statement Schedule of BEI
Technologies, Inc. for each of the years in the period ended
September 30, 2000 is filed as part of this Form 10-K:
Schedule V Valuation and Qualifying Accounts S-1
Report of Ernst & Young LLP, Independent
Auditors as to Schedule S-2
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.
(a)(3) Listing of Exhibits
Exhibit
Numbers Description Footnote
------- ----------- --------
2.1 Distribution Agreement between BEI Electronics, Inc.
and BEI Technologies, Inc. i
2.2 Corporate Services Agreement between BEI Technologies,
Inc. and BEI Electronics, Inc. i
2.3 Tax Allocation and Indemnity Agreement between BEI
Electronics, Inc. and BEI Technologies, Inc. i
2.4 Assumption of Liabilities and Indemnity Agreement
between BEI Electronics, Inc. and BEI Technologies, Inc. i
2.5 Technology Transfer and License Agreement by and
between BEI Electronics, Inc. and BEI Technologies, Inc. i
2.6 Trademark Assignment and Consent Agreement by and
between BEI Electronics, Inc. and BEI Technologies, Inc. i
2.7 Agreement Regarding Certain Representations and
Covenants by and between BEI Electronics, Inc. and BEI
Technologies, Inc. i
3.1 Certificate of Incorporation of BEI Technologies, Inc. i
3.2 Bylaws of BEI Technologies, Inc. i
3.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock (filed as Exhibit
99.3 hereto) i
43
4.1 Specimen Common Share Certificate i
4.2 Certificate of Incorporation of BEI Technologies, Inc.
(filed as Exhibit 3.1 hereto) i
4.3 Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
hereto) i
4.4 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock (filed as Exhibit
99.3 hereto) i
4.5 Form of Rights Certificate (filed as Exhibit 99.4 i
hereto)
10.1* Registrant's 1997 Equity Incentive Plan and forms of
related agreements i
10.2* Executive Change in Control Benefits Agreement between
BEI Technologies, Inc. and Certain Named Executive
Officers i
10.3 Assumption Agreement--Series A and Series B Senior
Notes dated September 15, 1997 by and between BEI
Technologies, Inc., Principal Mutual Life Insurance
Company, Berkshire Life Insurance Company and TMG Life
Insurance Company i
10.4 Credit Agreement dated as of September 27, 1997 among
BEI Technologies, Inc., BEI Sensors & Systems Company,
Inc., Defense Systems Company, Inc., CIBC, Inc.,
Canadian Imperial Bank of Commerce and CIBC Wood Gundy
Securities Corp. i
10.5 Note Purchase Agreement dated November 16, 1998 by and
between BEI Technologies, Inc., BEI Sensors & Systems
Company, Inc., Connecticut General Life Insurance
Company and Allstate Life Insurance Company. ii
10.6 Amendment to Tax Allocation and Indemnity Agreement
between BEI Electronics, Inc. and BEI Technologies, Inc. ii
10.7 Credit Agreement dated December 16, 1998, by and
between BEI Technologies, Inc., BEI Sensors & Systems
Company, Inc. and Wells Fargo Bank, National Association ii
21.1 Subsidiaries of the Registrant ii
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 BEI Technologies, Inc. Information Statement dated
September 24, 1997 ii
44
99.2 Rights Agreement dated as of September 11, 1997 among
BEI Technologies, Inc. and ChaseMellon Shareholder
Services, L.L.C. i
99.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock i
99.4 Form of Rights Certificate i
(i) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Information Statement on Form 10 (File No. 0-22799) as filed
on September 22, 1997.
(ii) Incorporated by reference. Previously filed as an exhibit to the Form 10-K
(File No. 0-22799) as filed on December 30, 1998.
* Items which are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 2000.
45
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.
BEI TECHNOLOGIES, INC.
By: /s/ Robert R. Corr
----------------------------
Robert R. Corr
Vice President, Secretary,
Treasurer and Controller
December 15, 2000
46
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Crocker and John LaBoskey, 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Charles Crocker Chief Executive Officer and Chairman of December 15, 2000
- --------------------------------------- the Board Of Directors (Principal ------------------------------
Charles Crocker Executive Officer)
/s/ Dr. Asad M. Madni President, Chief Operating Officer and December 15, 2000
- --------------------------------------- Director ------------------------------
Dr. Asad M. Madni
/s/ John LaBoskey Senior Vice President and Chief Financial December 15, 2000
- --------------------------------------- Officer ------------------------------
John LaBoskey
/s/ Robert R. Corr Vice President, Secretary, Treasurer and December 15, 2000
- --------------------------------------- Controller (Principal Accounting Officer) ------------------------------
Robert R. Corr
/s/ Richard M. Brooks Director December 15, 2000
- --------------------------------------- ------------------------------
Richard M. Brooks
/s/ George S. Brown Director December 15, 2000
- --------------------------------------- ------------------------------
George S. Brown
/s/ C. Joseph Giroir, Jr. Director December 15, 2000
- --------------------------------------- ------------------------------
C. Joseph Giroir, Jr.
/s/ Dr. William G. Howard Director December 15, 2000
- --------------------------------------- ------------------------------
Dr. William G. Howard
/s/ Gary D. Wrench Director December 15, 2000
- --------------------------------------- ------------------------------
Gary D. Wrench
47
SCHEDULE V
BEI TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
----------- --------- -------- -------------- ----------
Additions
----------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts Deductions Period
----------- --------- -------- -------------- ---------- ------
(in thousands)
Year ended September 30, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ 597 $550 $ -- $ 63(B) $1,084
===== ==== ===== ==== ======
Year ended October 2, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ 509 $187 $ -- $ 99(B) $ 597
===== ==== ===== ==== =====
Year ended October 3, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ 363 $101 $ 98 (C) $ 53(B) $ 509
===== ==== ===== ==== =====
(A) Adjustment based on the evaluation of uncertainties in the realization of
state net operating loss carryovers
(B) Write-offs of uncollectible accounts
(C) Acquired as part of an acquisition
S-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE
The Board of Directors and Shareholders
BEI Technologies, Inc.
We have audited the consolidated financial statements of BEI Technologies, Inc.
and subsidiaries as of September 30, 2000 and October 2, 1999, and for each of
the three years in the period ended September 30, 2000, and have issued our
report thereon dated October 30, 2000. 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 consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.
Ernst & Young LLP
San Francisco, California
October 30, 2000
S-2
INDEX TO EXHIBITS
- -----------------
Exhibit
Number Description
- ------ -----------
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule