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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 29, 2001 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
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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. |X|
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of November 26, 2001 was $192,963,766 (A).
As of November 26, 2001, 14,326,697 shares of Registrant's Common Stock were
outstanding.
(A) Based upon the closing sale price of the Common Stock on November 26, 2001
as reported on the NASDAQ National Market System. Excludes 3,015,808 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on November 26, 2001.
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 2002 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
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......................................... 41
PART III
Item 10. Directors and Executive Officers
of the Registrant.............................................................. 41
Item 11. Executive Compensation......................................................... 41
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................................... 41
Item 13. Certain Relationships and Related Transactions................................. 41
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K........................................................ 41
Signatures ............................................................................... 45
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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., ("Medical
Systems") 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 operations which design, manufacture and sell electronic
devices that provide vital sensory input for the control systems of advanced
machinery and automation systems. The sensors, most of which are concerned with
physical motion, provide information that is essential to logical, safe and
efficient operation of sophisticated machinery.
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. 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. The OpticNet
common stock dividend valued at $0.04 per share of Technologies common stock
resulted in a tax basis of $0.08 per OpticNet share. The total dividend was
approximately $300,000, based on an appraisal of OpticNet. OpticNet's business
is focused on developing fiber optic components and subsystems, such as optical
switches, used in telecommunication systems. No securities of OpticNet are
registered under the Securities Exchange Act of 1934. OpticNet is pursuing
funding options to expand future operations.
In the quarter ending December 30, 2000, Technologies' effective
ownership in OpticNet was reduced to 24%. OpticNet's net loss for the three
month period from October 1, 2000 through December 30, 2000 of $176,000 is
included in the consolidated results of Technologies. Beginning December 31,
2000, the Company accounted for its investment in OpticNet under the equity
method and, as of September 29, 2001, reduced its initial $1.0 million
investment in OpticNet by $160,000, reflecting the Company's share of OpticNet
losses for the nine months from December 31, 2000 to September 29, 2001. In
addition, Technologies had a note receivable totaling $1.1 million from OpticNet
as of September 29, 2001.
The Board of Directors of Technologies also declared a one-for-one stock
dividend to its stockholders, effective October 30, 2000. 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. The stock
dividend was paid November 21, 2000.
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 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.
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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) During normal operation, an elevator system needs to know exactly where
each car is. (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,
exact location or door position.
(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.
(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 control implements
on tractors and adjust engine speed 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-z 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) Various medical systems require compact, high reliability, air flow and
pressure regulation. The Company provides motors for blower assemblies and/or
magnetic actuators for fast acting pressure regulating valves.
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 control, 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 8,700 different commercial customers,
principally in the United States. These customers include both end users and
original equipment manufacturers. The Company ships 92% of sales to commercial
customers, with approximately 63% to the automotive market and 37% 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 8%
of the Company's net sales in fiscal 2001, 9% in fiscal 2000 and 12% in fiscal
1999. One customer, Continental Teves AG & Co. ("Continental Teves"), accounted
for approximately 49%, 37% and 20% of net sales in fiscal year 2001, 2000 and
1999, respectively. In fiscal 2001, approximately 56% of the Company's sales
occurred in foreign markets with approximately 3% sold in foreign currency.
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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.
Traditional Sensors and Complementary Products
Optical Shaft Encoders. Optical 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 optical 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
that employ optical shaft encoders include servo motors and servo drive
electronic control systems.
Position Sensors. Similar in basic function to encoders, position sensors
are potentiometric devices that measure motion by analog (not digital) changes
in electrical potential. These changes may sometimes be subsequently translated
into digital code. Position sensors are used as economical motion sensing
devices for throttle, steering, suspension, and seat and mirror position
controls in automobiles and in some heavy equipment, such as earth movers,
construction equipment and farm machinery. They are also used to measure
position 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 position sensor technology with its proprietary optical
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 motors
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 there is a long life requirement, 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 and flight control needs in aircraft and
missiles, stabilization of satellites, stabilization 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
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miniature, solid state rate sensors and accelerometers 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, gage 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.
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 and/or velocity of rotating shafts, linear assemblies or
other moving parts by noting a desired rate of movement and position (usually
input from computers or control panels), monitoring the actual position and 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. BEI 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 29, 2001 and at September 30,
2000, were $76,272,000 and $83,269,000, 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.
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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 29, 2001 are scheduled for
shipment during fiscal 2002. 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
Bosch, Danaher Corp., Litton, Panasonic, Rockwell International and Sumitomo.
There are smaller or product-specific companies, some of whose products compete
with those of the Company, including CTS Corp., Heidenhain, Kulite
Semiconductor, Servo Magnetics Corp., Bourns, Inc., Kavlico Corp., BI
Technologies Corp. 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.
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. The Company relies on various sources for its raw
material components. See "Business--Risk Factors--Dependence Upon Key
Suppliers."
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--Manufacturing Experience
Risk; Scale-Up Risk; Product Recall Risk."
Research and Development
The Company's research and development focus has included improving
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. The Company has begun transition to the next generation quartz fork
sensor. Value engineering reduced the size and thickness of this next generation
fork enabling faster etch time and nearly doubling the forks per wafer from
prior generation 16 forks per wafer to current configuration 30 forks per wafer.
Several patent applications for this configuration were filed and issued.
During the 2001 fiscal year, the Company continued development and
commercialization 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,
medium resolution absolute angular position measurement sensors), that would
overcome the limitations of contacting sensors as well as the limitations of
currently available non-contacting sensors. The design and architecture of the
NCAPS (essentially a digitally processed proprietary transceiver sensor unit),
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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 and industrial market
sectors. The Company also developed and introduced a dual output hall effect
angular position sensor for use in heavy duty off road and military
applications.
Also enhancing our core position sensing technology, the Company introduced
the Linear Gap Displacement Transducer (LGDT) for short stroke, high precision
applications. This reflective fiber optic technology offers measurement
resolution as low as 100 nanometers.
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 $8.8 million, $8.9 million and $6.6 million in
fiscal 2001, 2000 and 1999, respectively. In addition, customer-funded research
and development expenditures charged to cost of sales were $0.2 million, $0.6
million and $0.4 million, respectively, for the same periods. Development of the
Company's portfolio of 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 29, 2001, the business units comprising Technologies had
1,118 employees, including 142 in research, development and engineering, 195 in
administration, 56 in marketing and sales, and 725 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.
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 88 U.S. patents and 69 foreign patents with expiration dates
ranging from March 2002 to October 2018. 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
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fiscal 2001, 2000 and 1999 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 56%, 45% and
28% of revenues for fiscal 2001, 2000 and 1999, respectively. To date, the
Company has not experienced any significant difficulties in obtaining the
requisite licenses. In addition, the Company is subject to the Foreign Corrupt
Practices Act, which prohibits payments or offers of payments to foreign
officials for the purpose of influencing an act or decision by a foreign
government, politician or political party in order to assist in obtaining,
retaining or directing business to any person.
RISK FACTORS
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.
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
9
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.
Manufacturing Experience Risk; 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 expected future demand for
quantities required by the automobile market. The Company has relatively recent
experience in large-scale manufacturing. The Company manufactured approximately
1.83 million units of its automotive quartz rate sensor in the Concord,
California facility, which supplied sensors to less than 10% of automobiles sold
in the North American and European markets in fiscal 2001. In prior years, the
Company encountered difficulties in scaling up production of the GyroChip
sensors, including problems involving production yields, component supplies and
shortages of qualified personnel. 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. 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. The Company is largely dependent on its Concord,
California facility to meet the volume of manufacturing required by the
automotive market. 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.; housings, supplied by Tomco Plastics, Inc.; gold
pellets, supplied by Vacuum Engineering & Material Co., Inc.; PWB/ case
assemblies, supplied by Kimball Electronics Group; injection molding, supplied
by L. W. Reinhold, Inc.; substrates, supplied by Aurora Circuits, LLC; two types
of ASIC's, supplied by National Semiconductor Corporation and Flextronics
Semiconductor, Inc.; 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
10
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 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 49% of the net sales of the Company in fiscal 2001 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 2003 and beyond. In fiscal year 2002, the
Company is transitioning to its next generation automotive quartz yaw rate
sensor product, a multi-sensor cluster configuration. The Company expects to
continue to increase production of the GyroChip sensors (see "Business--Risk
Factors--Manufacturing Experience Risk; Scale-Up Risk; Product Recall Risk") to
meet the requirements of its contracts with Continental Teves in FY 2003 and
beyond. 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. 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 8%, 9% and 12% of the net sales of Technologies in fiscal
2001, 2000 and 1999, 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 that 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 2.0% of the Company's net sales in fiscal 2001. 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.
11
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.
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 56%, 45% and 28% of the Company's net sales in fiscal 2001, 2000
and 1999, respectively. Most of these sales were to Continental Teves, located
in Germany. 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.
12
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.
Voting Control by Officers, Directors and Affiliates
At September 29, 2001 the Company's officers and directors and their
affiliates beneficially owned approximately 24% 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.
Economic Downturn
We are currently in the midst of a general economic downturn. We cannot
predict how long or severe this downturn will be or whether any actions taken or
proposed by the government will be effective to bolster the economy. As a result
of this uncertainty, forecasting and financial and strategic planning are more
difficult than usual. If the downturn continues for an extended period or
becomes more severe, our business will suffer and we may experience declines in
sales and resulting losses, as our customers attempt to limit their spending.
Specifically, a continued economic downturn may result in diminished factory
utilization and consumer demand in the aviation, aerospace and factory
automation markets, as well as lower automobile sales, resulting in lower demand
for our products purchased by these industries. In addition, the adverse impact
of the downturn on the capital markets could impair our ability to raise capital
as needed and impede our ability to expand our business.
In addition, this economic downturn has been exacerbated by the recent
terrorist attacks in New York and Washington, D.C., which caused disruption to
commercial activities in the United States and internationally. The long-term
impact of the terrorist attacks on the economy as a whole, the automotive
industry, government related sales, and other industries to which we sell is not
known at this time. Any future terrorist attacks or future outbreaks or
escalation of hostilities arising out of any attacks, or concerns that attacks
or hostilities may occur, could adversely affect the United States economy in
general, including the capital markets, which in turn could adversely impact the
worldwide economy and prolong or intensify the current downturn.
13
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as of
December 1, 2001 are as follows:
Name Age Position
---- --- --------
Charles Crocker........................ 62 Chief Executive Officer and Chairman of the Board of Directors
Dr. Asad Madni ........................ 54 President, Chief Operating Officer and Director
John LaBoskey.......................... 48 Senior Vice President and Chief Financial Officer
Robert R. Corr......................... 55 Vice President, Secretary, Treasurer and Controller
Gerald D. Brasuell..................... 53 Vice President and General Manager, BEI Systron Donner
David Pike............................. 48 Senior Vice President Divisional Administration and Human Resources
Richard M. Brooks(1)(2)................ 73 Director
George S. Brown(2)..................... 80 Director
C. Joseph Giroir, Jr.(1)(2)............ 62 Director
Dr. William G. Howard, Jr.(1).......... 60 Director
Gary D. Wrench ........................ 68 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 Medical Systems in
September 1997. From 1987 until his resignation as a result of the Distribution,
he served as a director of Medical Systems. 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 an 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 Medical Systems in
September 1997. He served as a director of Medical Systems from October 1974
until his resignation as a result of the Distribution. Mr. Brown served as
President and Chief Executive Officer of Medical Systems 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 Medical Systems. 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 Medical Systems in
September 1997. He was a founder of Medical Systems and has served as Chairman
of the Board of Directors of Medical Systems since October 1974 and Chairman of
the Board of Directors of Technologies since October 1997. Mr. Crocker assumed
the positions of President (in which position he served until May 2000) and
Chief Executive Officer of Technologies, effective October 1, 1997, after
resigning as President and CEO of Medical Systems 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 International, Pope &
Talbot, Inc. and Teledyne Technologies, Inc. Mr. Crocker also serves as director
of OpticNet, Inc., a minority owned subsidiary of the Company. 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 Medical Systems in
September 1997. He was a director of Medical Systems from 1978 until his
resignation as a result of the Distribution. He served as the Secretary of
Medical Systems from 1974 to early 1995. Mr. Giroir is the sole member of
Giroir,
14
PLLC. 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.
Dr. Howard began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Medical Systems in
September 1997. He was a director of Medical Systems 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 director of RAMTRON
International Corp., Credence Systems, Inc., 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 Medical Systems 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 Medical Systems in 1992, he served over 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 B.S and M.S. 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 Medical Systems in
September 1997. He was Senior Vice President and Chief Financial Officer of
Medical Systems 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 Medical Systems in February
1986, and continues to serve as a director of Medical Systems. He also serves as
a director of OpticNet, Inc., a minority owned subsidiary of the company, 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 Medical Systems and President
and Chief Executive Officer of BEI Motion Systems Company, Inc., then a wholly
owned subsidiary of Medical Systems that is now a part of the Company. Other
experience includes twenty years with Hughes Aircraft Company. Mr. Wrench holds
a B.A. from Pomona College and an 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 II directors to
expire at the 2002 annual meeting of stockholders, the term of office of the
Class III directors to expire at the 2003 annual meeting of stockholders and the
term of office of the Class I directors to expire at the 2004 annual meeting of
stockholders. Class II consists of Mr. Giroir, Dr. Madni and Mr. Wrench; Class
III consists of Mr. Brooks and Dr. Howard; and Class I consists of Mr. Brown and
Mr. Crocker. 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 Technologies. Mr. Brasuell has served in this position
since October 1995. From 1985 until 1995 Mr. Brasuell held executive staff level
positions at Systron
15
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.
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 Medical Systems prior to the
Distribution in September 1997. Mr. Corr resigned from his positions with
Medical Systems immediately prior to the Distribution. Mr. Corr served as
Secretary of Medical Systems 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. 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 his CPA in 1979 from the State
of Arkansas.
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 25,000 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 and leases approximately 15,000 square
foot manufacturing, research and development
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 operating results.
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 paid November 21,
2000 to shareholders of record as of October 30, 2000. Such quotations do not
reflect retail mark-ups, markdowns or commissions.
2001 Fiscal Year Cash Dividend
(ended 9/29/01) High Low Declared
- --------------------------------------------------------------------------------
Fourth Quarter $28.60 $13.50 $0.01
Third Quarter $37.00 $15.69 $0.01
Second Quarter $18.56 $11.00 $0.01
First Quarter $21.69 $ 9.94 $0.045
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 26, 2001, 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 per share of common stock noted above in fiscal 2001 and
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 4 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 29, September 30, October 2, October 3, September 27,
2001 2000 1999 1998 1997(1)
(amounts in thousands except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------
Statement of Income Data:
Net sales $238,985 $219,216 $159,403 $124,264 $101,539
Income from continuing operations
(before extraordinary item) 11,717 9,607 5,339 2,515 2,997
Diluted income from continuing
operations per share (before
extraordinary item and discontinued
operations) 0.81 0.65 0.37 0.17 0.21
Shares used in computing diluted
income per share (before
extraordinary item) 14,444(2) 14,807(2) 14,508(2) 14,548(2) 14,134(2)
Balance Sheet Data:
Working capital $ 43,764 $ 41,808 $ 37,937 $ 36,124 $ 26,967
Total assets 146,357 138,288 123,360 109,515 94,855
Long-term debt (excluding current
portion) 29,556 36,614 36,705 37,157 27,508
Stockholders' equity 60,320 49,096 45,843 40,194 36,617
- ------------------------------------------------------------------------------------------------------------------------------
1 Selected financial data for the year ended September 27, 1997 is derived from
results of Electronics prior to the Distribution
2 Share numbers have been adjusted for the one-for-one stock dividend paid
November 21, 2000 to shareholders of record as of October 30, 2000
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.
Years Ended
-----------
2001 2000 1999
---- ---- ----
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................... 72.8 72.3 69.7
----- ----- -----
Gross profit........................................................ 27.2 27.7 30.3
Operating expenses:
Selling, general and administrative expenses................... 14.7 15.6 18.8
Research, development and related expenses..................... 3.7 4.1 4.2
----- ----- -----
Income from operations.............................................. 8.8 8.0 7.3
Other income........................................................ 0.2 0.4 0.2
Interest expense.................................................... 1.0 1.2 1.9
----- ----- -----
Income before income taxes and extraordinary item................... 8.0 7.2 5.6
Income taxes........................................................ 3.1 2.8 2.3
----- ----- -----
Income before extraordinary item.................................... 4.9 4.4 3.3
Extraordinary item, net of income taxes............................. (0.0) (0.0) (0.2)
----- ----- -----
Net Income.......................................................... 4.9% 4.4% 3.1%
===== ===== =====
Continuing Operations
Net Sales
During fiscal 2001, net sales for the Company increased 9.0% to $239.0
million from $219.2 million in fiscal 2000, reflecting continuing increases in
sales due to growth in the automotive industry's demand for the Company's
GyroChip sensors used in automotive stability systems. Sales to the automotive
industry, including sales of the Company's GyroChip sensors, increased 29.0% to
$138.7 million from $107.5 million in fiscal 2000. In fiscal 2002, the Company
is transitioning to its next generation GyroChip sensor, a multi-sensor cluster
configuration. Sales to other industrial customers decreased $11.2 million to
$81.8 million from $93.0 million during fiscal 2001 resulting primarily from
reduced sales to the semiconductor capital equipment industry. Government
related sales decreased $0.2 million in fiscal 2001 to $18.5 million from $18.7
million during fiscal 2000.
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 growth in the automotive industry's demand for the Company's GyroChip sensors
used in automotive stability systems. Sales to the automotive industry,
including sales of the Company's GyroChip sensors, increased 97.3% to $107.5
million from $54.5 million in fiscal 1999. Sales to other industrial customers
increased $7.2 million to $93.0 million from $85.8 million during fiscal 2000.
Government related sales decreased $0.5 million in fiscal 2000 to $18.7 million
from $19.2 million during fiscal 1999.
The Company's sales to international customers were approximately 56%, 45%,
and 28% of the Company's net sales for fiscal 2001, 2000 and 1999, 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 to non-U.S. customers are denominated in U.S. Dollars.
20
Cost of Sales and Gross Profit
In fiscal 2001, cost of sales as a percentage of net sales increased 0.5
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 2001. 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 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 and continued expansion of manufacturing capacity for the
production of GyroChip sensors.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal 2001 increased $0.8
million from $34.3 million in fiscal 2000 to $35.1 million primarily as a result
of costs incurred to support the increase in sales during fiscal 2001. As a
percentage of sales, selling, general and administrative expenses decreased 0.9
percentage points to 14.7% in fiscal 2001 from 15.6% in fiscal 2000 as a result
of increased sales.
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.
Research, Development and Related Expenses
Research and development expenses in fiscal 2001 decreased $0.1 million to
$8.8 million from $8.9 million in fiscal 2000. The decrease is due to a spending
reduction primarily associated with SiTek, partially offset by increased
spending on 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 2000 increased 34.8% to $8.9
million from $6.6 million in fiscal 1999. This increase was 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.
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 contracts funding research and
development efforts.
Interest Expense and Other Income
Interest expense was $2.5 million, $2.6 million and $3.0 million in fiscal
2001, 2000 and 1999, respectively. Interest expense in fiscal 2001 approximated
interest expense in fiscal 2000. The decrease in interest expense during fiscal
2000 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. The Company's average interest rate in fiscal 2001
approximated the average interest rate in fiscal 2000. The Company's average
interest rate was lower in fiscal 2000 than in fiscal 1999 due to the reduced
need for bank borrowings.
Other income in fiscal 2001, 2000 and 1999 was comprised of royalties and
interest income earned on highly liquid investments. Other income was $0.5
million, $1.0 million and $0.4 million for fiscal 2001, 2000 and 1999,
respectively. The higher income in fiscal 2000 resulted primarily from the sale
in the second quarter of fiscal 2000 of an asset held for investment for $0.5
million, net.
21
Income Taxes
The Company's effective tax rate was 39.1%, 39.3% and 40.4% for fiscal
2001, 2000 and 1999, 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 0.2 percentage points in
fiscal 2001 from fiscal 2000 and the decrease of 1.1 percentage points in fiscal
2000 from fiscal 1999 results from increased federal and state tax credits,
primarily foreign tax credits and manufacturer's investment credits, for the
Company during fiscal 2001 and fiscal 2000, respectively.
Deferred Income Taxes
At September 29, 2001, the Company had net current deferred income tax
assets of $6.3 million and net non-current deferred income tax assets of $3.0
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.
Liquidity and Capital Resources
During fiscal 2001, operations of the Company provided $15.1 million in
cash. Net income of $11.7 million plus non-cash charges for depreciation,
amortization and deferred income taxes of $6.5 million, $3.2 million and $1.2
million, respectively, together with a decrease of $6.3 million in trade
receivables provided $28.9 million in cash. These cash inflows were offset by
increases in assets held for sale and other assets of $6.4 million and $3.7
million, respectively, and net decreases in trade accounts payable, accrued
expenses and other liabilities of $3.7 million. The assets held for sale include
research and development equipment of $3.3 million that will be bundled for
lease financing when the assets are placed in service. The Company expects to
rent capacity on this equipment to OpticNet, an equity investee. Assets held for
sale also include production equipment of $3.1 million that the Company plans to
sell to a significant customer. Additionally, other liabilities included an
amount of $1.0 million in respect of stock repurchased under a temporary change
to SEC and NASDAQ rules at fiscal 2001 year end.
Investing activities for the Company in fiscal 2001 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. In addition, the Company paid $1.0 million for the
investment in OpticNet, and another cash outflow was due to an increase of $0.2
million in other assets. These cash outflows were offset by the receipt of $0.1
million in cash from the disposal of equipment resulting in net cash used by
investing activities of $9.5 million.
Fiscal 2001 financing activities primarily consisted of the Company's
open-market repurchases of its common stock totaling $1.5 million. In addition,
the Company paid $1.1 million in dividends and $0.2 million for debt repayment.
These cash outflows were offset by proceeds of $0.7 million from stock issuances
related to the exercise of options granted under the Company's 1997 Equity
Incentive Plan and contributed capital from a minority interest in one of the
Company's majority-owned subsidiaries, as well as $0.7 million from the tax
benefit of the exercised stock options, resulting in net cash used for
financing activities of $1.4 million during fiscal 2001.
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, changes in the prices of marketable equity securities held as
part of a deferred compensation plan (a "Rabbi" trust) and interest income
sensitivity.
The Company has approximately $2,500,000 (calculated based on the
conversion rate for French francs at September 29, 2001) 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 $250,000, 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.
The Company's exposure to interest income sensitivity is affected by
changes in the general level of U.S. interest rates, as a portion of the
Company's investments are in short-term debt securities issued by corporations.
The Company's investments are placed with high-duality issuers and the Company
attempts to limit the amount of credit exposure to any one issuer. Due to the
nature of the Company's short-term investments, the Company believes that it is
not subject to any material market risk exposure. The Company does not have any
foreign currency or other derivative financial instruments.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
- ---------------------------------------------------------------------------------------------------------
September 29, September 30,
dollars in thousands except share amounts 2001 2000
- ---------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 16,438 $ 12,296
Investments 7,099 7,252
Trade receivables:
Commercial customers, less allowance for doubtful
accounts (2001--$1,662; 2000--$1,084) 22,734 30,439
United States Government 4,034 2,628
-------------- --------------
26,768 33,067
Inventories, less inventory
reserves (2001--$3,755; 2000--$4,452) 30,808 31,084
Deferred income taxes 6,322 6,148
Assets held for sale 4,881 --
Other current assets 5,476 1,715
-------------- --------------
Total current assets 97,792 91,562
Property, plant and equipment
Land 4,294 4,287
Structures 14,378 12,513
Equipment 66,496 61,909
Leasehold improvements 1,671 1,589
-------------- --------------
86,839 80,298
Less allowances for depreciation and amortization 49,032 44,288
-------------- --------------
37,807 36,010
Other assets
Tradenames, patents and related assets,
less amortization (2001--$3,493; 2000--$3,082) 424 1,201
Technology acquired under license agreements,
less amortization (2001--$8,077; 2000--$7,115) 2,731 3,093
Goodwill, less amortization (2001--$590; 2000--$964) 1,612 2,085
Deferred income taxes, non-current 3,174 3,214
Other 2,817 1,123
-------------- --------------
10,758 10,716
-------------- --------------
$146,357 $138,288
============== ==============
See notes to consolidated financial statements
24
CONSOLIDATED BALANCE SHEETS (cont.)
BEI Technologies, Inc. and Subsidiaries
- ---------------------------------------------------------------------------------------------------------
September 29, September 30,
dollars in thousands except share amounts 2001 2000
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 18,357 $18,926
Accrued expenses and other liabilities 21,483 23,442
Deferred compensation liability 7,099 7,252
Current portion of long-term debt 7,089 134
-------------- --------------
Total current liabilities 54,028 49,754
Long-term debt, less current portion 29,556 36,614
Other liabilities 2,453 2,824
Stockholders' equity
Preferred stock
($.001 par value; authorized 2,000,000 shares; none issued)
Common stock -- --
($.001 par value; authorized 35,000,000 shares; issued
and outstanding; 2001--14,326,272; 2000--14,308,776)
Retained earnings 4,025 2,321
Accumulated other comprehensive loss 59,434 49,193
(458) (398)
-------------- --------------
63,001 51,116
Less: Unearned restricted stock (2,681) (2,020)
-------------- --------------
Total stockholders' equity 60,320 49,096
-------------- --------------
$146,357 $138,288
============== ==============
See notes to consolidated financial statements
25
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------
Years Ended
--------------------------------------------------
September 29, September 30, October 2,
dollars in thousands except share and per share amounts 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net sales $238,985 $219,216 $159,403
Cost of sales 173,897 158,526 111,180
---------------- -------------- ----------------
Gross profit 65,088 60,690 48,223
Selling, general and administrative expenses 35,077 34,300 30,044
Research, development and related expenses 8,825 8,897 6,605
---------------- -------------- ----------------
43,902 43,197 36,649
---------------- -------------- ----------------
Income from operations 21,186 17,493 11,574
Other income 524 968 360
Interest expense (2,466) (2,644) (2,974)
---------------- -------------- ----------------
Income before income taxes and extraordinary item 19,244 15,817 8,960
Income taxes 7,527 6,210 3,621
---------------- -------------- ----------------
Income before extraordinary item 11,717 9,607 5,339
Extraordinary item, net of income taxes -- -- (326)
---------------- -------------- ----------------
Net income $ 11,717 $ 9,607 $ 5,013
================ ============== ================
Basic Income Per Share
Income before extraordinary item per common share $0.84 $ 0.68 $ 0.37
Loss from extraordinary item per common share -- -- (0.02)
---------------- -------------- ----------------
Net income per common share $ 0.84 $ 0.68 $ 0.35
================ ============== ================
Shares used in computing basic income per
common share 13,904,937 14,113,156 14,315,890
================ ============== ================
Diluted Income Per Share
Income before extraordinary item per
common and common equivalent share $ 0.81 $ 0.65 $ 0.37
Loss from extraordinary item per common and common
equivalent share -- -- (0.02)
---------------- -------------- ----------------
Net income per common and common equivalent share $ 0.81 $ 0.65 $ 0.35
================ ============== ================
Shares used in computing diluted income per common and
common equivalent share 14,443,609 14,806,504 14,508,968
================ ============== ================
See notes to consolidated financial statements
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries
Years Ended
------------------------------------------------
September 29, September 30, October 2,
dollars in thousands 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 11,717 $ 9,607 $ 5,013
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 6,456 6,067 6,220
Amortization 3,247 2,826 2,013
Deferred income taxes 1,250 (3,036) (576)
Loss (gain) on disposition of assets 17 (415) 42
Foreign currency translation (60) (292) (145)
Changes in operating assets and liabilities:
Trade receivables 6,298 (3,511) (6,244)
Inventories 276 (47) (1,657)
Assets held for sale (6,383) -- --
Other current assets (3,755) 831 (1,061)
Customer advances (258) 166 (535)
Trade accounts payable, accrued expenses and other liabilities (3,706) 11,375 7,112
---------------- -------------- ----------------
Net cash provided by operating activities 15,099 23,571 10,182
Cash flows from investing activities:
Investment in minority owned equity investee - OpticNet (1,000) -- --
Purchase of property, plant and equipment (8,436) (8,408) (10,597)
Proceeds from sale of assets 109 1,868 --
Other (194) (27) 10
---------------- -------------- ----------------
Net cash used by investing activities (9,521) (6,567) (10,587)
Cash flows from financing activities:
Proceeds from long-term debt 3 1,472 40,300
Principal payments on debt and other financing (153) (2,121) (40,457)
Proceeds from issuance of common stock 667 903 55
Tax benefit from exercised stock options 654 31 726
Repurchase of stock (1,531) (7,586) --
Payment of cash dividend (1,076) (588) (595)
---------------- -------------- ----------------
Net cash provided (used) by financing activities (1,436) (7,889) 29
---------------- -------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,142 9,115 (376)
Cash and cash equivalents at beginning of year 12,296 3,181 3,557
---------------- -------------- ----------------
Cash and cash equivalents at end of year $ 16,438 $ 12,296 $ 3,181
================ ============== ================
See notes to consolidated financial statements
27
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 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
Repurchase of stock (3,262) (4,324) (7,586)
Cash dividends (588) (588)
----------- --------------- -------------- ------------ ------------
Balances at September 30, 2000 $ 2,321 $ 49,193 $ (398) $(2,020) $49,096
Net income for 2001 11,717 11,717 11,717
Other comprehensive income
Foreign currency translation
loss, net of income tax of $39 (60) (60) (60)
---------------
Comprehensive income 11,657
===============
Restricted Stock Plan 1,416 (661) 755
Stock options exercised 390 390
Tax benefit from exercised stock
options 654 654
Tax benefit from restricted stock 1,139 1,139
Repurchase of stock (2,130) (400) (2,530)
Cash dividends (1,076) (1,076)
Contributed capital and other 235 235
----------- --------------- -------------- ------------ ------------
Balances at September 29, 2001 $ 4,025 $ 59,434 $(458) $(2,681) $60,320
=========== =============== ============== ============ ============
See notes to consolidated financial statements
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BEI Technologies, Inc. and Subsidiaries
September 29, 2001
Note 1 Summary of Significant Accounting Policies
Basis of Presentation: 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., ("Medical Systems") on September 24, 1997 (the "Distribution").
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. 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. The OpticNet
common stock dividend valued at $0.04 per share of Technologies common stock
resulted in a tax basis of $0.08 per OpticNet share. The total dividend was
approximately $300,000, based on an appraisal of OpticNet.
In the quarter ending December 30, 2000, Technologies' effective ownership
in OpticNet was reduced to 24%. OpticNet's net loss for the three month period
from October 1, 2000 through December 30, 2000 of $176,000 is included in the
consolidated results of Technologies. Beginning December 31, 2000, the Company
accounted for its investment in OpticNet under the equity method and, as of
September 29, 2001, reduced its initial $1.0 million investment in OpticNet by
$160,000, reflecting the Company's share of OpticNet losses for the nine months
from December 31, 2000 to September 29, 2001.
The Board of Directors of Technologies also declared a one-for-one stock
dividend to its stockholders, effective October 30, 2000. 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. 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. All intercompany accounts and transactions have been eliminated.
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 2001, 2000 and 1999 each contained 52 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.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Assets Held for Sale: Assets held for sale include research and development
equipment of $3.3 million that will be bundled for lease financing when the
assets are placed in service. The Company expects to rent capacity on this
equipment to OpticNet, an equity investee. Assets held for sale also include
$0.9 million, which is the current portion of deposits and advances on
production equipment that a significant customer has agreed to fund over a
period of two years. In addition, assets held for sale totaling $1.5 million
have been included in long term other assets because it is not expected that
payment in respect of this portion of the assets held for sale will be received
in the next fiscal year. The assets are not in production, are not being
depreciated and are available for immediate sale. Assets held for sale are
carried at cost.
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 and
assets acquired under capital leases are amortized over the shorter of the lease
term or their estimated useful lives.
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. Other current assets include assets held for sale.
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 in
accordance with Financial Accounting Statement ("FAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
Long-lived assets, including property, plant and equipment and other assets, are
reviewed and impairment recognized 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 July 2001, the Financial
Accounting Standards Board ("FASB") issued FAS No. 141 ("FAS 141"), "Business
Combinations." FAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 and prohibits the
use of the pooling-of-interests method for those business combinations. FAS 141
became effective on July 1, 2001. The adoption of this standard had no impact on
the Company.
In July 2001, the FASB issued FAS No. 142 ("FAS 142"), "Goodwill and
Other Intangible Assets." FAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Thus amortization of
goodwill, including goodwill recorded in past transactions, will cease upon
adoption of this statement. FAS 142 is effective for fiscal years beginning
after December 15, 2001, with early adoption permitted for entities with fiscal
years beginning after March 15, 2001. The Company has chosen to adopt FAS 142
for its fiscal year beginning September 30, 2001. After adoption, the
elimination of goodwill amortization is not expected to have a significant
impact on the Company.
In October 2001, the FASB issued FAS No. 144 ("FAS144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets", which is effective for
fiscal periods beginning after December 15, 2001. FAS 144 provides a single
accounting model for , and supersedes previous guidance on, accounting and
reporting for the impairment/disposal of long-lived assets. FAS 144 sets new
criteria for the classification of assets held-for-sale and changes the
reporting of discontinued operations. The Company does not believe that the
adoption of FAS 144 will have a significant impact on its financial statements.
Net Income 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.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Foreign subsidiary: The financial statements of Ideacod, S.A. , a
wholly owned subsidiary, 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 2000
and 1999 consolidated financial statements to conform with current year
presentations.
Note 2 Inventories
September 29, September 30,
2001 2000
---- ----
(in thousands)
--------------------------------------
Finished products............................................................... $ 4,919 $ 2,052
Work in process................................................................. 7,354 5,880
Materials....................................................................... 18,535 23,152
------- -------
Total inventories............................................................... $30,808 $31,084
======= =======
Note 3 Accrued Expenses and Other Liabilities
September 29, September 30,
2001 2000
(in thousands)
--------------------------------------
Employee compensation........................................................... $ 3,548 $ 3,915
Vacation........................................................................ 2,066 1,810
Accrued taxes................................................................... 1,846 2,561
Contract costs.................................................................. 550 552
Accrued professional fees....................................................... 1,088 1,020
Insurance....................................................................... 762 1,303
Royalties and related costs..................................................... 5,593 6,188
Customer advances............................................................... 245 891
Commissions..................................................................... 589 755
Repurchase of stock............................................................. 999 --
Other........................................................................... 4,197 4,447
------- -------
Total accrued expenses and other liabilities.................................... $21,483 $23,442
======= =======
Note 4 Long-Term Debt
September 29, September 30,
2001 2000
---- ----
(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 .................................................... 1,626 1,655
Capitalized equipment lease obligations......................................... 19 93
------- -------
36,645 36,748
Less current portion............................................................ 7,089 134
------- -------
$29,556 $36,614
======= =======
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
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.
During fiscal 2001, the Company completed an amendment to its line of credit
agreement that increased the amount available to the Company to $25.0 million.
No borrowings were outstanding under the new line of credit at September 29,
2001. 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 2002 $7,070,000; fiscal 2003 $7,034,000;
fiscal 2004 $8,522,000; fiscal 2005 $7,000,000; fiscal 2006 $7,000,000.
Interest of approximately $2,499,000, $2,480,000 and $2,354,000 were paid
during fiscal years 2001, 2000, and 1999, respectively.
Note 5 Research and Development
The Company's internally funded research, development and related
engineering expenditures were approximately $8.8 million, $8.9 million and $6.6
million in fiscal 2001, 2000, and 1999, respectively. In addition,
customer-funded research and development expenditures charged to cost of sales
were $0.2 million, $0.6 million and $0.4 million, respectively, for the same
periods.
Note 6 Income Taxes
The Company accounts for income taxes under FAS 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 29, September 30, October 2,
2001 2000 1999
--------------------------------------------
Current
Federal.......................................................... $5,691 $7,504 $3,365
State............................................................ 586 1,742 832
------ ------- ------
Total Current............................................... 6,277 9,246 4,197
Deferred
Federal ........................................................ 815 (2,500) (437)
State ........................................................ 435 (536) (139)
------ ------- ------
Total Deferred............................................. 1,250 (3,036) (576)
------ ------- ------
Total income tax provision............................................ $7,527 $6,210 $3,621
====== ======= ======
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) requires the tax benefit related to the Company's restricted
stock program to be reported as an addition to paid-in-capital. In the current
year, $1,139,000 of accumulated tax benefit was reclassed from deferred taxes to
paid-in-capital.
Significant components of the Company's net deferred tax assets are as follows
(in thousands):
September 29, September 30,
2001 2000
--------------------------------------
Deferred tax assets
Accrued expenses $8,218 $7,282
Inventory valuation............................................................. 1,572 3,063
Contract reserves .............................................................. 1,396 709
Other........................................................................... 847 527
------ ------
Total deferred tax assets............................................... 12,033 11,581
------ ------
Deferred tax liabilities
Depreciation and property basis difference...................................... 2,135 1,438
Other........................................................................... 647 781
------ ------
Total deferred tax liabilities............................................. 2,782 2,219
------ ------
Net deferred tax assets.................................................... $9,251 $9,362
====== ======
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 1999
and 35.0% for 2000 and 2001 (in thousands) are as follows:
September 29, September 30, October 2,
2001 2000 1999
------ ------ ------
Income tax at the statutory rate........................................ $6,735 $5,536 $3,046
State income tax, net of federal tax.................................... 616 789 457
Other................................................................... 176 (115) 118
------ ------ ------
Total income taxes...................................................... $7,527 $6,210 $3,621
====== ====== ======
Cash paid for income taxes in fiscal year 2001, 2000 and 1999 was
$6,341,000, $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 No. 123, "Accounting for Stock Based
Compensation"(FAS 123). The Company accounts for employee stock awards using the
intrinsic value method in accordance with APB 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 Medical
Systems in connection with the Distribution.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Option activity under the Technologies Incentive Plan is summarized below:
Weighted average
Number of exercise price
Common shares per share
---------------- --------------------
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) $ 3.75
Terminated......................................... (47,464) $ 5.12
---------------- --------------------
Options outstanding at September 30, 2000 361,928 $ 5.72
Granted............................................ 131,440 $15.74
Exercised.......................................... (81,220) $ 4.70
Terminated......................................... (30,388) $11.58
---------------- --------------------
Options outstanding at September 29, 2001 381,760 $ 8.98
================ ====================
Weighted Average Weighted Average
Number Remaining Contractual Exercise Price Per
Range of Exercise Prices Outstanding Life (Years) Share
----------- ------------ -----
$2.33 - $2.97............................... 16,722 2.43 $ 2.64
$3.50 ...................................... 69,750 7.02 $ 3.50
$5.25 - $6.22............................... 20,002 7.70 $ 5.75
$6.25 ...................................... 124,678 8.19 $ 6.25
$7.44 - $12.78.............................. 25,668 8.41 $ 9.35
$13.25 ..................................... 78,040 9.19 $13.25
$14.58 ..................................... 10,000 4.19 $14.58
$15.25 - $29.35 ............................ 36,900 9.49 $22.04
--------------- ------- ---- ------
$2.33 - $29.35.............................. 381,760 7.94 $ 8.95
=======
As of September 29, 2001, options for 104,757 shares were vested and
exercisable at a weighted average exercise price of $5.08.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Under the Incentive Plan, the holders of the 1,400,000 shares of Medical
Systems common stock that had been issued under the Medical Systems 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 29, 2001,
1,482,873 shares had been granted, of which 1,256,683 shares are outstanding,
and 811,967 shares have fully vested. Compensation expense of $755,000,
$1,178,000 and $595,000 for the amortization of the restricted stock was
recorded in fiscal years 2001, 2000, and 1999, respectively.
The Company computed the pro forma disclosures required under FAS No. 123
for options granted in fiscal years 2001, 2000, and 1999 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 year 1999. For fiscal years 2001 and 2000, the significant
assumptions used in the Black-Scholes calculation were a risk-free interest rate
of 4.00% and 5.98%, a weighted average expected life of 5 and 3 years, a
volatility rate of 83% and 85%, and an expected dividend yield of 0.4% and 0.4%,
respectively.
During fiscal years 2001 and 2000, options to acquire 131,440 and 215,000
shares were granted with a weighted average fair value of $10.85 and $5.08 per
share, respectively. For the year ended September 29, 2001, the compensation
cost of options under FAS 123 would have reduced net income from $11.7 million
to $11.2 million, and diluted earnings per share from $0.81 to $0.77. 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 $0.65 to $0.63.
In addition to options, during fiscal years 2001 and 2000, 116,421 and
145,000 shares of nonvested stock were granted with a weighted average fair
value of $14.17 and $7.55 per share, respectively. 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 multi-employer 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 2001, 2000 and
1999 were approximately $1,068,00, $960,000 and $911,000, respectively. The plan
includes employees of BEI Technologies, Inc. and subsidiaries and employees of
OpticNet, Inc.
The Company has a grantor trust to fund deferred compensation for certain
employees (a "Rabbi Trust" or "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 29, 2001
and September 30, 2000.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Note 9 Lease Commitments
Operating leases consist principally of leases for real properties,
manufacturing equipment 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. At
September 29, 2001 and September 30, 2000, assets recorded under capital leases
consist of land, buildings and equipment of $876,000 and $875,000, net of
accumulated amortization of $376,000 and $265,000, respectively. The future
minimum payments for operating and capital leases, net of future minimum rentals
to be received under noncancelable subleases, consist of the following at
September 29, 2001 (in thousands):
Capital Operating
Fiscal Year Leases Leases
2002 ................................................................... $22 $1,843
2003 ................................................................... -- 1,574
2004 ................................................................... -- 1,448
2005 ................................................................... -- 731
2006 ................................................................... -- 620
Thereafter............................................................... -- 1,510
------- ------
Total minimum lease payments, net of future minimum rental income.. 22 $7,726
======
Less amounts representing interest................................. 3
-------
Amounts included in long-term debt................................. $19
=======
On September 28, 2001, the Company completed the leasing of research and
development equipment placed in service during the quarter ended September 29,
2001, which had been previously purchased by the Company for $700,000. Under the
terms of the lease transaction, the Company sold $700,000 of equipment and then
immediately leased the equipment from the sole purchaser under a non-cancelable
operating lease with a lease term of three years and an interest rate of
approximately 6.9%. Total rent expense, including interest, during the lease
term will be approximately $660,000 and is included in the table of future
minimum annual rental commitments under operating leases.
The Company has entered into an agreement with OpticNet, an equity
investee, to rent capacity of this equipment to OpticNet from month to month
based on OpticNet's usage of the equipment beginning in October 2001.
Total rental expense amounted to approximately $2,304,000, $2,192,000 and
$2,187,000 for fiscal years 2001, 2000 and 1999, 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, individually
or in the aggregate, will have a material impact on the Company's business,
financial condition or operating results.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Note 11 Related Party Transactions
During the fiscal year, Technologies entered into an agreement to provide
working capital bridge financing to OpticNet, an equity investee. Under the
terms of the agreement, Technologies agreed to make available to OpticNet, from
time to time, until September 28, 2002, an amount not to exceed at any time the
aggregate principle amount of $2 million. At September 29, 2001, OpticNet has
borrowed $1.1 million under this agreement. OpticNet's obligation to repay the
advances is evidenced by a promissory note, due in full on or before September
28, 2002, unless extended by mutual agreement of the parties. The outstanding
principal on the note bears interest at prime plus 1.5% per annum.
OpticNet's business is focused on developing fiber optic components and
subsystems, such as optical switches, used in telecommunication systems.
OpticNet's primary activities since inception have been devoted to developing
its product offerings and related technologies, recruiting key management and
technical personnel and seeking capital to fund operations. OpticNet has
operating losses for its fiscal year ended September 29, 2001 and the sole
source of funding for OpticNet's operations is from BEI. OpticNet's operations
are subject to significant risks and uncertainties, including competitive,
financial, developmental, operational, growth and expansion, technological,
regulatory and other risks associated with an emerging business. OpticNet is
pursuing various funding options to sustain and expand future operations.
Note 12 Sales and Major Customers
The principal business and continuing operations of Technologies are
conducted within one business segment and are carried out by operations which
design, manufacture and sell electronic devices that provide vital sensory input
for the control systems of advanced machinery and automation systems for the
commercial automotive, government and industrial industries. The sales to major
industries are as follows (in thousands):
September 29, September 30, October 2,
2001 2000 1999
---- ---- ----
Commercial automotive sensors sales..................................... $138,702 $107,459 $54,459
Government.............................................................. 18,501 18,723 19,172
Industrial sales........................................................ 81,782 93,034 85,772
-------- ------ ------
Total sales from continuing operations.................................. $238,985 $219,216 $159,403
======== ======== ========
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 29, 2001.
The Company's foreign operations are conducted throughout Europe. A
summary of foreign vs. domestic sales follows (in thousands):
September 29, September 30, October 2,
2001 2000 1999
---- ---- ----
Domestic sales.......................................................... $104,377 $120,894 $114,766
Foreign ................................................................ 134,608 98,322 44,637
-------- -------- --------
Total sales from continuing operations.................................. $238,985 $219,216 $159,403
======== ======== ========
Foreign sales accounted for approximately 56%, 45%, and 28% of total sales for
fiscal 2001, 2000 and 1999, respectively.
In fiscal 2001, 2000 and fiscal 1999, one customer accounted for 49%, 37% and
20%, respectively, of the Company's net sales.
Note 13 Quarterly Results of Operations (Unaudited)
The tables below present unaudited quarterly financial information for
fiscal years 2001 and 2000:
Continuing Operations
Three months ended
--------------------------------------------------
December 30, March 31, June 30, September 29,
2000 2001 2001 2001
---- ---- ---- ----
(dollars in thousands except per share amounts)
--------------------------------------------------
Net sales.............................................................. $60,221 $65,116 $61,811 $51,837
Gross profit........................................................... 17,494 18,259 14,877 14,458
Net income ............................................................ 3,292 3,460 2,853 2,112
Basic Income Per Share
Net income per share-basic (rounded)................................... $0.24 $0.25 $0.20 $0.15
Diluted Income Per Share
Net income per share-diluted (rounded)................................. $0.23 $0.24 $0.20 $0.15
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
January 1, April 1, July 1, September 30,
2000 2000 2000 2000
---- ---- ---- ----
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 (rounded)................................... $0.09 $0.16 $0.21 $0.22
Diluted Income Per Share
Net income per share-diluted (rounded)................................. $0.09 $0.15 $0.20 $0.21
Note 14 Fair Value of Financial Instruments
FAS 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 29, 2001 and as of September 30, 2000.
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 $30,567,000 and $35,787,000 compared with the carrying
amounts of $29,556,000 and $36,614,000 at September 29, 2001 and September 30,
2000, respectively.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BEI Technologies, Inc. and Subsidiaries
Note 15 - Income Per Share
The following table sets forth the computation of basic and diluted income
per common share from continuing operations:
Year Ended
--------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
---- ---- ----
(in thousands, except per share amounts)
--------------------------------------------
Numerator
---------
Income from continuing operations before extraordinary
item, net of taxes $11,717 $9,607 $5,339
======= ====== ======
Denominator
-----------
Denominator for basic income per share - Weighted
average shares, net of nonvested shares (fiscal 2001--501 shares;
fiscal 2000--543 shares; fiscal 1999--590 shares) 13,905 14,113 14,316
Effect of dilutive securities:
Nonvested shares 299 422 34
Employee stock options 240 272 158
------- ------ ------
Denominator for diluted earnings per share 14,444 14,807 14,508
======= ====== ======
39
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 29, 2001 and September 30,
2000, 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 29, 2001. 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 consolidated financial position of BEI Technologies,
Inc. and subsidiaries at September 29, 2001 and September 30, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 29, 2001 in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
San Francisco, California
October 29, 2001
40
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 2002 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
(a)(1) Index to Consolidated Financial Statements Page Number
------------------------------------------- -----------
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 40
Consolidated Balance Sheets -
September 29, 2001 and September 30, 2000 24
Consolidated Statements of Operations -
Years ended September 29, 2001, September 30, 2000
and October 2, 1999 26
41
Consolidated Statements of Cash Flows -
Years ended September 29, 2001, September 30, 2000
and October 2, 1999 27
Consolidated Statement of Changes in Stockholders' Equity and Comprehensive
Income - Years ended September 29, 2001, September 30, 2000
and October 2, 1999 28
Notes to Consolidated Financial Statements -
September 29, 2001 29
(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 29, 2001 is filed as part of this Form 10-K:
Schedule II 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
42
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
Assumption Agreement--Series A and Series B Senior
10.3 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
Amendment to Credit Agreement as amended as of November
10.8 30, 2000, by and between BEI Technologies, Inc., BEI
Sensors & Systems Company, Inc. and Wells Fargo Bank,
National Association iii
43
10.9 Development and Supply Agreement, dated April 26, 2001,
by and between Systron Donner Inertial Division and
Continental Teves AG & Co. iv
21.1 Subsidiaries of the Registrant ii
23.1 Consent of Ernst &Young LLP, Independent Auditors
24.1 Power of Attorney
99.1 BEI Technologies, Inc. Information Statement dated
September 24, 1997 ii
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.
(iii) Incorporated by reference. Previously filed as an exhibit to the Form
10-Q (File No. 000-22799) as filed on February 13, 2001.
(iv) Incorporated by reference. Previously filed as an exhibit to the Form
10-Q (File No. 000-22799) as filed on August 14, 2001.
* 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 29, 2001.
44
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 12, 2001
45
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 14, 2001
- --------------------------------------- the Board Of Directors (Principal ------------------------------
Charles Crocker Executive Officer)
/s/ Dr. Asad M. Madni President, Chief Operating Officer and December 14, 2001
- --------------------------------------- Director ------------------------------
Dr. Asad M. Madni
/s/ John LaBoskey Senior Vice President and Chief Financial December 14, 2001
- --------------------------------------- Officer ------------------------------
John LaBoskey
/s/ Robert R. Corr Vice President, Secretary, Treasurer and December 14, 2001
- --------------------------------------- Controller (Principal Accounting Officer) ------------------------------
Robert R. Corr
/s/ Richard M. Brooks Director December 14, 2001
- --------------------------------------- ------------------------------
Richard M. Brooks
/s/ George S. Brown Director December 14, 2001
- --------------------------------------- ------------------------------
George S. Brown
/s/ C. Joseph Giroir, Jr. Director December 14, 2001
- --------------------------------------- ------------------------------
C. Joseph Giroir, Jr.
/s/ Dr. William G. Howard Director December 14, 2001
- --------------------------------------- ------------------------------
Dr. William G. Howard
/s/ Gary D. Wrench Director December 14, 2001
- --------------------------------------- ------------------------------
Gary D. Wrench
46
SCHEDULE II
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 29, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts................ $1,084 $1,093 $ -- $ 515(A) $1,662
Inventory reserve.............................. 4,452 4,843 -- 5,540(B) 3,755
------ ------ ----- ------ ------
Total..................................... $5,536 $5,936 $ -- $6,055 $5,417
====== ====== ===== ====== ======
Year ended September 30, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ 597 $ 550 $ -- $ 63(A) $1,084
Inventory reserve.............................. 3,154 4,685 -- 3,387(B) 4,452
------ ------ ----- ------ ------
Total..................................... $3,751 $5,235 $ -- $3,450 $5,536
====== ====== ===== ====== ======
Year ended October 2, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ 509 $ 187 $ -- $ 99(A) $ 597
Inventory reserve.............................. 3,496 881 -- 1,223(B) 3,154
------ ------ ----- ------ ------
Total..................................... $4,005 $1,068 $ -- $1,322 $3,751
====== ====== ===== ====== ======
(A) Write-offs of uncollectible accounts
(B) Write-offs of obsolete and scrap items
S-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE II
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 29, 2001 and September 30, 2000, and for each
of the three years in the period ended September 29, 2001, and have issued our
report thereon dated October 29, 2001. 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 29, 2001
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