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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 29, 2002 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
------- -------
Commission file number 0-22799
BEI TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3274498
- -------------------------------- ------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
-------------------------------
(Address of principal executive offices)
(415) 956-4477
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 14,411,625 shares issued and outstanding as of
June 29, 2002.
Page 1 of 19
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
June 29, 2002 and September 29, 2001 3
Condensed Consolidated Statements of
Operations--Quarter and Nine Months ended
June 29, 2002 and June 30, 2001 4
Condensed Consolidated Statements of Cash
Flows-- Quarter and Nine Months ended June
29, 2002 and June 30, 2001 5
Notes to Condensed Consolidated Financial
Statements-- June 29, 2002 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 19
Page 2 of 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 29, September 29,
2002 2001
(Unaudited) (See note below)
(in thousands)
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,697 $ 16,438
Investments 7,149 7,099
Trade receivables, net 26,298 26,768
Inventories, net 27,572 30,808
Assets held for sale 3,119 4,881
Other current assets 12,367 11,798
-------- --------
Total current assets 78,202 97,792
Property, plant and equipment, net 37,354 37,807
Acquired technology 1,789 2,731
Goodwill 1,612 1,612
Other assets, net 7,202 6,415
-------- --------
$126,159 $146,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 12,851 $ 18,357
Accrued expenses and other liabilities 17,133 21,483
Deferred compensation liability 7,149 7,099
Current portion of long-term debt 7,095 7,089
-------- --------
Total current liabilities 44,228 54,028
Long-term debt, less current portion 22,507 29,556
Other liabilities 7,092 2,453
Stockholders' equity 52,332 60,320
-------- --------
$126,159 $146,357
======== ========
Note: The balance sheet at September 29, 2001 has been derived from the audited
consolidated balance sheet at that date.
See notes to condensed consolidated financial statements.
Page 3 of 19
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Quarter Ended Nine Months Ended
------------------------- --------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
------------------------- --------------------------
(in thousands except per share amounts)
- -----------------------------------------------------------------------------------------------------------
Net sales $ 47,815 $61,811 $ 142,220 $187,148
Cost of sales 33,855 46,934 103,809 136,518
-------- ------- --------- --------
Gross margin 13,960 14,877 38,411 50,630
Selling, general and administrative expenses 7,766 7,878 22,240 26,638
Research, development and related expenses 3,630 1,939 10,972 6,437
-------- ------- --------- --------
2,564 5,060 5,199 17,555
Provision for excess capacity -- -- 10,275 --
Provision for uncollectables from a related party -- -- 3,072 --
Provision for product line move and other -- -- 2,230 --
-------- ------- --------- --------
Earnings (loss) before interest and taxation 2,564 5,060 (10,378) 17,555
Interest expense 539 667 1,691 1,953
Other income (expense) (520) 290 (457) 390
-------- ------- --------- --------
Income (loss) before income taxes 1,505 4,683 (12,526) 15,992
Provision (benefit) for income taxes 539 1,830 (4,486) 6,387
-------- ------- --------- --------
Net income (loss) $ 966 $ 2,853 $ (8,040) $ 9,605
======== ======= ========= ========
Earnings (Loss) per Common Share
Basic Earnings (Loss) per Share
Net income (loss) per common share $ 0.07 $ 0.20 $ (0.57) $ 0.69
======== ======= ========= ========
Diluted Earnings (Loss) per Common and Common
Equivalent Share
Net income (loss) per common and common
equivalent share $ 0.07 $ 0.20 $ (0.57) $ 0.66
======== ======= ========= ========
Dividends per common share $ 0.01 $ 0.01 $ 0.03 $ 0.085
======== ======= ========= ========
See notes to condensed consolidated financial statements.
Page 4 of 19
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter Ended Nine Months Ended
--------------------------- --------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
--------------------------- --------------------------
(in thousands)
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 966 $ 2,853 $ (8,040) $ 9,605
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 2,281 2,886 7,877 7,564
Other 1,342 874 (1,143) (7,069)
-------- -------- -------- --------
Net cash provided (used) by operating activities 4,589 6,613 (1,306) 10,100
Cash flows from investing activities:
Purchase of property, plant and equipment (2,199) (2,483) (5,389) (6,556)
Disposal of property, plant and equipment 400 3 400 3
Decrease (increase) in other assets (171) (56) 438 171
-------- -------- -------- --------
Net cash used by investing activities (1,970) (2,536) (4,551) (6,382)
Cash flows from financing activities:
Proceeds from debt borrowings 16,114 -- 44,969 2
Principal payments on debt and other liabilities (18,356) (22) (52,012) (138)
Proceeds from issuance of common stock 44 223 129 363
Repurchase of common stock (22) (160) (1,538) (500)
Payment of cash dividends (144) (144) (432) (932)
-------- -------- -------- --------
Net cash used by financing activities (2,364) (103) (8,884) (1,205)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 255 3,974 (14,741) 2,513
Cash and cash equivalents at beginning of period 1,442 10,835 16,438 12,296
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 1,697 $ 14,809 $ 1,697 $ 14,809
======== ======== ======== ========
See notes to condensed consolidated financial statements.
Page 5 of 19
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the interim periods presented are not necessarily indicative of the
results that may be expected for the year ending September 28, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto in the Company's annual report on Form 10-K for the year ended September
29, 2001.
BEI Technologies, Inc. ("the Company" or "Technologies") is an established
manufacturer of electronic sensors, motors, actuators and motion control
products used for factory and office automation, medical equipment, military,
aviation and space systems. In addition, sales to manufacturers of
transportation equipment including automobiles, trucks and off-road equipment
have become a significant addition to the Company's business in recent years.
The Company's micromachined quartz yaw rate sensors are being used in advanced
vehicle stability control systems and a significant increase in the production
of those sensors had been in progress from the middle of 1998 through fiscal
2001. In the current year, the Company is transitioning to its next generation
automotive quartz yaw rate sensor product, a multi-sensor cluster configuration.
The Company also manufactures electronic steering wheel position sensors,
seat-memory modules, throttle position and pressure sensors and other devices
used in automotive systems. GyroChip and Motionpak are registered trademarks of
the Company.
Technologies 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. on September 24, 1997.
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 controlled 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.
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. The Company accounts for its investment in OpticNet under the
equity method and, as of March 30, 2002, reduced its initial $1.0 million
investment in OpticNet to zero. In the quarter ended June 29, 2002, the Company
provided an additional $1.2 million of equity financing to OpticNet, which was
expensed during the quarter, reflecting the Company's share of OpticNet's net
loss for the three-month period from March 31, 2002 through June 29, 2002.
Use of Estimates
The preparation of these consolidated financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure
Page 6 of 19
of contingent assets and liabilities. The estimates are based on historical
experience and on various other assumptions that management believes to be
reasonable under the circumstances. On an ongoing basis, the Company evaluates
its estimates. Results may differ from these estimates due to actual outcomes
being different from those on which the Company based its assumptions.
NOTE 2. INVENTORIES
Inventories are carried principally at the lower of cost or fair value and do
not exceed net realizable value. Cost is determined by the first-in, first-out
(FIFO) method, including material, labor and factory overhead.
June 29, September 29,
2002 2001
(Derived from the
(Unaudited) audited consolidated
balance sheet at
September 29, 2001)
-------------------- ---- ------------------------
(dollars in thousands)
--------------------------------------------------
Finished products $ 3,136 $ 4,919
Work in process 5,600 7,354
Materials 18,836 18,535
-------------------- ----------------------
Net inventories $27,572 $30,808
==================== ======================
NOTE 3. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per common share:
Quarter Ended Nine Months Ended
------------------------ ------------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
------------------------ ------------------------------
(in thousands except per share amounts)
Numerator
---------
Net income (loss) $ 966 $ 2,853 $(8,040) $ 9,605
======= ======== ======= =======
Denominator
-----------
Denominator for basic earnings (loss) per share --
Weighted average shares, net of nonvested
shares (FY 2002 - 560 shares;
FY 2001 - 509 shares) 14,051 13,978 13,985 13,879
Effect of dilutive securities:
Nonvested shares 132 343 -- 340
Employee stock options 174 264 -- 241
------- -------- ------- -------
Denominator for diluted earnings (loss) per share 14,357 14,585 13,985 14,460
======= ======== ======= =======
Basic earnings (loss) per share $ 0.07 $ 0.20 $ (0.57) $ 0.69
======= ======== ======= =======
Diluted earnings (loss) per share $ 0.07 $ 0.20 $ (0.57) $ 0.66
======= ======== ======= =======
Page 7 of 19
NOTE 4. LONG-TERM DEBT
June 29, September 29,
2002 2001
(Unaudited)
-----------------------------------
(in thousands)
-----------------------------------
6.70% Senior Notes; due in annual installments of $7.0 million from November
16, 2001 through November 16, 2005 .......................................... $28,000 $35,000
Revolving line of credit with a bank not to exceed $25.0 million; due in full
December 15, 2003 ............................................................ -- --
Mortgage note payable with interest at 6.87%; due in monthly installments of
principal and interest of $14,000 until December 2003, when the remaining
balance of approximately $1.4 million is due; collateralized by certain real
property ..................................................................... 1,602 1,626
Capitalized equipment lease obligations ...................................... -- 19
------- -------
29,602 36,645
Less current portion ......................................................... 7,095 7,089
------- -------
$22,507 $29,556
======= =======
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.
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 the 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. During the
quarter ended March 30, 2002, the Company completed another amendment to this
line of credit agreement that extended the maturity date on the line from
December 15, 2002 to December 15, 2003.
In the quarter ended March 30, 2002, the Company completed an amendment with its
senior note holders, which provided that the net impact of the provisions for
excess capacity, uncollectables from a related party and product line move
recognized in the second quarter would not cause an event of default. The
Company's operating results for the quarter ended March 30, 2002, excluding
these provisions from the calculation of debt covenants, result in the Company
maintaining compliance as of that date.
NOTE 5. RELATED PARTY TRANSACTIONS
During fiscal 2001, 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
Page 8 of 19
principal amount of $2.0 million. In March 2002, the Company's board of
directors approved an increase of $1.0 million to the line of credit with
OpticNet. At March 30, 2002, OpticNet had outstanding borrowings from
Technologies totaling $2.7 million on this line of credit. 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. In the quarter ended March 30, 2002, the Company concluded that the note
receivable and the Company's original investment in OpticNet were uncollectable.
This determination was a result of OpticNet's inability to attract significant
strategic partners or third party financing necessary to sustain operations.
Therefore, the Company's note receivable from, and original investment in,
OpticNet totaling $3.1 million was deemed uncollectable and a charge of $3.1
million was recorded in the statement of operations.
On September 28, 2001, the Company entered into a master lease agreement with a
finance company for a sale and leaseback arrangement for research, development
and manufacturing equipment, which had been previously purchased by the Company.
Equipment in place as of September 29, 2001 under the master lease agreement was
approximately $708,000. In addition, on December 20, 2001 and March 28, 2002,
the Company executed additional equipment lease schedules under this master
lease arrangement to lease equipment similar to that described above valued at
approximately $3.5 million and $2.8 million, respectively. The initial lease
term is 36 months and rental payments are on a quarterly basis, equal to a
monthly equivalent rent determined by the cost of the equipment and applicable
interest. On September 28, 2001, the Company entered into an equipment sublease
agreement with OpticNet, as sublessee, which is subordinate to the master lease
agreement described above, to rent capacity on this research, development and
manufacturing equipment to OpticNet from month to month based on OpticNet's
usage of the equipment beginning in October 2001.
The Company also leases 15,571 square feet of office and manufacturing
facilities used for research and development and manufacturing activities in
Hayward, California, which it originally subleased entirely to OpticNet under an
agreement entered into in October 2001, for an initial term expiring December
2005. During March 2002, OpticNet concluded it was necessary to reduce operating
costs due to its inability to obtain significant strategic partners or third
party financing. The companies both agreed that a reduction in operations would
lower usage of the equipment and the subleased facilities described above.
Beginning March 31, 2002, the Company agreed to prorate the annual lease
payments from OpticNet, based on the portion of the facilities OpticNet requires
to support its current customers.
In the quarter ended March 30, 2002, the Company concluded that portions of the
assets held under leases were excess to the Company's requirements.
Historically, these assets had been primarily used by OpticNet. This
determination was a result of OpticNet's lack of success in attracting strategic
partners or third party financing given the current negative conditions
prevailing in the fiber optic telecommunications market. In March 2002 the
Company recorded a charge of $10.3 million for expected future losses on the
leases of the facility and production assets noted above. A portion of the
facility and equipment will continue to be used by the Company for its ongoing
silicon MEMS research and development effort. As of June 29, 2002, the Company
has recognized approximately $495,000 against the related accrual.
In the quarter ended June 29, 2002, the Company provided an additional $1.2
million of financing to OpticNet, intended to be an additional equity
investment, which was expensed during the quarter, reflecting the Company's
share of OpticNet's net loss for the three-month period from March 31, 2002
through June 29, 2002. The Company is in continuing discussions with OpticNet to
provide it with limited additional financing to support its existing customers.
NOTE 6. RESTRUCTURING
In March 2002, the Company approved a restructuring plan to close a facility and
relocate manufacturing activities to a more cost-effective location. As a
result, the Company accrued exit costs of $2.2 million related primarily to the
closure of manufacturing facilities and administrative functions including the
accrual of remaining payments on the facility operating lease, less future
anticipated sublease payments. Other exit costs included write-downs of fixed
assets and inventories to their fair values. As of June 29, 2002, the Company
Page 9 of 19
has recognized approximately $121,000 against this accrual. The Company expects
this restructuring plan to be completed within 12 months.
NOTE 7. CONTINGENCIES AND LITIGATION
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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those expressed in, or
implied by, such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section, and those discussed in the Company's Form 10-K for the year
ended September 29, 2001, in particular, within the "Risk Factors" section
thereof.
Critical Accounting Policies and the Use of Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The Company reviews the accounting policies
used in reporting its financial results on a regular basis. The preparation of
these consolidated financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosure of contingent assets and liabilities. The
estimates are based on historical experience and on various other assumptions
that management believes to be reasonable under the circumstances. On an ongoing
basis, the Company evaluates its estimates. Results may differ from these
estimates due to actual outcomes being different from those on which the Company
based its assumptions. The Company believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Allowance for Doubtful Accounts
The Company continuously monitors collections and payments from its customers
and maintains allowances for doubtful accounts based upon historical experience
and any specific customer collection issues that the Company has identified.
While such credit losses have historically been within management's
expectations, there can be no assurance that the Company will continue to
experience the same relative level of credit losses that it has in the past. In
addition, although the Company's sales have historically been to many customers
in a variety of markets, in recent periods, one automotive customer accounted
for a significant portion of the Company's net sales. A significant change in
the liquidity or financial position of that customer or a further deterioration
in the economic environment in general could have a material adverse impact on
the collectability of the Company's accounts receivable and future operating
results, including a reduction in future revenues and additional allowances for
doubtful accounts. If, at the time of shipment, the Company determines that
collection of a receivable is not reasonably assured, the revenue is deferred
and recognized at the time collection becomes reasonably assured, which is
generally upon receipt of payment.
Page 10 of 19
Inventory
The Company writes down its inventory for estimated obsolescence for the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If actual future
demand or market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
Inventories are carried principally at the lower of cost or fair value and do
not exceed net realizable value. Cost is determined by the first-in, first-out
(FIFO) method, including material, labor and factory overhead.
Restructuring Reserves
During the quarter ended March 30, 2002, the Company established a restructuring
reserve for the closure of a specific manufacturing facility. This reserve for
exit costs required the use of estimates. Though the Company believes that these
estimates accurately reflect the costs of these plans, they relate to matters
that are inherently uncertain and, actual results may be different.
Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue using the guidance from SEC Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements". Under these
guidelines, revenue recognition is deferred on transactions where (i) persuasive
evidence of an arrangement does not exist, (ii) revenue recognition is
contingent upon performance of one or more obligations of the Company, (iii) the
price is not fixed or determinable or (iv) payment is not reasonably assured.
The Company records a warranty liability on its products at the time of revenue
recognition based on historical experience and any specific warranty issues that
the Company has identified.
Research and Development Expense
The Company's products are highly technical in nature and require a significant
level of research and development effort. Research and development costs are
charged to expense as incurred in accordance with FAS No. 2, "Accounting for
Research and Development Costs."
Income Taxes
The Company has significant amounts of deferred tax assets that are reviewed
periodically for recoverability and valued accordingly. These assets are
evaluated by using estimates of future taxable income streams and the impact of
tax planning strategies. Valuations related to tax accruals and assets could be
impacted by changes to tax codes, changes in statutory tax rates and the
Company's future taxable income levels.
Results of Operations
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
Page 11 of 19
Quarter Ended Nine Months Ended
------------------------- --------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
------------------------- --------------------------
(in thousands except per share amounts)
- -----------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.8 75.9 73.0 72.9
----- ----- ----- -----
Gross margin 29.2 24.1 27.0 27.1
Selling, general and administrative expenses 16.2 12.7 15.6 14.2
Research, development and related expenses 7.6 3.1 7.7 3.4
----- ----- ----- -----
5.4 8.3 3.7 9.5
Provision for excess capacity 0.0 0.0 7.2 0.0
Provision for uncollectables from a related party 0.0 0.0 2.2 0.0
Provision for product line move and other 0.0 0.0 1.6 0.0
----- ----- ----- -----
Earnings (loss) before interest and taxation 5.4 8.3 (7.3) 9.5
Interest expense 1.2 1.1 1.2 1.0
Other income (expense) (1.1) 0.5 (0.3) 0.2
----- ----- ----- -----
Income (loss) before income taxes 3.1 7.7 (8.8) 8.7
Provision (benefit) for income taxes 1.1 3.0 (3.1) 3.4
----- ----- ----- -----
Net income (loss) 2.0% 4.7% (5.7)% 5.3%
===== ===== ===== =====
Quarters ended June 29, 2002 and June 30, 2001
Net sales for the third quarter of fiscal 2002 ended June 29, 2002, decreased
$14.0 million or 22.6% to $47.8 million from $61.8 million during the same
period in fiscal 2001.
The sales volume decrease was primarily due to lower commercial sales to
domestic and foreign automotive customers due to competition supplying yaw rate
sensors to the Company's largest customer, and lower automotive production
levels. Automotive sensor sales decreased by $13.9 million to $23.7 million in
the third quarter of fiscal 2002, from $37.6 million in the comparable period of
fiscal 2001. Although the Company's sales have historically been to many
customers in a variety of markets, during the third quarters of fiscal 2002 and
fiscal 2001, one automotive customer accounted for approximately 37% and 53%,
respectively, of the Company's net sales. Sales of non-automotive commercial
products increased by $0.3 million over the same period of fiscal 2001, while
sales under government contracts decreased $0.4 million from the same period of
fiscal 2001.
Cost of sales as a percentage of net sales in the third quarter of fiscal 2002
decreased 5.1 percentage points to 70.8% from 75.9% in the comparable period of
fiscal 2001 due primarily to the impact of improved yields on the new automotive
sensor cluster product, as well as increased industrial product sales, which
typically have a higher margin percentage. There may be additional margin rate
variability in future quarters due to the introduction of new products and
related changes in average prices, changes in manufacturing processes and
volumes, and product life cycles.
Selling, general and administrative expenses as a percentage of net sales
increased in the third quarter of fiscal 2002 versus the comparable period of
fiscal 2001 due to reduced sales. Actual selling, general and administrative
Page 12 of 19
expenses decreased $0.1 million from the prior fiscal year period due to
management actions to reduce spending in light of sales decreases in the current
year.
Research, development and related expenses as a percentage of net sales for the
third quarter of fiscal 2002 increased over the comparable period of fiscal 2001
due to reduced sales and increased research and development spending. Actual
research, development and related expenses increased $1.7 million over the prior
fiscal year period due to management's dedication to the development of new
products, such as the next generation of automotive sensors and improvements to
existing product families.
Interest expense as a percentage of sales remained comparable with the same
period of the prior fiscal year. The Company's fixed interest rate debt
decreased from the same period of the prior fiscal year due to a principal
payment on long-term debt in the first quarter of fiscal 2002. In addition,
during the most recent quarter, the Company fully repaid the outstanding
borrowings on its line of credit as described under "Liquidity and Capital
Resources" below.
Other net expense as a percentage of sales increased over the same period of the
prior fiscal year due to the Company's interest in the net loss of OpticNet, an
equity investee, of approximately $1.2 million, which included severance costs
and other expenses to support its current level of operations. These expenses
were partially offset by a gain on the sale of excess equipment of $0.4 million,
as well as royalty income and other items.
Nine Months ended June 29, 2002 and June 30, 2001
Net sales for the first nine months of fiscal 2002 decreased $44.9 million or
24.0% to $142.2 million from $187.1 million during the same period in fiscal
2001.
The sales volume decrease was primarily due to lower commercial sales to
domestic and foreign automotive customers due to competition supplying yaw rate
sensors to the Company's largest customer, lower automotive production levels,
and to a lesser extent, reduced sales to industrial customers primarily due to
the continuing soft economy. Automotive sensor sales decreased by $38.1 million
to $73.1 million in the first nine months of fiscal 2002, from $111.2 million in
the comparable period of fiscal 2001. Although the Company's sales have
historically been to many customers in a variety of markets, during the first
nine months of fiscal 2002 and fiscal 2001, one automotive customer accounted
for approximately 40% and 51%, respectively, of the Company's net sales. Sales
of non-automotive commercial products decreased by $4.4 million from the same
period of fiscal 2001, and sales under government contracts decreased $2.4
million from the same period of fiscal 2001.
Cost of sales as a percentage of net sales in the first nine months of fiscal
2002 increased slightly, by 0.1 percentage point, to 73.0% from 72.9% in the
comparable period of fiscal 2001, despite the impact of lower sales volumes that
resulted in the loss of some production economies of scale for the automotive
GyroChip sensors, the introduction and transition to a new sensor cluster
product and lower sales volume impacts at other operating units. These negative
impacts were almost entirely offset by improved yields on the new automotive
sensor cluster product, as well as a greater product mix of industrial product
sales, which typically have a higher margin percentage. There may be additional
margin rate variability in future quarters due to the introduction of new
products and related changes in average prices, changes in manufacturing
processes and volumes, and product life cycles.
Selling, general and administrative expenses as a percentage of net sales
increased in the first nine months of fiscal 2002 versus the comparable period
of fiscal 2001 due to reduced sales. Actual selling, general and administrative
expenses decreased $4.4 million from the prior fiscal year period due to
management actions in light of sales decreases in the current fiscal year, and
the effect of an increase in accounts receivable reserves in the same period in
the prior year.
Page 13 of 19
Research, development and related expenses as a percentage of net sales for the
first nine months of fiscal 2002 increased from the comparable period of fiscal
2001 due to reduced sales and increased research and development spending.
Actual research, development and related expenses increased $4.5 million over
the prior fiscal year period due to management's dedication to the development
of new products, such as the next generation of automotive sensors and
improvements to existing product families.
Provisions for excess capacity, uncollectables from a related party and product
line move in the second quarter of fiscal 2002 consisted of approximately $10.3
million related to the expected future losses on operating lease payments on
facility and production assets that partially supported OpticNet, as well as
$3.1 million to reserve for the note receivable due from OpticNet and the
Company's initial investment in OpticNet. Additionally, the Company recognized a
restructuring charge of approximately $2.2 million for the restructuring plan to
close a facility and relocate manufacturing activities to a more cost-effective
location.
Interest expense as a percentage of sales increased slightly in the first nine
months of fiscal 2002 compared with the same period of the prior fiscal year due
to reduced sales and changes in the Company's debt levels. The Company's fixed
interest rate debt decreased from the same period of the prior fiscal year due
to a principal payment on long-term debt. In addition, during the first nine
months of the current fiscal year, the Company borrowed on, and fully repaid,
its line of credit as described under "Liquidity and Capital Resources" below.
Other net expense as a percentage of sales increased over the same period of the
prior fiscal year due to the Company's interest in the net loss of OpticNet, an
equity investee, of approximately $1.2 million, which included severance costs
and other expenses to support their current level of operations. These expenses
were partially offset by a gain on the sale of excess equipment of $0.4 million,
as well as royalty income and other items.
Liquidity and Capital Resources
During the first nine months of fiscal 2002, total cash used by operations was
$1.3 million. Cash provided by operations included the positive impact of
non-cash charges from depreciation and amortization of $6.3 million and $1.6
million, respectively. In addition, positive impacts to cash resulted from
decreases in inventories and other current assets of $3.2 million and $1.1
million, respectively, as well as an increase in other long-term liabilities of
$4.6 million and other net impacts of $0.2 million. These items were offset by
the net loss of $8.0 million, decreases in accounts payable, income taxes
payable and accrued liabilities of $5.4 million, $3.8 million and $1.1 million,
respectively.
Cash used by investing activities consisted of equipment purchases of $5.4
million primarily to expand production capacity, partially offset by a decrease
in other assets of $0.4 million and proceeds of $0.4 million from sales of fixed
assets.
Cash used by financing activities included debt payments of $52.0 million, which
consisted of $7.0 million in principal paid on senior notes payable, as well as
$45.0 million in payments on the Company's line of credit. Other cash used by
financing activities included cash purchases of the Company's stock on the open
market for $1.5 million, dividend payments of $0.4 million and other net impacts
of $0.1 million. These items were partially offset by proceeds from borrowings
on the Company's line of credit of $45.0 million and proceeds from the issuance
of common stock of $0.1 million.
While the Company believes that its available credit line and cash derived from
operations will be sufficient to meet the Company's capital requirements for the
next twelve months, the Company may need to raise additional funds through
public or private financing or other arrangements. Revenue and profitability may
be negatively
Page 14 of 19
affected until there is clear evidence of an upswing in the industrial economy.
There can be no assurance that the Company will not require additional funding,
or that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Any additional equity financing may be
dilutive to the stockholders, and debt financing, if available, may involve
restrictive covenants.
The Company had no material capital commitments at June 29, 2002.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that there have been no material changes in the reported
market risks faced by the Company since those discussed in the Company's Form
10-K for the fiscal year ended September 29, 2001 under the heading
corresponding to that set forth above. The Company's exposure to market risk is
limited to interest income sensitivity, which 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-quality 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.
Page 15 of 19
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) 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
4.1 Specimen Common Share Certificate i
4.2 Certificate of Incorporation of BEI Technologies,
Inc. (filed as Exhibit 3.1 hereto) i
Page 16 of 19
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
hereto) i
10.1* Registrant's 1997 Equity Incentive Plan and forms of
related agreements i
10.2* Executive Change in Control Benefits Agreement
between BEI Technologies, Inc. and Certain Named
Executive Officers i
10.3 Assumption Agreement--Series A and Series B Senior
Notes dated September 15, 1997 by and between BEI
Technologies, Inc., Principal Mutual Life Insurance
Company, Berkshire Life Insurance Company and TMG
Life Insurance Company i
10.4 Credit Agreement dated as of September 27, 1997 among
BEI Technologies, Inc., BEI Sensors & Systems
Company, Inc., Defense Systems Company, Inc., CIBC,
Inc., Canadian Imperial Bank of Commerce and CIBC
Wood Gundy Securities Corp. i
10.5 Note Purchase Agreement dated November 16, 1998 by
and between BEI Technologies, Inc., BEI Sensors &
Systems Company, Inc., Connecticut General Life
Insurance Company and Allstate Life Insurance Company. ii
10.6 Amendment to Tax Allocation and Indemnity Agreement
between BEI Electronics, Inc. and BEI Technologies,
Inc. ii
10.7 Credit Agreement dated December 15, 1998, by and
between BEI Technologies, Inc., BEI Sensors & Systems
Company, Inc. and Wells Fargo Bank, National
Association ii
Page 17 of 19
10.8 Amendment to Credit Agreement as amended as of
November 30, 2000, by and between BEI Technologies,
Inc., BEI Sensors & Systems Company, Inc. and Wells
Fargo Bank, National Association iii
10.9 Development and Supply Agreement, dated April 26,
2001, by and between Systron Donner Inertial Division
and Continental Teves AG & Co. iv
10.10 Amendment to Credit Agreement as amended as of March
1, 2002, by and between BEI Technologies, Inc., BEI
Sensors & Systems Company, Inc. and Wells Fargo Bank,
National Association v
10.11 Amendment to Note Purchase Agreement as amended as of
March 30, 2002, by and between BEI Technologies,
Inc., BEI Sensors & Systems Company, Inc.,
Connecticut General Life Insurance Company and
Allstate Life Insurance Company v
99.1 Certification Pursuant to Section 906 of the Corporate
Fraud Accountability Act
(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.
(v) Incorporated by reference. Previously filed as an exhibit to the Form
10-Q (File No. 000-22799) as filed on May 13, 2002.
* 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) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 29, 2002.
Page 18 of 19
SIGNATURES
Pursuant to the requirements 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 on August 2, 2002.
BEI Technologies, Inc.
By: /s/ Robert R. Corr
-----------------------------------
Robert R. Corr
Treasurer, Controller and Secretary
(Chief Accounting Officer)
Page 19 of 19