BEI TECHNOLOGIES INC - 10-Q - 20010507 - NOTES_TO_FINANCIAL_STATEMENT
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 29, 2001. 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
30, 2000.
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 has been in progress since the middle of 1998. 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 is a registered trademark of the Company.
Technologies was incorporated on June 30, 1997 in the State of Delaware, as a
wholly owned subsidiary of BEI Electronics, Inc., subsequently renamed BEI
Medical Systems Company, Inc. ("Electronics"). On September 27, 1997,
Electronics distributed to holders of Electronics common stock one share of
common stock of the Company for each share of Electronics common stock held on
September 24, 1997 (the "Distribution"). In connection with the Distribution,
Electronics transferred to Technologies all of the assets, liabilities and
operations of its divisions concentrating on sensors and sensor-based subsystems
and on defense systems.
OpticNet, Inc. ("OpticNet") was a majority-owned subsidiary of Technologies with
its results of operations and balance sheet consolidated with the financial
statements of Technologies through the year ended September 30, 2000. A
distribution to shareholders of Technologies during the quarter ended December
2000 resulted in Technologies ceasing to be the controlling shareholder in
OpticNet as of January 1, 2001. Therefore since January 1, 2001, OpticNet's
results of operations and balance sheet are no longer consolidated with the
financial statements of Technologies.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported results of operations during the
reporting period. Actual results could differ from those estimates.
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NOTE 2--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.
March 31, September 30,
2001 2000
(dollars in thousands)
---------------------------------
Finished products $4,105 $2,052
Work in process 6,905 5,880
Materials 21,276 23,152
---------- ---------
Net inventories $32,286 $31,084
========== =========
NOTE 3--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per common share from operations (as
adjusted to reflect the Company's one-for-one stock dividend paid on November 21, 2000 to stockholders of record
as of October 30, 2000):
Quarter Ended Six Months Ended
------------------------ -----------------------
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
------------------------ -----------------------
(in thousands except per share amounts)
Numerator
Income from operations $3,460 $2,291 $6,752 $3,547
======== ======== ======== ========
Denominator
Denominator for basic earnings per share --
Weighted average shares, net of nonvested
shares (FY 2001 - 512 shares;
FY 2000 - 456 shares) 13,935 14,380 13,900 14,506
Effect of dilutive securities:
Nonvested shares 264 196 272 94
Employee stock options 216 224 220 170
-------- -------- -------- --------
Denominator for diluted earnings per share 14,415 14,800 14,392 14,770
======== ======== ======== ========
Basic earnings per share from operations $0.25 $0.16 $0.49 $0.24
======== ======== ======== ========
Diluted earnings per share from operations $0.24 $0.15 $0.47 $0.24
======== ======== ======== ========
NOTE 4--CONTINGENCIES AND LITIGATION
The Company has pending various legal actions arising in the normal course of
business. None of these legal actions is expected to have a material effect on
the Company's consolidated financial condition, operating results or cash flow.
Page 7 of 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, and those discussed in the
Company's Form 10-K for the year ended September 30, 2000, in particular, within
the "Risk Factors" section thereof.
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
Quarter Ended Six Months Ended
------------------------- ---------------------------
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of sales 72.0 72.0 71.5 72.7
---- ---- ---- ----
Gross margin 28.0 28.0 28.5 27.3
Selling, general and administrative expenses 14.7 16.8 15.0 16.5
Research, development and related expenses 3.4 4.1 3.6 4.0
---- ---- ---- ----
Income from operations 9.9 7.1 9.9 6.8
Interest expense 1.0 1.2 1.0 1.4
Other income (expense) (0.1) 1.1 0.1 0.6
---- ---- ---- ----
Income from operations before
income taxes 8.8 7.0 9.0 6.0
Provision for income taxes 3.6 2.7 3.6 2.4
---- ---- ---- ----
Net income 5.2% 4.3% 5.4% 3.6%
==== ==== ==== ====
Quarters ended March 31, 2001 and April 1, 2000
Net sales for the second quarter of fiscal 2001 ended March 31, 2001, increased
$10.9 million to $65.1 million or 20.1% from $54.2 million during the same
period in fiscal 2000.
The sales volume increase was primarily due to commercial sales to domestic and
foreign automotive customers partially offset by a decrease in sales to
customers in industrial markets. Automotive sensor sales increased by $14.8
million to $39.7 million in the second quarter of fiscal 2001, from $24.9
million in the comparable period of fiscal 2000. Sales of non-automotive
commercial products decreased by $4.2 million from the same period of fiscal
2000, while sales under government contracts increased $0.3 million from the
same period of fiscal 2000.
Cost of sales as a percentage of net sales in the second quarter of fiscal 2001
remained consistent with the comparable period of fiscal 2000 at 72.0%, due
primarily to the impact of increased automotive GyroChip sensor sales, which
have a higher cost of sales percentage than the average cost of sales percentage
for the Company. Cost of sales as a percentage of net sales for automotive
sensors decreased from the same quarter of the prior year due to the impact of
higher volumes and improved production efficiencies on automotive GyroChip
sensors. Future downward pressure on gross profit margins for the Company could
be expected if automotive sensors continue to become a larger proportion of the
Company's product mix, provided that there may be additional margin rate
variability due to the introduction of new products, changes in product
manufacturing processes and volumes and product life cycles.
Page 8 of 13
Selling, general and administrative expenses as a percentage of net sales
decreased in the second quarter of fiscal 2001 versus the comparable period of
fiscal 2000 due to higher sales volume. Actual selling, general and
administrative expenses for the Company increased $0.5 million over the prior
fiscal year period to support sales increases and, to a lesser extent, due to
recognition of slower customer payments and associated reserves.
Research, development and related expenses as a percentage of net sales for the
second quarter of fiscal 2001 decreased from the comparable period of fiscal
2000 due to higher sales volume. Actual spending on research, development and
related expenses in the second quarter of fiscal 2001 remained constant when
compared with the same period of the prior fiscal year.
Interest expense as a percentage of sales declined primarily due to increased
sales. The Company's fixed interest rate debt remains substantially unchanged
from the same period of the prior fiscal year.
Six Months ended March 31, 2001 and April 1, 2000
Net sales for the first six months of fiscal 2001 increased $27.4 million to
$125.3 million or 28.0% from $97.9 million during the same period in fiscal
2000.
The sales volume increase was primarily due to commercial sales to domestic and
foreign automotive customers. Automotive sensor sales increased by $30.2 million
to $73.6 million in the first six months of fiscal 2001, from $43.4 million in
the comparable period of fiscal 2000. Sales of non-automotive commercial
products decreased by $3.9 million from the same period of fiscal 2000, while
sales under government contracts increased $1.2 million from the same period of
fiscal 2000.
Cost of sales as a percentage of net sales in the first six months of fiscal
2001 decreased 1.2 percentage points to 71.5% from 72.7% in the comparable
period of fiscal 2000, due primarily to the impact of higher volumes and
improved production efficiencies on the automotive GyroChip sensors. However,
since cost of sales for products for automotive customers as a percentage of net
sales remains higher than the average for the Company, there could be future
downward pressure on gross profit margins if automotive sensors continue to
become a larger proportion of the Company's product mix, provided that there may
be additional margin rate variability due to the introduction of new products,
changes in product manufacturing processes and volumes and product life cycles.
Selling, general and administrative expenses as a percentage of net sales
decreased in the first six months of fiscal 2001 versus the comparable period of
fiscal 2000 due to higher sales volume. Actual selling, general and
administrative expenses for the Company increased $2.6 million over the prior
fiscal year period to support sales increases and, to a lesser extent, due to
recognition of slower customer payments and associated reserves.
Research, development and related expenses as a percentage of net sales for the
first six months of fiscal 2001 decreased slightly from the comparable period of
fiscal 2000 due to higher sales volume. Actual spending on research, development
and related expenses increased $0.5 million over the prior fiscal year period.
The higher research and development spending reflects management's dedication to
the development of new products and improvements to existing product families
and the inclusion of expenses related to OpticNet in the consolidated financial
statements of the first quarter of fiscal 2001. In the quarter ended March 31,
2001 and in future quarters, expenses related to OpticNet's operations will not
be included in the Company's results as the Company no longer controlled a
majority interest in OpticNet as of January 1, 2001.
Interest expense as a percentage of sales declined primarily due to increased
sales. The Company's fixed interest rate debt remains substantially unchanged
from the same period of the prior fiscal year.
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Liquidity and Capital Resources
During the first six months of fiscal 2001, total cash provided by operations
was $3.5 million. Cash provided by operations included net income of $6.8
million, and the positive impact of non-cash charges to income from depreciation
and amortization of $3.1 million and $1.6 million, respectively. In addition,
positive impacts to cash resources resulted from an increase in accrued
liabilities of $1.8 million, a decrease in accounts receivable of $1.6 million
and other net impacts of $1.1 million. Offsetting these items were increases to
other assets and inventory of $5.1 and $1.2 million, respectively. In addition,
negative impacts to cash resources resulted from decreases in accounts payable
of $3.8 million, as well as payments of current income taxes of $2.4 million.
Cash used in investing activities consisted of equipment purchases of $4.0
million primarily to expand production capacity, partially offset by a decrease
in other assets of $0.2 million.
Cash used in financing activities consisted of dividend payments of $0.8
million, cash purchases of stock at market prices for $0.3 million and
retirement of debt of $0.1 million. In addition, the Company distributed a
non-cash dividend to its stockholders of $0.3 million in the form of shares of
the common stock of OpticNet, Inc.
In February 2001, the Company completed an amendment to its credit agreement
with Wells Fargo Bank, originally entered into December 15, 1998, which
amendment was effective as of November 30, 2000. The amendment increased the
available borrowing on the line from an aggregate of $13 million to $25 million.
While the Company believes that its existing cash balances, and available credit
lines together with 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. 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 March 31, 2001.
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 30, 2000 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 10 of 13
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company (the
"Meeting") was held on March 1, 2001. At the Meeting, George
S. Brown and Charles Crocker were re-elected to the Company's
Board of Directors for a three-year term expiring at the
Company's 2004 Annual Meeting.
Shares voted:
For Withheld
--- --------
Brown 13,484,559 251,671
Crocker 13,490,989 245,241
(b) In addition, the following directors continued in office as
directors of the Company following the Meeting: Joseph Girior,
Jr., Asad M. Madni and Gary D. Wrench (until the Company's
2002 Annual Meeting); Richard M. Brooks and Dr. William G.
Howard, Jr. (until the Company's 2003 Annual Meeting).
The other matters presented at the Meeting and the voting of
stockholders with respect thereto are as follows:
The stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the authorized number
of shares of the Company's Common Stock from 20,000,000 shares
to 35,000,000 shares.
Shares voted:
For Against Abstain
----------------------------------------------
13,404,667 278,485 53,078
The stockholders ratified the Board of Directors' selection of
Ernst & Young LLP as the Company's independent public
accountants for the fiscal year ending September 29, 2001.
Shares voted:
For Against Abstain
----------------------------------------------
13,658,635 13,755 63,840
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2001.
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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 April 26, 2001.
BEI Technologies, Inc.
By: /s/ Robert R. Corr
-----------------------------------
Robert R. Corr
Treasurer, Controller and Secretary
(Chief Accounting Officer)
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