OEA, INC.
FORM 10-K
Fiscal Year Ended July 31, 1996
<PAGE>
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 July 31, 1996.
[ ] 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 2-32231.
OEA, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2362379
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization.)
34501 East Quincy Avenue, P. O. Box 100488, Denver, Colorado 80250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (303) 693-1248
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered:
Common Stock, Par Value $0.10 New York Stock Exchange
- - -------------------------------- -------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of October 21, 1996. Common Stock, $.10 par value - $602,712,950.
The number of shares outstanding of the issuer's classes of common stock as of
October 21, 1996. Common Stock $.10 par value - 20,538,444.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
January 10, 1997, are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1 - BUSINESS
General Development of Business
OEA, Inc. ("Registrant" or the "Company") was organized as a Delaware business
corporation on October 1, 1969. Its predecessor, Ordnance Engineering
Associates, Inc., an Illinois corporation, was organized on July 13, 1957, and
was merged into the Registrant on December 3, 1969. OEA, Inc. consists of the
OEA Automotive Safety Products Divisions, OEA Aerospace, Inc., Pyroindustrie
S.A. and Pyrospace S.A. (45% ownership). OEA Automotive Safety Products consists
of the Automotive Initiator Division - Denver, the Automotive Initiator Division
- - - Utah, and the Hybrid Inflator Division. Effective August 1, 1996, the Hybrid
Gas Generator Division was merged into the Hybrid Inflator Division.
Explosive Technology, Inc. was acquired as a wholly owned subsidiary of the
Registrant on March 30, 1971. It was organized as a California business
corporation on June 21, 1961. Effective December 11, 1989, the subsidiary's name
was changed to ET, Inc. On October 1, 1994, the name was again changed to OEA
Aerospace, Inc.
Aerotest Operations, Inc., a California corporation, was acquired as a wholly
owned subsidiary of OEA Aerospace, Inc. (described above) on April 1, 1974.
Pyrospace S.A. was organized on July 29, 1987, in France as a joint venture
(45% OEA, Inc. ownership) with two French firms, Aerospatiale and SNPE. Its
facility is located in Les Mureaux, 25 miles northwest of Paris.
Pyroindustrie S.A. was incorporated on June 21, 1994, in France as a joint
venture (80% OEA, Inc., 20% Pyrospace S.A.) with Pyrospace. On January 1, 1996,
OEA, Inc. purchased the remaining 20% ownership from Pyrospace S.A. and
Pyroindustrie S.A. now operates as a wholly owned subsidiary of OEA, Inc. Its
facility is collocated with Pyrospace in Les Mureaux, 25 miles northwest of
Paris.
There has been no material change in the mode of business conducted by the
Registrant or its above-named subsidiaries and divisions during fiscal year
1996, except as mentioned above.
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Financial Information about Industry Segments
<TABLE>
<CAPTION>
FY 1996 FY 1995 FY 1994
------- ------- -------
Sales to Unaffiliated Customers
<S> <C> <C> <C>
Automotive $ 115,586,930 $ 90,141,512 $ 67,652,256
Nonautomotive 37,222,579 39,069,259 42,240,486
------------------ ------------------ ------------------
Total $ 152,809,509 $ 129,210,771 $ 109,892,742
================== ================== ==================
Inter-Segment Sales or Transfers
Automotive $ 122,719 $ 120,532 $ 3,500
Nonautomotive 139,524 117,061 81,916
----------------- ------------------ -----------------
Total $ 262,243 $ 237,593 $ 85,416
================= ================= =================
Operating Profit
Automotive $ 33,283,955 $ 27,935,374 $ 21,026,298
Nonautomotive 5,782,314 6,991,332 9,045,161
----------------- ------------------ -----------------
Total $ 39,066,269 $ 34,926,706 $ 30,071,459
================= ================== =================
Identifiable Assets
Automotive $ 157,569,207 $ 115,910,167 $ 81,435,183
Nonautomotive 45,638,564 44,991,668 53,879,721
----------------- ------------------ -----------------
Total $ 203,207,771 $ 160,901,835 $ 135,314,904
================= ================== =================
2
</TABLE>
<PAGE>
Narrative Description of Business
Automotive Safety Products
The Company established the Automotive Safety Products division in 1989 as a
separate division to support the rapid growth in automotive air bags and related
technologies. Prior to 1989, automotive-related work was performed in the
aerospace division. The division designs, tests, develops, and manufactures
pyrotechnic devices for use in automotive safety products. Major products
currently in production include electric initiators, hybrid inflators and
linear cord, all for use in air bag modules. These products are sold to
automotive inflator and module manufacturers for assembly into air bag modules
delivered to the auto companies.
The Company began production this past year of "smokeless" hybrid inflators
for passenger, driver and side-impact inflators. These products are
environmentally friendly and produce no dust or smoke. In addition, these
inflators are smaller, lighter, and less expensive than current designs in
production. High-volume production of the new "smokeless" hybrid inflators
began in April 1996. The inflators are sold to module manufacturers for delivery
to the auto companies.
The Company's principal officers and senior engineers represent its sales
force. A significant investment in plant and equipment was required by the
Company to provide the previously announced projected sales of inflators of
more than 2.5 million units for model year 1997. This equipment has been in
place for several months and is functioning as designed. Significant
additional investment in equipment will be required again in fiscal year 1997 to
meet inflator demand for model year 1998. While the Company has ordered
equipment from companies experienced in the manufacture of automated high-rate
production equipment, no assurance can be given that the equipment will perform
as designed and at the capacity required until the equipment has been operated
for a period of time in our plant. For additional information concerning these
forward-looking statements see "Forward-Looking Statements."
The automotive segment accounted for approximately 76%, 70%, and 62% of the
Company's net sales for fiscal years 1996, 1995, and 1994, respectively.
Initiators are produced in three plants owned by the Company with highly
automated equipment: Denver, Colorado; Tremonton, Utah; and Les Mureaux, France.
Hybrid inflators are produced in Denver with highly automated equipment.
Raw materials used by the Company include stamped and machined parts, elastomer
seals, and commercially available pyrotechnic materials. The Company is not
dependent upon any one source for purchased materials because alternate sources
of supply are generally available in the marketplace.
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The initiator business is not dependent upon patented items, trademarks,
franchises, concessions, or licenses thereunder. The Company does not pay any
royalties or similar payments in connection with any patents or license
agreements. The "smokeless" hybrid inflator business is covered by several
patents. Some of the patents have been issued, others will be issued soon and
others are pending relating to technology used in the "smokeless" hybrid
inflator business.
The Company's business is not seasonal in nature.
Products are manufactured to order; accordingly, significant amounts of
inventory are not required to be maintained. Most customers operate in a
"just-in-time" inventory environment. The automotive segment inventories have
increased by $6.6 million during the year primarily due to the recent product
launch of hybrid inflators. Customer payments are reasonably prompt and extended
terms are not required.
The Company's customer providing more than 10% of consolidated sales for the
fiscal year ended July 31, 1996, was Morton International, 49%. The loss of
OEA's primary automotive safety products customer, Morton International, would
have a materially adverse effect on the Company. As the Company's sales of
inflators to module manufacturers grow, its sales to Morton International will
decrease as a percentage of total sales. The Company estimates that Morton
International will represent less than 25% of fiscal year 1997 sales.
There is no particular relationship between the Company and its customers other
than that of supplier/customer, except for the following:
1. An agreement with Daicel Chemical Industries, Ltd., Tokyo, Japan, for
the transfer of technology and manufacture of OEA's automotive air bag
initiators for the Asian market, and
2. An agreement with Daicel Chemical Industries, Ltd., Tokyo, Japan, for
the transfer of technology and manufacture of OEA's "smokeless" hybrid
inflators for passenger, driver and side-impact automotive air bags for
manufacture in Asia for the Asian market. The initial payment for this
fifteen year agreement was received in 1995, with a second payment
received in 1996. OEA understands that Daicel intends to manufacture
OEA's initiators and inflators in the near future.
Auto manufacturers generally change designs every three to five years. The
Company receives annual blanket purchase orders, but deliveries are specified by
customers on weekly releases for deliveries over the next 10 to 12 weeks.
Because this is the accepted practice in the automotive industry, the amount of
backlog at any given time is not representative of annual sales.
The Company currently has received annual blanket purchase orders from Takata
Corporation, Daicel Chemical Industries and Delphi Interior & Lighting, a
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division of General Motors, to supply in excess of 2.5 million passenger
inflators for model year 1997. Additionally, the Company has received annual
blanket purchase orders from the above companies, as well as additional
customers, for driver, side-impact, and passenger inflators to supply in excess
of 7.0 million inflators for model year 1998. For additional information
concerning these forward-looking statements see "Forward-Looking Statements."
The Company believes that OEA is the only independent inflator manufacturer in
the world that is not affiliated with, or owned by, a module manufacturer. This
independence gives the Company wide latitude to sell to all module
manufacturers. By fiscal year 2000, OEA's Inflator Division could be the largest
customer of the OEA Initiator Division.
Currently, there are three major automotive initiator manufacturers in the
United States: Imperial Chemical Industries, Inc., Special Devices, Inc.,
and the Company. Additionally, there are four major automotive initiator
manufacturers in Europe: Davey Bickford Smith, Nouvelle Cartoucherie de
Survilliers, Patvag and Pyroindustrie (wholly owned by OEA, Inc.). The Company
is currently the world's leading producer of initiators for automotive air bags.
Other companies may enter the automotive initiator market; however, substantial
financial resources, development, and qualification time would be required to
achieve design and product verification. Contracts are generally awarded based
upon competitive price, product reliability and production capacity. The
Registrant believes it is in a good competitive position.
Currently, the Company is aware of three major hybrid inflator manufacturers in
the world, a joint venture between Atlantic Research Corporation and Allied
Signal, Morton International, and the Company. The Company is currently one of
the world's leading producers of hybrid inflators for automotive air bags.
The estimated amount spent by the automotive segment during each of the last
three fiscal years for customer-sponsored and company-sponsored research and
development activities was:
Customer- Company-
Sponsored Sponsored
Fiscal year 1996 $ 500,000 $4,400,000
Fiscal year 1995 500,000 3,300,000
Fiscal year 1994 300,000 1,600,000
Compliance with federal, state, and local provisions regulating the discharge of
materials into the environment is not expected to materially affect capital
5
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expenditures, earnings, or competitive position of the Registrant or its
subsidiaries.
The Registrant, together with its consolidated subsidiaries and divisions,
employs approximately 950 people in its automotive segment.
Nonautomotive Products
The nonautomotive segment of the business is primarily aerospace (Defense, Space
and Commercial). OEA Aerospace, Inc. designs, develops, and manufactures
propellant and explosive-actuated devices used in (1) personnel escape systems
in high-speed aircraft, (2) separation and release devices for space vehicles
and aircraft, (3) control, separation, ejection, and jettison of missiles, and
(4) flexible linear-shaped charges, mild detonating cord systems and TLX energy
transfer systems. The principal customers for such products are the United
States Government and major aircraft and aerospace companies. Other products and
services include hot gas and explosive initiated valves, fluid control systems,
inflatable systems, and the largest neutron radiography inspection operation of
its kind.
Sales are made directly to the customer. The Company's principal officers and
senior engineers represent its sales force. The nonautomotive segment
accounted for approximately 24%, 30% and 38% of the Company's net sales for
fiscal years 1996, 1995, and 1994, respectively.
The nonautomotive products are produced principally in Fairfield, California. A
smaller test facility is located in San Ramon, California.
The Registrant's customers are primarily in the defense and space field under
prime government contracts. The major portion of the Registrant's business comes
from subcontracts which are generally awarded on a fixed-price basis. Each new
contract involves either the design and manufacture of a new product to meet a
specific requirement, or a follow-on order for additional items previously
manufactured under other contracts. Inasmuch as the Company's aerospace
business involves constant development and engineering of products required by
its customers, it would be inappropriate to announce each new item as a new
product.
Raw materials used by the Company include aluminum, inconel, monel,
molybdenum, rubbers, copper, alloy and stainless steel, ceramics, silver,
titanium alloys, certain commercially available and special-order propellants
and explosives, elastomer seals to government specifications, and epoxy sealing
materials. The Company is not dependent upon any one source for purchased
materials because alternate sources of supply are generally available in the
marketplace.
6
<PAGE>
The Registrant's business is not dependent upon patented items, trademarks,
franchises, concessions, or licenses thereunder. The Registrant does not pay any
substantial royalties or similar payments in connection with any patents or
license agreements.
The Registrant's business is not seasonal in nature.
Products are manufactured to order; accordingly, significant amounts of
inventory are not required to be maintained. Inventories have increased by $5.3
million in the nonautomotive segment based on a higher funded backlog and
anticipated higher sales in fiscal year 1997.
Deliveries are made according to contract usually in a "just-in-time"
environment. Customer payments are reasonably prompt and extended terms are not
required.
The Company did not have a customer providing more than 10% of consolidated
sales in the nonautomotive segment for the fiscal year ended July 31, 1996.
Transactions with the United States Government are with several procurement
agencies and/or prime contractors. Although the loss of all government contracts
would have an adverse effect, the loss of any one agency or prime contract would
not have a materially adverse effect on the Registrant.
There is no particular relationship between the Company and its customers other
than that of supplier/customer.
The Company's nonautomotive funded backlog of orders as of July 31, 1996, was
$45,800,000. The Company estimates that $9,600,000 of its current backlog will
not be recorded as a sale within its fiscal year ending July 31, 1997.
The majority of the business of the Registrant with the United States Government
is subject to termination of contracts for the convenience of the United States
Government. Such termination, however, is not a frequent occurrence. In
addition, a significant portion of the Registrant's sales for the current and
prior years is subject to audit by the Defense Contract Audit Agency. Such
audits may occur at any time up to three years after contract completion.
The Registrant competes for new contracts with a number of larger corporations
with substantially greater resources. Other companies, both larger and smaller
than the Registrant, also have capabilities and resources to design and develop
similar items.
There is no official information available concerning total annual purchases
from all manufacturers of the types of products which the Registrant produces
for the nonautomotive segment. The Registrant believes it has at least seven
competitors in its principal field of propellant and explosive devices. No
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individual competitor dominates the field. The Registrant believes it is in a
good competitive position.
On new development and qualification programs, contract awards are based upon
technical and competitive price proposals. Subsequent production awards are both
negotiated with the customer and subject to competitive bid.
The estimated amount spent by the nonautomotive segment during each of the last
three fiscal years for customer-sponsored and company-sponsored research and
development activities was:
<TABLE>
<CAPTION>
Customer- Company-
Sponsored Sponsored
<S> <C> <C>
Fiscal year 1996 $2,600,000 $ 50,000
Fiscal year 1995 3,200,000 200,000
Fiscal year 1994 4,500,000 200,000
</TABLE>
Compliance with federal, state, and local provisions regulating the discharge of
materials into the environment is not expected to materially affect capital
expenditures, earnings, or competitive position of the Registrant or its
subsidiaries.
The Registrant, together with its subsidiaries and divisions, employs
approximately 380 people in its nonautomotive segment.
Forward Looking Statements
This Report contains certain forward-looking statements with respect to the
Company's sales, plans, products, projections and other matters. These
statements are based on assumptions as to future events and are therefore
inherently uncertain. A number of factors, including those discussed below and
elsewhere herein, may cause the Company's actual results to differ materially
from those contemplated by these forward-looking statements.
The Registrant's automotive safety products have historically consisted of
initiators which were sold to other companies for incorporation into inflators
and ultimately into air bag modules. The Company's future sales in the
automotive segment are expected to consist increasingly of "smokeless" hybrid
inflators to be produced by the Company in new manufacturing facilities being
constructed and to be constructed during the next fiscal year. The Company's
inflator sales will depend on its success in manufacturing inflators in volume
which meet the expectations of its customers in 1997 and increasing its
penetration of the inflator market over time.
The Company's expectations as to future sales are based upon annual blanket
purchase orders received by customers in the automotive segment and governmental
orders received in the nonautomotive segment. Annual blanket purchase orders
are not binding on the Company's customers and actual quantities will depend
upon weekly releases received from these customers. However, because the
customers have designed the Company's products into their air bag modules, the
Company believes that the actual quantity sold will vary based on its customers
sales. Governmental orders in the nonautomotive segment can be cancelled or
terminated for the convenience of the government. In addition, future
technological developments could impact adversely sales of the Company's
products.
8
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(d)Financial Information about Foreign and Domestic Operations and Export Sales
<TABLE>
<CAPTION>
Sales to Unaffiliated Customers FY 1996 FY 1995 FY 1994
<S> <C> <C> <C>
United States $ 117,386,137 $ 100,980,428 $ 97,209,060
Foreign Sales
Europe 10,208,606 4,845,644 4,576,576
Asia 23,821,498 22,470,143 7,700,842
Other 1,393,268 914,556 406,264
---------------- ---------------- ----------------
Total Foreign Sales 35,423,372 28,230,343 12,683,682
---------------- ---------------- ----------------
Total Sales $ 152,809,509 $ 129,210,771 $ 109,892,742
================ ================ ================
</TABLE>
Notes:
(1) There were no sales or transfers between the geographic areas reported
above.
(2) It is not possible, under the existing accounting systems, to isolate
profits and identifiable assets by geographic areas.
9
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ITEM 2 - PROPERTIES
The Registrant's properties are located in Arapahoe County, Colorado (near
Denver); Fairfield, California; San Ramon, California; Tremonton/Garland, Utah;
and Les Mureaux, France.
The Arapahoe County facilities are located on 960 acres of land which the
Registrant owns. In fiscal year 1996, automotive operations were conducted in
various one-story brick and steel buildings containing 226,000 square feet of
floor space in the aggregate. Additionally, a 172,000 square foot manufacturing
facility will be completed in December 1996 which will be dedicated to the
production of smokeless hybrid inflators.
The Fairfield, California, facilities are occupied by OEA Aerospace, Inc., a
wholly owned subsidiary of the Registrant. Its nonautomotive and automotive
operations are conducted in twenty buildings containing 162,700 square feet of
floor space in the aggregate, located on 515 acres of land which the Company
owns. All parts of the various buildings are occupied and used in the operations
of the Company's business.
The San Ramon, California, property consists of a 10,000 square foot steel
building situated on approximately one acre of land which the Company owns. It
is occupied by Aerotest Operations, Inc., a wholly owned subsidiary of OEA
Aerospace, Inc., which conducts neutron radiography therein. Also contained in
this building, as a part of the premises, is a 250-kilowatt nuclear reactor used
in the process.
The property in Tremonton/Garland, Utah, consists of a 66,000 square-foot
manufacturing facility located on 160 acres which the Registrant owns. This
facility will accommodate the growing demand for air bag initiators and other
automotive safety products.
The property in Les Mureaux, France, consists of a 34,600 square foot
manufacturing facility located on 6 acres which the Company owns. It is occupied
by Pyroindustrie S.A., and will accommodate the growing demand for air bag
initiators and other automotive safety products for the European market.
The above-described properties are considered suitable and adequate for the
Registrant's operations.
10
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ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
11
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) (1)
(i) Registrant has only common capital stock, $0.10 par value,
issued. Its principal United States market is made on the New
York Stock Exchange, New York, New York, where such shares
have been listed.
(ii) The high and low sales prices for the Registrant's shares
traded, as reported in the consolidated transaction reporting
system over the last two fiscal years on a quarterly basis,
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year 1995 High Low
1st Quarter 32.00 24.25
2nd Quarter 27.75 21.88
3rd Quarter 31.25 23.88
4th Quarter 30.75 26.00
Fiscal Year 1996 High Low
1st Quarter 33.38 26.88
2nd Quarter 30.75 25.38
3rd Quarter 40.00 25.50
4th Quarter 41.38 32.13
</TABLE>
(iii) Not applicable
(iv) Not applicable
(v) Not applicable
(b) The approximate number of holders of record of Registrant's issued and
outstanding shares at October 18, 1996, was 1,232.
(c) The Board of Directors has declared dividends during the last three
fiscal years as follows:
<TABLE>
<CAPTION>
Amount
Declared Payable Per Share
<S> <C>
November 12, 1993 December 13, 1993 $ .15
November 4, 1994 December 9, 1994 .20
November 3, 1995 December 8, 1995 .25
</TABLE>
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ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Summary of Operations
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 152,809,509 129,210,771 109,892,742 94,184,193 88,071,691
Operating Profit 39,066,269 34,926,706 30,071,459 23,632,845 18,481,827
Earnings Before Minority Interest
and Income Taxes 40,683,008 36,225,734 29,465,492 23,676,115 23,115,911
Minority Interest 24,594 519,564 ---- ---- ----
Income Taxes (15,165,119) (15,469,088) (11,512,973) (9,105,017) (7,866,954)
Net Earnings (Loss)
Before Settlement of
Environmental Matters 25,542,483 23,526,210 17,952,519 14,571,098 15,248,957
From Settlement of
Environmental Matters (Note 1) ---- (2,250,000) ---- ---- ----
---------------- ---------------- ---------------- ---------------- ----------------
Total Net Earnings $ 25,542,483 21,276,210 17,952,519 14,571,098 15,248,957
================ =============== ================ ================ ================
Earnings (Loss) Per Share (Note 2)
Before Settlement of
Environmental Matters 1.25 1.15 .88 .72 .75
From Settlement of
Environmental Matters ---- (0.11) ---- ---- ----
---------------- ---------------- ---------------- ---------------- ----------------
Total Earnings Per Share $ 1.25 1.04 .88 .72 .75
================ =============== ================ =============== ===============
Cash Dividends Per Share $ .25 .20 .15 .12 .10
================ =============== ================ =============== ===============
Stock Dividends ---- ---- ---- ---- 200%
================ =============== ================ =============== ===============
Weighted Average Number of
Shares Outstanding During Year 20,499,373 20,480,060 20,438,587 20,376,308 20,315,240
================ =============== ================ =============== ===============
(Note 2)
Total Number of Shares
Outstanding at Year End 20,514,444 20,486,628 20,465,545 20,413,146 20,350,609
================ =============== ================ ============== ==============
(Note 2)
<FN>
Notes:
(1)On December 13, 1994, the Company reached a final settlement in its
environmental matters in the net amount of $2,250,000.
(2)The number of shares outstanding and per-share amounts have been
adjusted to give effect to treasury share transactions and stock
distributions effected in the form of a 200 percent stock dividend
paid on February 14, 1992.
</FN>
</TABLE>
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<PAGE>
Balance Sheet Data at July 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Current Assets $ 77,579,452 74,871,359 62,389,466 60,913,834 56,949,971
Current Liabilities $ 33,523,658 12,160,275 8,882,678 11,944,465 7,835,271
Working Capital $ 44,055,794 62,711,084 53,506,788 48,969,369 49,114,700
Working Capital Ratio 2.3 to 1 6.2 to 1 7.0 to 1 5.1 to 1 7.3 to 1
Total Assets $ 203,207,771 160,901,835 135,314,904 123,178,155 106,180,082
Shareholders' Equity $ 160,448,308 140,352,333 121,854,462 106,801,460 94,535,957
Book Value Per Share $ 7.82 6.85 5.95 5.23 4.65
</TABLE>
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1996 vs. 1995
Net sales and operating profits for the fiscal year ended July 31, 1996, were a
record $152,809,500 and $39,066,300, respectively, compared to prior-year net
sales of $129,210,800 and operating profits of $34,926,700. Net earnings and
earnings per share for fiscal year 1996 were $25,542,500 and $1.25,
respectively, compared to prior-year net earnings of $21,276,200 and earnings
per share of $1.04.
The Automotive Safety Products division was again the primary contributor to the
sales and operating profit increases over the prior year. Automotive sales and
operating profit increased by 28% and 19%, respectively, due primarily to the
increased volume. Nonautomotive sales decreased 5% with an operating profit
decrease of 17%. Total operating profit as a percentage of sales for fiscal year
1996 was 26%, compared to 27% for the prior year. This performance was
accomplished in spite of an increased expenditure of funds for Company funded
research and development ($4,416,000 in 1996 vs. $3,507,300 in 1995) primarily
for "smokeless" hybrid inflators for automotive air bags.
Automotive segment sales for fiscal year 1997 are expected to increase
significantly due to the increased demand for driver, passenger, and side-impact
air bags. For additional information concerning these forward-looking
statements see "Forward-Looking Statements."
Potential effects of changes in defense spending are not expected to have a
material impact upon the operations of the nonautomotive segment. The Registrant
anticipates that nonautomotive segment sales during fiscal year 1997 will
increase due to deliveries on a number of programs currently in the backlog and
programs expected to book soon. For additional information concerning these
forward-looking statements see "Forward-Looking Statements."
The Registrant's contract pricing methods have offset the effect of inflation.
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Fiscal Year 1995 vs. 1994
Net sales and operating profits for the fiscal year ended July 31, 1995, were
$129,210,800 and $34,926,700, respectively, compared to fiscal year 1994 net
sales of $109,892,700 and operating profits of $30,071,500. Net earnings and
earnings per share for fiscal year 1995 were $21,276,200 and $1.04,
respectively, compared to fiscal year 1994 net earnings of $17,952,500 and
earnings per share of $0.88. In the first half of fiscal year 1995, the Company
reached a final settlement in its environmental matters in the net amount of
$2,250,000 or $0.11 per share. Eliminating the effect of the above settlement,
fiscal year 1995 net earnings from operations would have been $23,526,200 and
earnings per share would have been $1.15.
The Automotive Safety Products division was the primary contributor to the sales
and operating profit increases over fiscal year 1994. Automotive sales and
operating profit both increased 33% due primarily to the increased volume.
Nonautomotive sales decreased 8% with an operating profit decrease of 23%. Total
operating profit as a percentage of sales for fiscal year 1995 was 27%,
consistent with fiscal year 1994. This performance was accomplished in spite of
an increased expenditure of funds for Company funded research and development
($3,507,300 in 1995 vs. $1,814,800 in 1994) primarily for "smokeless" hybrid
inflators for automotive air bags.
Liquidity and Capital Resources
The Company's working capital at July 31, 1996, decreased to $44,055,800, from
the $62,711,100 at July 31, 1995, primarily due to significantly increased
capital expenditures, partially offset by increased earnings from operations.
This resulted in short-term borrowings of $14,000,000, discussed below.
During fiscal year 1996, the Company made capital expenditures totaling
$45,500,000 as compared to $19,912,300 and $16,823,900 in fiscal years 1995 and
1994, respectively. These capital expenditures were funded principally from
operations and from the Company's line of credit discussed below. Currently the
Company has capital expenditure commitments totaling approximately $62,000,000
for fiscal year 1997.
In January 1996 the Company renewed an $8,000,000 Revolving Credit Agreement
with its principal bank, which, subsequent to year end, was increased to
$35,000,000 with an expiration date of September 30, 1997. At July 31, 1996, the
Company had a $14,000,000 outstanding balance against this line of credit.
Anticipated working capital requirements, capital expenditures, and facility
expansions are expected to be met through internally generated funds and
additional borrowings from the agreement mentioned above, which will be
increased as required.
16
<PAGE>
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary are translated to
U.S. dollars at period-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the period. The local
currency is used as the functional currency for the subsidiary. A translation
adjustment results from translating the foreign subsidiary's accounts from
functional currencies to U.S. dollars. Exchange gains (losses) resulting from
foreign currency transactions are included in the consolidated statements of
earnings.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules of the Company filed
as part of this report on Form 10-K are listed in Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
17
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will appear in, and is incorporated by
reference from, the Registrant's definitive proxy statement for its 1997 annual
shareholders meeting to be filed with the Securities and Exchange Commission
prior to November 29, 1996.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item will appear in, and is incorporated by
reference from, the Registrant's definitive proxy statement for its 1997 annual
shareholders meeting to be filed with the Securities and Exchange Commission
prior to November 29, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will appear in, and is incorporated by
reference from, the Registrant's definitive proxy statement for its 1997 annual
shareholders meeting to be filed with the Securities and Exchange Commission
prior to November 29, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item, if any, will appear in, and is
incorporated by reference from, the Registrant's definitive proxy statement for
its 1997 annual shareholders meeting to be filed with the Securities and
Exchange Commission prior to November 29, 1996.
18
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
(1) Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets - July 31, 1996 and
1995
Consolidated Statements of Earnings
Years ended July 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity
Years ended July 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows
Years ended July 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules required to be filed by Item 8
of Form 10-K and by paragraph (d) of this Item 14:
The schedules for which provision is made in the
applicable accounting regulation of the Securities
and Exchange Commission are not required under the
related instructions or are inapplicable, and
therefore, have been omitted.
(3) Exhibits required to be filed by Item 601 of
Regulation S-K and paragraph (c) of this Item 14:
Exhibit 3 - Articles of Incorporation, as amended,
(incorporated by reference) and By-
laws, as amended (incorporated by
reference).
Exhibit 10 - Material contracts between the
Registrant and its Chairman/CEO and
President/COO include retirement
agreements dated May 5, 1989, and May
15, 1990, respectively, (incorporated
by reference).
19
<PAGE>
Exhibit 22 - During fiscal year 1996, the
Registrant was the parent company of
each of the following described
companies:
Percent of Outstanding
Corporation Stock Owned by Parent
OEA Aerospace, Inc. 100%
a California corporation,
which owns 100% of Aerotest
Operations, Inc., a California
corporation
Pyroindustrie S.A.
a corporation in France
August 1995 through December 1995 80%
January 1996 through July 1996 100%
Foreign Corporate Percentage of
Joint Venture Ownership
Pyrospace S.A. 45%
a corporation in France
The above entities are included in the consolidated financial
statements of the Registrant being submitted herewith.
(b) Reports on Form 8-K during the quarter ended July 31,
1996.
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 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.
Date: October 25, 1996
OEA, INC.
Registrant
By_________________________
Ahmed D. Kafadar, Chairman
and Chief Executive Officer
DIRECTORS AND OFFICERS
Ahmed D. Kafadar,Chairman of the Charles B. Kafadar, President,
Board and Principal Executive Principal Operating Officer, and
Officer Director
J. Robert Burnett, Director Philip E. Johnson, Director
Lewis W. Watson, Director Paul J. Martin, Vice President/
Treasurer and Principal
Financial Officer
John E. Banko IV, Controller
21
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a)(1) and (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
Year Ended July 31, 1996
OEA, Inc. and Subsidiaries
Denver, Colorado
22
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
OEA, Inc.
We have audited the accompanying consolidated balance sheets of OEA, Inc. and
subsidiaries as of July 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended July 31, 1996. 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 generally accepted auditing
standards. 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 OEA, Inc. and
subsidiaries at July 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1996, in conformity with generally accepted accounting principles.
October 9, 1996
23
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31
1996 1995
----------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,560,213 $ 19,342,034
Accounts receivable 29,960,161 23,879,495
Unbilled costs and accrued earning 6,845,200 3,974,500
Inventories 36,613,020 24,656,806
Income taxes receivable 832,906 2,476,800
Prepaid expenses and other 767,952 541,724
----------------------------------
Total current assets 77,579,452 74,871,359
Property, plant, and equipment:
Land and improvements 1,805,943 1,726,211
Buildings and improvements 40,657,235 32,898,017
Machinery and equipment 105,149,565 70,409,817
Furniture and fixtures 7,333,729 5,687,470
----------------------------------
154,946,472 110,721,515
Accumulated depreciation and amortization 40,800,194 31,276,450
----------------------------------
114,146,278 79,445,065
Cash value of life insurance 317,094 363,508
Long-term receivable 3,000,000 3,000,000
Investment in foreign joint venture 3,402,230 2,829,554
Deferred charges 3,610,300 -
Other assets 1,152,417 392,349
----------------------------------
Total assets $ 203,207,771 $ 160,901,835
==================================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
July 31
1996 1995
-----------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 12,230,628 $ 5,769,163
Bank borrowings 14,000,000 -
Accrued expenses:
Salaries and wages 3,273,342 2,628,992
Profit sharing and pension contributions 1,388,717 1,501,958
Other 968,565 975,881
Deferred income 206,168 206,168
Deferred income taxes 1,456,238 1,078,113
----------------------------------
Total current liabilities 33,523,658 12,160,275
Deferred income 216,735 216,735
Deferred income taxes 8,074,731 5,771,775
Deferred compensation 944,339 944,339
Commitments and contingencies
Minority interest - 1,456,378
Stockholders' equity:
Common stock, $0.10 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 22,019,700 2,201,970 2,201,970
Additional paid-in capital 12,467,556 12,012,450
Retained earnings 147,267,964 126,849,357
Treasury stock, 1,505,256 and 1,533,072 shares
in 1996 and 1995, respectively, at cost (2,104,218) (1,869,483)
Equity adjustment from translation 615,036 1,158,039
---------------------------------------
Total stockholders' equity 160,448,308 140,352,333
---------------------------------------
Total liabilities and stockholders' equity $203,207,771 $160,901,835
=======================================
</TABLE>
See accompanying notes.
25
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Year ended July 31
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Net sales $152,809,509 $129,210,771 $109,892,742
Cost of sales 101,952,970 83,399,001 71,558,302
---------------------------------------------------------
Gross profit 50,856,539 45,811,770 38,334,440
General and administrative expenses 7,374,245 7,377,782 6,448,215
Research and development expenses 4,416,025 3,507,282 1,814,766
---------------------------------------------------------
Operating profit 39,066,269 34,926,706 30,071,459
Other income (expense):
Interest income 684,988 769,718 410,006
Interest expense (72,388) (25,770) (112,111)
Equity in earnings of foreign
joint venture 572,676 282,139 42,833
Other, net 431,463 272,941 (946,695)
---------------------------------------------------------
1,616,739 1,299,028 (605,967)
---------------------------------------------------------
Earnings before minority interest and
income taxes 40,683,008 36,225,734 29,465,492
Minority interest in net loss of
consolidated subsidiary 24,594 519,564 -
---------------------------------------------------------
Earnings before income taxes 40,707,602 36,745,298 29,465,492
Income tax expense 15,165,119 15,469,088 11,512,973
---------------------------------------------------------
Net earnings
$25,542,483 $21,276,210 $17,952,519
=========================================================
Net earnings per share $1.25 $1.04 $0.88
=========================================================
Weighted average number of shares
outstanding during year 20,499,373 20,480,060 20,438,587
=========================================================
</TABLE>
See accompanying notes.
26
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Equity
Additional Adjustment Total
Common Stock Paid-In Retained From Treasury Stockholders'
--------------------------
Shares Amount Capital Earnings Translation Stock Equity
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1993 22,019,700 $2,201,970 $11,452,217 $ 94,782,895 $ - $(1,635,622) $106,801,460
Purchase of 11,433 shares of
common stock for treasury - - - - - (329,344) (329,344)
Issuance of 63,832 shares of
treasury stock for options
exercised - - 425,907 - - 69,774 495,681
Net earnings - - - 17,952,519 - - 17,952,519
Cash dividends ($0.15 per
share) - - - (3,065,854) - - (3,065,854)
-----------------------------------------------------------------------------------------------------
Balances at July 31, 1994 22,019,700 2,201,970 11,878,124 109,669,560 - (1,895,192) 121,854,462
Issuance of 21,083 shares of
treasury stock for options
exercised - - 134,326 - - 25,709 160,035
Net earnings - - - 21,276,210 - - 21,276,210
Cash dividends ($0.20 per
share) - - - (4,096,413) - - (4,096,413)
Translation adjustment - - - - 1,158,039 - 1,158,039
-----------------------------------------------------------------------------------------------------
Balances at July 31, 1995 22,019,700 2,201,970 12,012,450 126,849,357 1,158,039 (1,869,483) 140,352,333
Purchase of 9,254 shares of
common stock for treasury (283,887) (283,887)
Issuance of 37,070 shares of
treasury stock for options
exercised - - 455,106 - - 49,152 504,258
Net earnings - - - 25,542,483 - - 25,542,483
Cash dividends ($0.25 per
share) - - - (5,123,876) - - (5,123,876)
Translation adjustment - - - - (543,003) - (543,003)
-----------------------------------------------------------------------------------------------------
Balances at July 31, 1996 22,019,700 $2,201,970 $12,467,556 $147,267,964 $615,036 $(2,104,218) $160,448,308
=====================================================================================================
</TABLE>
See accompanying notes.
27
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended July 31
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings $25,542,483 $21,276,210 $17,952,519
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Undistributed earnings of foreign joint venture (572,676) (282,139) (42,833)
Depreciation and amortization 10,186,075 7,471,300 5,502,125
Deferred income taxes 2,681,081 2,374,190 170,755
Minority interest in net loss of consolidated subsidiary (24,594) (519,564) -
Increase in deferred compensation - 122,304 60,756
Loss on sale of property, plant, and equipment 211,369 759,430 708,639
Changes in operating assets and liabilities:
Accounts receivable (6,163,965) 2,553,125 214,541
Unbilled costs and accrued earnings (2,870,700) (239,979) 2,957,882
Inventories (11,989,079) 1,734,084 (1,075,020)
Prepaid expenses and other (227,572) 309,561 (34,853)
Accounts payable and accrued expenses 7,074,831 3,416,518 (154,498)
Deferred income - - (58,802)
Income taxes 1,643,894 (2,660,577) 171,704
---------------------------------------------------------
Net cash provided by operating activities 25,491,147 36,314,463 26,372,915
Investing activities
(Reductions)additions to investments in
and advances to affiliates (1,324,010) 1,975,942 -
Decrease in marketable securities - - 376,818
Capital expenditures (45,500,031) (19,912,283) (16,823,885)
Proceeds from sale of property, plant, and equipment 40,000 68,379 535
Decrease (increase) in cash value of life insurance 46,414 (37,944) (5,698)
Increase in deferred charges (3,610,300) - -
Increase in other assets, net (792,392) - -
---------------------------------------------------------
Net cash used in investing activities (51,140,319) (17,905,906) (16,452,230)
Financing activities
Purchase of common stock for treasury (283,887) - (329,344)
Proceeds from issuance of treasury stock 504,258 160,035 495,681
Increase (decrease) in net bank borrowings 14,000,000 - (2,900,000)
Decrease in deferred income - - (206,168)
Payment of dividends (5,123,876) (4,096,413) (3,065,854)
---------------------------------------------------------
Net cash provided by (used in) financing activities 9,096,495 (3,936,378) (6,005,685)
Effect of exchange rate changes on cash (229,143) 23,123 -
---------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (16,781,820) 14,495,302 3,915,000
Cash and cash equivalents at beginning of year 19,342,033 4,846,732 931,732
---------------------------------------------------------
Cash and cash equivalents at end of year $ 2,560,213 $19,342,034 $ 4,846,732
=========================================================
Supplemental information:
Interest payments $ 220,136 $ 24,935 $ 112,111
Income tax payments 11,645,000 15,599,291 11,226,646
</TABLE>
See accompanying notes.
28
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 1996
1. Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and transactions of
OEA, Inc. (the "Company"), its wholly owned subsidiary, OEA Aerospace, Inc., and
a wholly owned foreign subsidiary, Pyroindustrie S.A. All significant
intercompany balances and transactions have been eliminated.
The investment in a foreign joint venture in which the Company does not have
control, but has the ability to exercise significant influence over operating
and financial policies (greater than 20% ownership), is accounted for using the
equity method, under which the Company's share of earnings of the joint venture
is reflected in income as earned and distributions will be credited against the
investment when received.
Revenue Recognition
Sales of products within the government contracting segment are recognized as
deliveries are made or when the products are completed and held on the Company's
premises to meet specified contract delivery dates. Sales of undelivered
products are included in unbilled costs and accrued earnings and are anticipated
to be delivered and billed within 12 months of the balance sheet date. Costs are
based on the estimated average cost per unit based on units to be produced under
the contract.
Inventories
Inventories of raw materials and component parts are stated at the lower of cost
(principally first-in, first-out) or market. Inventoried costs of work in
process and finished goods are stated at average production costs consisting of
materials, direct labor, and manufacturing overhead, reduced by costs identified
with recorded sales. General and administrative expenses, initial tooling, and
other nonrecurring costs are not included in inventoried costs.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123
is applicable for fiscal years beginning after December 15, 1995 and gives the
option to either follow fair value accounting or to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25),
and related interpretations.
29
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
The Company has determined it will follow APB No. 25 and related interpretations
in accounting for its employee stock options. The Company has not yet determined
the impact on its financial position or results of operations had fair value
accounting been adopted.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Expenditures for
maintenance and repairs are charged to earnings as incurred and major renewals
and betterments are capitalized. Upon sale or retirement, the cost of the assets
and related allowances for depreciation are removed from the accounts, and the
resulting gains or losses are reflected in operations.
Depreciation is computed on the straight-line, double-declining balance, and
units-of-production methods at rates calculated to amortize the cost of the
depreciable assets over the related useful lives.
Depreciation charged to costs and expenses was $10,153,751, $7,454,851 and
$5,485,673 in 1996, 1995, and 1994, respectively. Repairs and maintenance
charged to costs and expenses was $5,064,962, $5,027,645 and $4,090,642 in 1996,
1995, and 1994, respectively.
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present.
The Company will adopt Statement No. 121 in the first quarter of fiscal year
1997 and, based on current circumstances does not believe the effect of adoption
will be material.
Earnings per Share
Earnings per share of common stock is computed on the basis of the weighted
average number of shares outstanding during the year.
The effect on reported earnings per share from the assumed exercise of
stock options outstanding during the years ended July 31, 1996, 1995, and 1994
would be insignificant.
30
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Research and Development
Expenses for new products or improvements of existing products, net of amounts
reimbursed from others, are charged against operations in the year incurred.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary (Pyroindustrie S.A.)
are translated to U.S. dollars at period-end exchange rates. Income and expense
items are translated at average exchange rates prevailing during the period. The
local currency is used as the functional currency for the subsidiary. A
translation adjustment, which is recorded as a separate component of
stockholders' equity, results from translating the foreign subsidiary's accounts
from functional currencies to U.S. dollars. Exchange gains (losses) resulting
from foreign currency transactions are included in the consolidated statements
of earnings.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosures of fair value information about financial instruments for
which it is practicable to estimate that value. The Company's financial
instruments consist principally of cash and cash equivalents, receivables,
unbilled costs and accrued earnings, accounts payable and bank borrowings.
The Company believes all of the financial instruments' recorded values
approximate current values.
31
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Deferred Start-Up Costs
During the initial phase of new product introductions or development of
significant new plant facilities for which prospective sales and cost recovery
are based upon long-term commitments from customers, start-up costs are deferred
and are amortized on a straight-line basis over periods not exceeding five
years.
2. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
July 31
1996 1995
-------------------------------------
<S> <C> <C>
Raw materials and component parts $21,238,135 $11,316,265
Work in process 11,751,544 10,754,339
Finished goods 3,623,341 2,586,202
-------------------------------------
$36,613,020 $24,656,806
=====================================
</TABLE>
3. Investment in Foreign Joint Ventures
On October 5, 1986, a joint venture agreement was signed between the Company and
two French companies for the establishment of a company (Pyrospace S.A.) in
France. Pyrospace is engaged in the design, development, and manufacture of
propellant and explosive devices for European space programs, as well as
aircraft and missiles. The Company is a 45% owner of Pyrospace.
During October 1993, a joint venture agreement was signed between the Company
(80% owner) and Pyrospace (20% owner) for the establishment of a company in
France, Pyroindustrie S.A.. Pyroindustrie is engaged in the manufacture of
initiators for the European air bag market. In January of 1996, the Company
acquired the remaining 20% of Pyroindustrie making Pyroindustrie a wholly owned
subsidiary of the Company. Net assets of Pyroindustrie at July 31, 1996 totaled
$9,937,919.
32
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Bank Borrowings
At July 31, 1996, the Company has a $15,000,000 unsecured revolving credit line
with a financial institution with an interest rate at the lower of the
institution's prime interest rate or .625% per annum above the federal funds
rate. In addition, at the request of the borrower, the financial institution,
in its sole discretion, may make loans to the borrower at an interest rate
equal to "LIBOR" plus .625%. The Company is required to pay an annual
commitment fee equal to .1875 of 1% on the total amount of the commitment. The
facility will expire on December 31, 1996. At July 31, 1996, the debt
outstanding relating to the line of credit is $14,000,000. Interest costs
incurred during 1996 were $220,136, including capitalized interest costs of
$147,748. The weighted average interest rate on bank borrowings during fiscal
year 1996 was 6%.
5. Commitments and Contingencies
Contract disputes and other claims may arise in connection with government
contracts and subcontracts. A substantial portion of the Company's nonautomotive
sales for the current and prior years is subject to audit by the Defense
Contract Audit Agency. Such audits may occur at any time up to three years after
contract completion. In the opinion of the Company's management, a provision for
government claims is not necessary.
During December 1994, the Company effected a complete settlement of the
previously reported Colorado Department of Health ("CDH") civil action and U.S.
Environmental Protection Agency federal criminal investigation. Under the terms
of the settlement agreements, the Company agreed to pay fines in the amount of
$2,250,000. The Company has paid $2,160,000 and has accrued $90,000 as of July
31, 1996.
The Company has employment agreements with the Chairman of the Board and the
President providing for their full-time active service with specified retirement
benefits after employment termination. The estimated discounted present value of
these retirement benefits has been accrued as of July 31, 1996 and 1995.
33
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Commitments and Contingencies (continued)
The Company has commitments to purchase approximately $62,000,000 of property,
plant, and equipment.
6. Profit Sharing and Pension Plans
The Company has noncontributory profit sharing and defined contribution pension
plans covering all full-time employees. Combined contributions to these plans
for the years ended July 31, 1996, 1995, and 1994 were $1,410,449, $1,501,958
and $1,430,984, respectively.
The Company is committed to contribute to the pension plans 5% of participants'
eligible annual compensation as defined in the plan documents. Employer
contributions to the profit sharing plans are discretionary, but are not to
exceed 10% of eligible annual compensation.
7. Income Taxes
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of July 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
<S> <C> <C>
Current deferred tax liabilities:
Unbilled receivables $ 520,036 $ 510,886
Inventory valuation 270,897 -
Prepaid expenses 202,785 175,463
Deferred income on DAICEL agreement 370,280 370,280
Other 123,845 43,538
---------------------------------
Total current deferred tax liabilities 1,487,843 1,100,167
</TABLE>
34
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Long-term deferred tax liabilities:
Book basis of plant and equipment in excess
of tax basis $6,194,481 $5,286,379
Deferred income on DAICEL agreement 821,925 821,925
Deferred charges 1,380,940 -
Other 38,595 13,141
-----------------------------------
Total long-term deferred tax liabilities 8,435,941 6,121,445
-----------------------------------
Total deferred tax liabilities 9,923,784 7,221,612
Current deferred tax asset:
Other 31,605 22,054
Long-term deferred tax asset:
Deferred compensation 361,210 349,670
-----------------------------------
Total deferred tax assets 392,815 371,724
-----------------------------------
Net deferred tax liabilities $9,530,969 $6,849,888
===================================
</TABLE>
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
-----------------------------------------------------
<S> <C> <C> <C>
1996:
Federal $10,839,695 $2,302,850 $13,142,545
State 1,644,343 378,231 2,022,574
-----------------------------------------------------
$12,484,038 $2,681,081 $15,165,119
=====================================================
1995:
Federal $11,120,737 $2,461,113 $13,581,850
State 1,974,161 (86,923) 1,887,238
-----------------------------------------------------
$13,094,898 $2,374,190 $15,469,088
=====================================================
1994:
Federal $ 9,473,180 $ (51,740) $ 9,421,440
State 1,869,038 222,495 2,091,533
-----------------------------------------------------
$11,342,218 $ 170,755 $11,512,973
=====================================================
</TABLE>
35
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
Actual tax expense for 1996, 1995, and 1994 differs from "expected" tax expense
for those years (computed by applying the U.S. federal corporate tax rate of 35%
for 1996, 35% for 1995 and 35% for 1994 to earnings before income taxes) as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $14,247,661 $12,860,854 $10,312,922
Increases (reductions) in taxes resulting
from:
State taxes, net of federal income
tax benefit 1,314,673 1,226,705 1,359,496
Settlement of environmental
matters - 787,500 -
(Income) loss from foreign
operations (296,706) 727,300 -
Income tax credits (175,000) (461,074) (89,748)
Other 74,491 327,803 (69,697)
-----------------------------------------------------
Actual tax expense $15,165,119 $15,469,088 $11,512,973
=====================================================
</TABLE>
8. Stock Options
The shareholders approved an Employees' Stock Option Plan (the "Employees'
Plan") on January 13, 1995 and a Nonemployee Directors' Stock Option Plan
(the "Directors' Plan") on January 12, 1996. These plans provide for stock
options to be granted for a maximum of 600,000 shares of common stock under the
Employees' Plan and a maximum of 50,000 shares of common stock under the
Directors' Plan. Options may be granted to employees and nonemployee directors
at prices not less than fair market value of the Company's common stock on
the date of grant. Options granted under the Employees' Plan may be
exercised at any time after the grant date and options issued under the
Directors' Plan may be exercised after the first six months following the
grant date. Shares may be granted from either authorized but unissued common
stock or issued shares reacquired and held as treasury stock. Under the
Employees' Plan, options for 25,472 shares, net of forfeitures, were granted at
an average option price of $28.34, and options for 25,272 shares remain
outstanding as of July 31, 1996. During 1996, options for 2,000 shares were
forfeited, and options for 200 shares were exercised at an average option price
of $28.00. There were no options exercised during 1995 under the Employees'
Plan.
36
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
Under the Directors' Plan options for 4,375 shares were granted at an average
option price of $27.75 and remain outstanding as of July 31, 1996. During 1996
there were no options exercised or forfeited.
Prior to July 28, 1994, the Company had a qualified incentive stock option plan
for key employees of the Company whereby a total of 666,000 shares of common
stock were reserved for issuance. Options were granted to key employees at
prices not less than the fair market value of the Company's common stock on the
date of grant, and were exercisable after one year of continuous employment
following the date of grant. Under this plan, options for 615,842 shares, net of
forfeitures, were granted at an average option price of $7.25, and options for
130,514 shares remain outstanding as of July 31, 1996. During 1996, options for
8,311 shares were forfeited. During 1996 and 1995, options for 36,870 and 21,083
shares, respectively, were exercised at an average price of $13.52 and $7.59,
respectively.
9. Segment Information and Major Customers
The Company operates primarily in two industry segments, automotive and
nonautomotive. Financial information for each segment and major customers is
summarized as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
Automotive Nonautomotive Total
----------------------------------------------------------------
<S> <C> <C> <C>
Net sales $115,586,930 $37,222,579 $152,809,509
Operating profit 33,283,955 5,782,314 39,066,269
Identifiable assets 157,569,207 45,638,564 203,207,771
Depreciation expense 9,016,668 1,137,083 10,153,751
Capital expenditures 44,550,191 949,840 45,500,031
1995
----------------------------------------------------------------
Automotive Nonautomotive Total
----------------------------------------------------------------
Net sales $ 90,141,512 $39,069,259 $129,210,771
Operating profit 27,935,374 6,991,332 34,926,706
Identifiable assets 115,910,167 44,991,668 160,901,835
Depreciation expense 6,099,672 1,355,179 7,454,851
Capital expenditures 18,888,367 1,023,916 19,912,283
</TABLE>
37
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Segment Information and Major Customers (continued)
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------
Automotive Nonautomotive Total
----------------------------------------------------------------
<S> <C> <C> <C>
Net sales $67,652,256 $42,240,486 $109,892,742
Operating profit 21,026,298 9,045,161 30,071,459
Identifiable assets 81,435,183 53,879,721 135,314,904
Depreciation expense 3,533,462 1,952,211 5,485,673
Capital expenditures 15,999,897 823,988 16,823,885
</TABLE>
The automotive segment includes the manufacturing and sales of automotive safety
products for both domestic and foreign automobile manufacturers and
suppliers. The nonautomotive segment primarily includes the manufacture and
sale of propellant and explosive-actuated devices for the U.S. government and
prime contractors of the U.S. government and foreign governments, and also
includes the manufacture and sale of similar explosive-actuated devices for
commercial aircraft. Customer payments of accounts receivable are reasonably
prompt and collateral is not required.
Customers representing 10% or more of consolidated net sales in each of the
years 1996, 1995, and 1994 are as follows:
1996 1995 1994
-----------------------------------------------
U.S. government agencies 6% 5% 10%
Morton International 49% 57% 52%
Accounts receivable are summarized as follows:
1996 1995
---------------------------------------
Automotive $22,057,199 $14,208,599
Nonautomotive 7,902,962 9,670,896
---------------------------------------
$29,960,161 $23,879,495
=======================================
38
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Quarterly Results of Operations for 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
October 31 January 31 April 30 July 31
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Net sales $34,569,386 $36,738,105 $35,907,188 $45,594,830
Gross profit 12,052,280 13,924,542 14,028,163 10,851,554
Net earnings 6,087,489 6,157,981 6,581,744 6,715,269
Earnings per share $0.30 $0.30 $0.32 $0.33
1995
Net sales $28,015,886 $31,896,677 $33,979,628 $35,318,580
Gross profit 10,077,326 10,486,073 12,547,796 12,700,575
Net earnings 2,291,782 5,054,785 6,111,397 7,818,246
Earnings per share $0.11 $0.25 $0.30 $0.38
</TABLE>
39
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000073864
<NAME> OEA INC / DE/
<MULTIPLIER> 1
<CURRENCY> <blank>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 2,560,213
<SECURITIES> 0
<RECEIVABLES> 29,960,161
<ALLOWANCES> 0
<INVENTORY> 36,613,020
<CURRENT-ASSETS> 77,579,452
<PP&E> 154,946,472
<DEPRECIATION> 40,800,194
<TOTAL-ASSETS> 203,207,771
<CURRENT-LIABILITIES> 33,523,658
<BONDS> 0
0
0
<COMMON> 2,201,970
<OTHER-SE> 158,246,338
<TOTAL-LIABILITY-AND-EQUITY> 203,207,771
<SALES> 152,809,509
<TOTAL-REVENUES> 152,809,509
<CGS> 101,952,970
<TOTAL-COSTS> 113,743,241
<OTHER-EXPENSES> (1,616,739)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,388
<INCOME-PRETAX> 40,707,602
<INCOME-TAX> 15,165,119
<INCOME-CONTINUING> 25,542,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,542,483
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
