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 October 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934
For the transition period from to
Commission file number 1-6711
OEA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2362379
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P. O. Box 100488, Denver, Colorado 80250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 693-1248
(Former name, former address and former fiscal year, if changed since last
report)
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.
20,576,257 Shares of Common Stock at December 10, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Index to Financial Statements Page No.
Consolidated Condensed Balance Sheets
October 31, 1997 (unaudited)
and July 31, 1997......................... 2
Consolidated Condensed Statements
of Earnings (unaudited)
Three Months
Ended October 31, 1997 and 1996........... 3
Consolidated Condensed Statements
of Cash Flows (unaudited) Three Months
Ended October 31, 1997 and 1996........... 4
Notes to Consolidated Condensed Financial
Statements (Unaudited).................... 5
1
<PAGE>
<TABLE>
OEA, INC.
---------
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
October 31, 1997 July 31, 1997
---------------- -------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 4,554 $ 4,138
Accounts Receivable, Net 46,524 45,099
Unbilled Costs and Accrued Earnings 4,109 4,062
Income Taxes Receivable --- 2,568
Inventories
Raw Material and Component Parts 41,861 39,786
Work-in-Process 21,521 21,107
Finished Goods 11,000 9,513
------ -----
74,382 70,406
Prepaid Expenses and Other 2,007 1,046
----- -----
Total Current Assets 131,576 127,319
------- -------
Property, Plant and Equipment 260,172 238,545
Less: Accumulated Depreciation 59,840 54,651
------ ------
Property, Plant and Equipment, Net 200,332 183,894
Cash Value of Life Insurance 317 317
Long-Term Receivable 3,000 3,000
Investment in Foreign Joint Venture 2,323 2,323
Deferred Charges 15,910 13,527
Other Assets 1,201 1,176
----- -----
Total Assets $ 354,659 $ 331,556
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 17,714 $ 27,043
Interest Payable 1,714 1,431
Dividends Payable 6,800 ---
Accrued Expenses 4,388 6,251
Federal and State Income Taxes 1,436 1,306
----- -----
Total Current Liabilities 32,052 36,031
Long-term Bank Borrowings 120,000 93,200
Deferred Income Taxes 14,562 14,562
Other 985 985
--- ---
Total Liabilities 167,599 144,778
------- -------
Stockholders' Equity:
Common Stock - $.10 par value, Authorized 50,000,000 shares:
Issued - 22,019,700 shares 2,202 2,202
Additional Paid-In Capital 13,030 12,956
Retained Earnings 175,860 176,547
Less: Cost of Treasury Shares, 1,447,443 and 1,467,531 (2,176) (2,164)
Equity Adjustment from Translation (1,856) (2,763)
------ ------
Total Stockholders' Equity 187,060 186,778
------- -------
Total Liabilities and Stockholders' Equity $ 354,659 $ 331,556
=============== ================
</TABLE>
2
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<TABLE>
OEA, INC.
---------
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
(in thousands except share data)
Three Months Ended October 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Net Sales $ 57,335 $ 45,340
Cost of Sales 44,894 30,825
------ ------
Gross Profit 12,441 14,515
General and Administrative Expenses 1,885 1,574
Research and Development Expenses 301 1,183
--- -----
Operating Profit 10,255 11,758
Other Income (Expense):
Interest Income 131 44
Interest Expense (975) (13)
Other, Net 154 (114)
--- ----
(690) (83)
---- ---
Earnings Before Income Taxes 9,565 11,675
Federal and State Income Tax Expense 3,452 4,570
----- -----
Net Earnings $ 6,113 $ 7,105
================ ================
Earnings Per Share $ 0.30 $ 0.35
================ ================
Weighted Average Number of Shares Outstanding 20,557,178 20,520,151
========== ==========
</TABLE>
3
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<TABLE>
OEA, INC.
---------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Three Months Ended October 31,
1997 1996
--------------- ---------------
Operating Activities:
<S> <C> <C>
Net Earnings $ 6,113 $ 7,105
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of foreign joint venture --- (50)
Depreciation and amortization 5,353 3,618
Deferred income taxes --- ---
Increase in deferred compensation payable --- 31
Loss on disposal of property, plant and equipment 2 ---
Changes in operating assets and liabilities:
Accounts receivable (1,099) 1,633
Unbilled costs and accrued earnings (47) (1,412)
Inventories (3,862) (3,556)
Prepaid expenses and other (1,018) (203)
Accounts payable and accrued expenses (11,266) (8,813)
Income taxes payable 2,698 3,782
----- -----
Net cash provided by/(used in) operating activities (3,126) 2,135
Investing activities:
Capital expenditures (20,587) (7,077)
Proceeds from sale of property, plant, and equipment --- ---
Increase in deferred charges (2,564) (752)
Increase in other assets, net (35) (8)
--- --
Net cash used in investing activities (23,186) (7,837)
Financing activities:
Purchases of common stock for treasury (43) ---
Proceeds from issuance of treasury stock 105 210
Increase in borrowings, net 26,800 8,000
------ -----
Net cash provided by financing activities 26,862 8,210
Effect of exchange rate changes on cash (134) 16
---- --
Net increase/(decrease) in cash and cash equivalents 416 2,524
Cash and cash equivalents at beginning of period 4,138 2,560
----- -----
Cash and cash equivalents at end of period $ 4,554 $ 5,084
================ ================
</TABLE>
4
<PAGE>
Notes to Consolidated Condensed Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The unaudited financial statements furnished above reflect all adjustments
(consisting primarily of normal recurring accruals) which are, in the opinion of
OEA's management, necessary for a fair statement of the results for the
three-month period ended October 31, 1997.
Refer to the Company's annual financial statements for the year ended July 31,
1997, for a description of the accounting policies, which have been continued
without change. Also, refer to the footnotes with those financial statements for
additional details of the Company's financial condition, results of operations,
and changes in financial position. The details in those notes have not changed
except as a result of normal transactions in the interim.
Note 2 - 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 three months ended October 31, 1997 and 1996 would be insignificant.
In February 1997, the FASB issued Statement No. 128, Earnings per Share. The
statement simplifies the standards for computing earnings per share ("EPS"), and
requires the presentation of both basic and diluted EPS on the face of the
statement of earnings with supplementary disclosures. Statement No. 128 will be
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company will adopt Statement No. 128 in the
second quarter of fiscal 1998 and does not expect the impact on the calculation
of primary earnings per share and fully diluted earnings per share to be
material.
Note 3 - Recently Issued Pronouncements
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
The Statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Statement No. 130 will be effective for fiscal years beginning after December
15, 1997. The Company will adopt Statement No. 130 during the first quarter of
fiscal year 1999, and does not expect the impact to be material.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement requires public business
enterprises to report certain information about operating segments in complete
sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate, and their major customers.
Statement No. 131 will be effective for fiscal years beginning after December
15, 1997. The Company will adopt Statement No. 131 in its fiscal year 1999.
Note 4 - Bank Borrowings
On December 18, 1996, the Company entered into an unsecured, four-year, $100
million Revolving Credit Agreement with a group of four banks. This agreement
was amended on September 10, 1997 to increase the revolving credit facility to
$130 million. The interest rate is .625% above the federal funds rate when total
indebtedness is equal to or less than 30% of total capitalization and increases
to .7% above the federal funds rate when total indebtedness exceeds 30% of total
capitalization. Additionally, the Company pays an annual fee equal to .125% of
the banks' total commitment. At the Company's discretion, it may convert all or
part of the total debt to Eurodollar or Alternate Base Rate loan(s). The credit
facility expires on December 18, 2000, and provides for annual twelve-month
extensions to the termination date. At October 31, 1997, the total debt
outstanding related to the revolving credit facility was $120 million. All debt
relating to this facility is classified as long-term since no portion is either
due or expected to be permanently repaid within the next twelve-month period.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A summary of the period to period changes in the principal items included in the
consolidated statements of earnings is shown below:
<TABLE>
Comparisons of
Three Months
Ended October 31, 1997 and 1996
Increase (Decrease)
(in thousands)
<S> <C> <C>
Net Sales 11,995 26.5%
Cost of Sales 14,069 45.6%
General and
Administrative Expenses 311 19.8%
Research and
Development Expenses (882) (74.6%)
Net Earnings (992) (14.0%)
</TABLE>
6
<PAGE>
NET SALES
The 26.5% increase in sales for the three months ended October 31,
1997, as compared to the prior-year period, was due to increased sales
in both the automotive and nonautomotive segments. The automotive
segment sales increased 23.7% ($8.6 million) to $45.0 million primarily
due to 1) increased sales of OEA's first generation passenger side
inflator, 2) sales of OEA's driver side, side-impact and second
generation passenger side inflators, which began high-volume production
late in the fourth quarter of fiscal year 1997, and partially
offset by 3) a temporary reduction in initiator sales due to the timing
of customer releases. This reflects continued strong customer
acceptance of the Company's inflator program and increased demand for
air bags from both domestic and foreign automobile manufacturers. The
nonautomotive segment sales increased by 37.4% ($3.4 million) to $12.3
million for the first quarter, as compared to the prior-year period,
primarily due to increases in engineering development contracts, the
Delta satellite launcher program and the V-22 Osprey (tiltrotor
aircraft) program.
COST OF SALES
Cost of sales increased by 45.6% for the three months ended October 31,
1997, as compared to the prior-year period. Gross margins were $12.4
million, or 21.7% of sales, for the first quarter as compared to the
prior-year margin of $14.5 million, or 32.0% of sales. Gross margins in
both initiators and inflators were below prior-year levels in the
automotive segment. Initiator margins were down due to scheduled price
reductions and lower leverage of fixed costs as a result of lower
volume. Inflator costs were higher than in the prior-year period due to
the ramp-up of four new production lines. The new lines will increase
the annual production capacity for the Company's first generation
passenger side inflator from 3 million to 5 million units and will add
three new inflator product lines with an annual production capacity of
10 million units. These new product lines are 1) the driver's side
inflator, 2) the side-impact inflator, and 3) the second-generation
passenger side inflator. Production of the new inflator lines began
late in the fourth quarter of fiscal 1997 and the production ramp-up
will continue through the second quarter of fiscal 1998. Margins were
further impacted by the continuing shift in product mix from initiators
to inflators. In the first quarter of fiscal year 1997, initiator sales
represented 46.2% of total automotive segment sales, whereas they
represented only 26.3% of total automotive segment sales in the first
quarter of fiscal year 1998. Initiators represent a more mature, higher
margin product line, whereas inflators are in the early production and
start-up stages of the products' life cycle. As production and
productivity increase, inflator margins are expected to improve.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $0.3 million for the
three months ended October 31, 1997, as compared to the prior-year
period. This increase is primarily attributed to the increased activity
in the Company's inflator division. The expenses, as a percentage of
sales, were 3.3% in the first quarter of fiscal 1998 as compared to
3.5% for the prior-year period.
7
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs decreased by $0.9 million for the three
months ended October 31, 1997, as compared to the prior-year period.
The Company has shifted its resources from product research and
development to product launch for its driver side, side-impact, and
second-generation passenger side inflators. Development costs are not
expected to increase significantly for the remainder of fiscal year
1998.
NET EARNINGS
Net earnings decreased by $1.0 million, or 14.0%, for the three months
ended October 31, 1997, as compared to the prior-year period. This
reflects the higher costs associated with the product launch of the
Company's three new inflator product lines and the effects of its
changing product mix.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the quarter to $99.5
million. During the three-month period ended October 31, 1997, the
Company made capital expenditures totaling approximately $20.6 million,
which were funded from bank borrowings. On December 18, 1996, the
Company entered into a four-year, $100 million Revolving Credit
Agreement with a group of four banks. The Company's principal bank is
acting as agent for this agreement. On September 10, 1997, the
agreement was amended to increase the revolving credit facility to $130
million. The Company had $120 million of long-term debt against this
credit facility at October 31, 1997. Anticipated working capital
requirements, capital expenditures, and facility expansions are
expected to be met through bank borrowings under the revolving credit
agreement and from internally generated funds.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to
the Company's sales, earnings, market penetration, 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 Company's future sales in the automotive segment are expected to
consist increasingly of passenger, driver and side-impact inflators
that are being produced by the Company in new manufacturing facilities.
These facilities are currently in operation and will have the ability
to run at full capacity by the end of the second quarter of fiscal year
1998. The Company's future inflator sales and market penetration will
depend on its continued success in manufacturing inflators which meet
the expectations of its customers in 1998 and beyond.
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 and inflators, the Company believes
the actual quantity sold will vary based on its customers sales.
Governmental orders in the nonautomotive segment can be canceled or
terminated for the convenience of the government. In addition, future
technological developments could adversely impact sales of the
Company's products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
8
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
The Company sold 21,250 shares of unregistered common stock
pursuant to the exercise of options by four executive officers and
key employees in the first quarter of fiscal 1998 as follows:
Date Number Aggregate
of Sale of Shares Offering Price
----------- ------------ -----------------
8/29/97 1,250 $36,500
10/9/97 18,000 $59,625
10/15/97 500 $2,333
10/16/97 1,500 $7,000
Such sales were made pursuant to the exemption from registration
available under Section 4(2) of the Securities Act of 1993.
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
9
<PAGE>
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.
OEA, INC.
(Registrant)
December 12, 1997
Date J. Thompson McConathy
Vice President Finance
December 12, 1997
Date Charles B. Kafadar
President
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000073864
<NAME> OEA, INC./DE/
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 4,554,000
<SECURITIES> 0
<RECEIVABLES> 46,524,000
<ALLOWANCES> 0
<INVENTORY> 74,382,000
<CURRENT-ASSETS> 131,576,000
<PP&E> 260,172,000
<DEPRECIATION> 59,840,000
<TOTAL-ASSETS> 354,659,000
<CURRENT-LIABILITIES> 32,052,000
<BONDS> 0
0
0
<COMMON> 2,202,000
<OTHER-SE> 184,858,000
<TOTAL-LIABILITY-AND-EQUITY> 354,659,000
<SALES> 57,335,000
<TOTAL-REVENUES> 57,335,000
<CGS> 44,894,000
<TOTAL-COSTS> 47,080,000
<OTHER-EXPENSES> 690,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 975,000
<INCOME-PRETAX> 9,565,000
<INCOME-TAX> 3,452,000
<INCOME-CONTINUING> 6,113,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,113,000
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
