OEA, INC.
FORM 10-K
Fiscal Year Ended July 31, 1997
<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended July 31, 1997.
[ ] 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 1-6711.
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. [X].
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of October 2, 1997. Common
Stock, $.10 par value - $607,201,658.
The number of shares outstanding of the issuer's classes of
common stock as of October 2, 1997. Common Stock $.10 par
value - 20,552,438.
Documents Incorporated By Reference
Portions of the proxy statement for the annual shareholders
meeting to be held January 15, 1998, 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 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., and
Pyroindustrie S.A. OEA Automotive Safety Products consists of
the Inflator Division, the Initiator Division - Denver, and the
Initiator Division - Utah.
Explosive Technology, Inc. was acquired as a wholly owned
subsidiary of the Registrant on March 30, 1971. It was organized
as a California 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 ownership) with two French firms,
Aerospatiale and SNPE. Pyrospace was merged with another French
aerospace company, Pyromeca S.A., effective December 31, 1996,
creating a new entity, PyroAlliance S.A. OEA sold its 45%
ownership share of the original Pyrospace to SNPE (owner of
Pyromeca) for 25 million French francs (approximately $4.8
million) and 10% ownership in PyroAlliance.
Pyroindustrie S.A. was incorporated on June 21, 1994, in France
as a joint venture (80% OEA, 20% Pyrospace) with Pyrospace. On
January 1, 1996, OEA purchased the remaining 20% ownership from
Pyrospace and Pyroindustrie now operates as a wholly owned
subsidiary of OEA. Its facility is located 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 1997, except as mentioned above.
1
<PAGE>
Financial Information about Industry Segments
(in thousands)
<TABLE>
FY 1997 FY 1996 FY 1995
------------ ----------- ------------
Sales to Unaffiliated Customers
<S> <C> <C> <C>
Automotive $ 168,869 $ 115,587 $ 90,142
Nonautomotive 42,688 37,223 39,069
------------ ----------- ------------
Total $ 211,557 $ 152,810 $ 129,211
============ =========== ============
Inter-Segment Sales or Transfers
Automotive $ 20 $ 123 $ 121
Nonautomotive 141 139 117
------------ ----------- ------------
Total $ 161 $ 262 $ 238
============ =========== ============
Operating Profit
Automotive $ 45,522 $ 33,284 $ 27,936
Nonautomotive 4,037 5,782 6,991
------------ ----------- ------------
Total $ 49,559 $ 39,066 $ 34,927
============ =========== ============
Identifiable Assets
Automotive $ 275,153 $ 157,569 $ 115,910
Nonautomotive 56,403 45,639 44,992
------------ ----------- ------------
Total $ 331,556 $ 203,208 $ 160,902
============ =========== ============
</TABLE>
2
<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
propellant-actuated devices for use in automotive safety
products. The products currently in production are inflators and
electric initiators which are sold to automotive module and
inflator manufacturers, respectively.
The Company began mass-production of passenger inflators in April
1996, which have been well received by the market (3 million
inflators sold over the last year). Additionally,
mass-production of the Company's new passenger, driver, and
side-impact inflators began in July 1997. These products are
environmentally friendly and produce no dust or smoke. In
addition, the Company's inflators are less expensive than other
inflators in production.
The Company's principal officers and senior engineers represent
its sales force. The automotive segment accounted for
approximately 80%, 76%, and 70% of the Company's net sales for
fiscal years 1997, 1996, and 1995, respectively.
The Company uses highly automated equipment to produce inflators
in its Denver facilities and to produce initiators in three
manufacturing facilities located in Denver, Colorado; Tremonton,
Utah; and Les Mureaux, France. A significant investment in plant
and equipment was required by the Company to provide the
previously announced manufacturing goal of 8 million inflators in
fiscal year 1998. The majority of this equipment has been in
place for several months and is functioning as required.
Additional equipment will be installed during the first quarter
of fiscal 1998 and the new production facility will be fully
operational in the second quarter of fiscal 1998 with an annual
capacity of 15 million inflators.
Raw materials used by the Company include stamped and machined
parts, elastomeric seals, and commercially available
propellants. The Company is not dependent upon any one source
for purchased materials because alternate sources of supply are
available in the marketplace.
The Company's inflator is covered by several patents. Some of
the patents have been issued and others are pending relating to
technology used in the inflator. The initiator business is not
dependent upon patented items, trademarks, franchises,
concessions, or licenses.
The Company's business is not seasonal.
The automotive segment inventories have increased by $29.4
million during the year primarily due to 1) increased initiator
and inflator volume, 2) inventory build-up for product launch of
the Company's second generation passenger inflator, driver
inflator, and side-impact inflator, and 3) additional finished
goods inventory to support our customers' "just-in-time"
inventory environments. Customer payments are due on a current
basis and extended terms or collateral are not required.
3
<PAGE>
The Company's customers providing more than 10% of consolidated
sales for the fiscal year ended July 31, 1997, were Takata
Corporation with 24%, Delphi Interior & Lighting (a division of
General Motors) with 18%, and Autoliv ASP, Inc. (merged with
Morton International) with 17%. The loss of any of these
customers would have a materially adverse effect on the Company.
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 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
and a third payment received in 1997. OEA understands that
Daicel intends to manufacture OEA's inflators in August
1998, and initiators shortly thereafter.
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, Delphi
Interior & Lighting, and other customers to supply approximately
8 million passenger, driver, and side-impact inflators for model
year 1998. For additional information concerning forward-looking
statements see "Forward-Looking Statements."
The Company believes OEA is the only independent inflator
manufacturer in the world 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. For additional information
concerning forward-looking statements see "Forward-Looking
Statements."
The Company is aware of five major inflator manufacturers in the
world: Autoliv (merged with Morton International), TRW, Takata,
BAICO (a joint venture between Allied Signal Corporation and
Atlantic Research Corporation) and the Company.
There are two major automotive initiator manufacturers in the
United States: 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). The Company is currently one of the world's
leading producers of initiators for automotive air bags.
4
<PAGE>
Other companies may enter the automotive inflator and initiator
markets; 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.
The estimated amounts spent by the automotive segment during each
of the last three fiscal years for customer-sponsored and
company-sponsored research and development activities were:
<TABLE>
Customer- Company-
Sponsored Sponsored
<S> <C> <C>
Fiscal year 1997 $ 200,000 $1,428,000
Fiscal year 1996 500,000 4,400,000
Fiscal year 1995 500,000 3,300,000
</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 consolidated subsidiaries and
divisions, employs approximately 1,480 people in its automotive
segment.
Nonautomotive Products
The nonautomotive segment of the business is 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) devices for control, separation, ejection, and jettison of
missiles, and (4) flexible linear-shaped charges, mild detonating
cord systems and other 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 propellant-actuated valves, fluid control
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 20%, 24% and
30% of the Company's net sales for fiscal years 1997, 1996, and
1995, respectively.
The nonautomotive products are produced in Fairfield,
California. A smaller test facility is located in San Ramon,
California.
The Registrant's nonautomotive segment customers are primarily in
the defense and space fields under prime government contracts.
The major portion of this segment'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 nonautomotive 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.
5
<PAGE>
Raw materials used by the Company's nonautomotive segment include
aluminum, inconel, monel, molybdenum, rubbers, copper, alloy and
stainless steel, ceramics, silver, titanium alloys, certain
commercially available and special-order propellants and
explosives, elastomeric seals and epoxy-sealants. This segment
is not dependent upon any one source for purchased materials
because alternate sources of supply are available in the
marketplace.
The Registrant's nonautomotive 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 nonautomotive business is not seasonal.
Products are manufactured to order and are shipped according to
specified contract delivery dates. Inventories have increased by
$4.4 million in the nonautomotive segment because of a higher
funded backlog and anticipated higher sales in fiscal year 1998.
Customer payments are reasonably prompt and extended terms or
collateral 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, 1997. 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's
nonautomotive segment and its customers other than that of
supplier/customer.
The Company's nonautomotive funded backlog of orders as of July
31, 1997, was $52.4 million. The Company estimates that $3.6
million of its backlog will not be recorded as a sale within its
fiscal year ending July 31, 1998.
The majority of the nonautomotive 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 an unusual occurrence. In
addition, a significant portion of the Registrant'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.
Other companies, both larger and smaller than the Registrant,
also have capabilities and resources to design and develop
similar items. The Registrant is aware of eight competitors in
its nonautomotive field of propellant and explosive devices. No
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.
6
<PAGE>
The estimated amounts spent by the nonautomotive segment during
each of the last three fiscal years for customer-sponsored and
company-sponsored research and development activities were:
<TABLE>
Customer- Company-
Sponsored Sponsored
<S> <C> <C>
Fiscal year 1997 $3,400,000 $ 45,000
Fiscal year 1996 2,600,000 50,000
Fiscal year 1995 3,200,000 200,000
</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 500 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 Company's future sales in the automotive segment are expected
to consist increasingly of passenger, driver, and side-impact
inflators which 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 second quarter of fiscal year 1998. The Company's inflator
sales will depend on its continued success in manufacturing
inflators which meet the expectations of its customers in 1998
and increasing its penetration of the inflator market.
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.
7
<PAGE>
Financial Information about Foreign and Domestic Operations and Export Sales
(in thousands)
<TABLE>
Sales to Unaffiliated Customer FY 1997 FY 1996 FY 1995
---------- ---------- ----------
<S> <C> <C> <C>
United States $ 131,201 $ 117,386 $ 100,980
Foreign Sales
Asia 66,901 23,822 22,470
Europe 12,724 10,209 4,846
Other 731 1,393 915
---------- ---------- ---------
Total Foreign Sales 80,356 35,424 28,231
---------- ---------- ---------
Total Sales $ 211,557 $ 152,810 $ 129,211
========== ========== =========
</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.
8
<PAGE>
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 1997, automotive
operations were conducted in various one-story brick and steel
buildings containing 400,000 square feet of floor space in the
aggregate. This includes a 173,000 square foot inflator
manufacturing facility which was completed in December 1996.
The Fairfield, California, facilities are occupied by OEA
Aerospace, Inc., a wholly owned subsidiary of the Registrant.
Its 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 for the foreseeable future.
The property in Les Mureaux, France, consists of a 34,600 square
foot manufacturing facility located on 6 acres and is occupied by
Pyroindustrie S.A.. In 1997 the Company purchased a 74 acre
parcel of land upon which a new inflator facility will be built.
The existing and new facilities will accommodate the growing
demand for air bag initiators and inflators for the European
market for the foreseeable future.
The above-described properties are considered suitable and
adequate for the Registrant's operations.
Item 3 - Legal Proceedings
The Company is not involved in any legal proceedings which are
required to be reported herein.
Item 4 - Submission Of Matters To A Vote Of Security Holders
None
9
<PAGE>
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:
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
Fiscal Year 1997 High Low
1st Quarter 42.50 34.00
2nd Quarter 50.63 36.88
3rd Quarter 50.50 32.63
4th Quarter 40.88 34.00
(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 2, 1997, was 1,082.
(c) The Board of Directors has declared dividends during the
last three fiscal years as follows:
Amount
Declared Payable Per Share
November 4, 1994 December 9, 1994 $ .20
November 3, 1995 December 8, 1995 .25
November 1, 1996 December 10, 1996 .30
10
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Summary of Operations
(in thousands, except per-share data)
<TABLE>
1997 1996 1995 1994 1993
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 211,557 152,810 129,211 109,893 94,184
Operating Profit 49,559 39,066 34,927 30,071 23,633
Earnings Before Minority Interest
and Income Taxes 55,304 40,683 36,226 29,465 23,676
Minority Interest ---- 25 519 ---- ----
Income Taxes (19,863) (15,165) (15,469) (11,513) (9,105)
--------- --------- ---------- --------- ---------
Total Net Earnings $ 35,441 25,543 21,276 17,952 14,571
========= ========= ========== ========= =========
Total Earnings Per Share $ 1.73 1.25 1.04 .88 .72
========= ========= ========== ========= =========
Cash Dividends Per Share $ .30 .25 .20 .15 .12
========= ========= ========== ========= =========
Weighted Average Number of
Shares Outstanding During Year 20,540 20,499 20,480 20,439 20,376
========= ========= ========== ========= =========
Total Number of Shares
Outstanding at Year End 20,552 20,514 20,487 20,466 20,413
========= ========= ========== ========= =========
</TABLE>
Notes:
(1)On December 13, 1994, the Company reached a final settlement in its
previously reported environmental matters in the net amount of
$2,250,000 which equates to $0.11 per share.
11
<PAGE>
Balance Sheet Data at July 31,
(in thousands, except per-share data)
1997 1996 1995 1994 1993
---------- ---------- ----------- ---------- ----------
<TABLE>
<S> <C> <C> <C> <C> <C>
Current Assets $ 127,319 77,579 74,871 62,389 60,914
Current Liabilities $ 36,031 33,524 12,160 8,883 11,944
Working Capital $ 91,288 44,055 62,711 53,506 48,970
Working Capital Ratio 3.5 to 1 2.3 to 1 6.2 to 1 7.0 to 1 5.1 to 1
Total Assets $ 331,556 203,208 160,902 135,315 123,178
Shareholders' Equity $ 186,778 160,448 140,352 121,854 106,801
Book Value Per Share $ 9.09 7.82 6.85 5.95 5.23
</TABLE>
12
<PAGE>
Item 7 - Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Results of Operations
Fiscal Year 1997 vs. 1996
Net sales and operating profits for the fiscal year ended July
31, 1997, were $211.6 million and $49.6 million, respectively,
compared to fiscal 1996 net sales of $152.8 million and operating
profits of $39.1 million. Net earnings and earnings per share
for fiscal year 1997 were $35.4 million and $1.73, respectively,
compared to fiscal 1996 net earnings of $25.5 million and
earnings per share of $1.25.
Consolidated gross margin did, however, decrease from 33.3% in
fiscal year 1996 to 27.6% in fiscal 1997. This principally
reflects a major shift in product mix in the automotive segment.
In fiscal year 1996, initiator sales represented 63% of total
automotive segment sales, whereas they represented only 36% of
total automotive segment sales in fiscal 1997. This shift is
directly related to the Company's increased inflator sales.
Initiators represent a more mature, higher-margin product line,
whereas inflators are in the early production and start-up stages
of the products' life cycles. As production increases and the
products mature, inflator margins are expected to increase. The
three new major product lines currently moving from the start-up
stage to the early production stage are: 1) the driver side
inflator, 2) the side-impact inflator, and 3) the second
generation passenger side inflator. Initial mass-production of
these inflators began late in the fourth quarter of fiscal 1997.
The Automotive Safety Products division was the primary
contributor to the sales and operating profit increases over
fiscal year 1996. Automotive sales and operating profit
increased 46% and 37%, respectively, due primarily to increased
volume. Nonautomotive sales increased 15%; however, operating
profit decreased 30% as a result of investments in new programs.
Total operating profit as a percentage of sales for fiscal year
1997 was 23%, compared to 26% for fiscal 1996.
Research and development expenditures decreased $2.9 million to
$1.5 million in fiscal year 1997, as compared to the prior year.
This is the result of the Company completing the development of
its driver side, side-impact, and second generation passenger
side inflators and shifting its resources to product launch.
Development costs for fiscal year 1998 are not expected to differ
materially from fiscal year 1997 levels.
Start-up costs of $10.6 million related to the recent product
launches of the Company's new hybrid inflators were capitalized
in the current year. These costs will be amortized on a
straight-line basis over a period not exceeding five years. On
April 22, 1997, the American Institute of Certified Public
Accountants (AICPA) issued an exposure draft of a proposed
Statement of Position entitled "Reporting on the Costs of
Start-up Activities" which would require entities to expense
costs of start-up activities as they are incurred effective for
fiscal years beginning after December 15, 1997. If the exposure
draft is enacted in its current form, the Company would be
required to expense start-up costs as incurred and to report the
initial adoption as a cumulative effect of a change in accounting
principle as described in Accounting Principles Board Opinion No.
20, "Accounting Changes," during the first quarter of its fiscal
year 1999. The cumulative effect upon adoption would result in a
one-time charge to income in an amount equal to the net book
value of the Company's start-up costs. A resulting benefit of
this accounting change is the discontinuance of amortization
expense in subsequent periods.
13
<PAGE>
Pyrospace S.A., the Company's foreign joint venture, was merged
with another French aerospace company, Pyromeca S.A., effective
December 31, 1996, creating a new entity, PyroAlliance S.A. OEA
sold its 45% ownership share of the original Pyrospace to SNPE
S.A. (owner of Pyromeca) for 25 million French francs
(approximately $4.8 million) and a 10% ownership in
PyroAlliance. This transaction resulted in a gain of
approximately $3.2 million, which is reflected in "Other Income."
Also included in "Other Income" in the current year is a $2
million royalty payment from Daicel Chemical Industries, Ltd.
This is the third annual payment under a fifteen year agreement
for the transfer of technology and manufacture of OEA's inflators
for passenger, driver and side-impact automotive air bags for
manufacture in Asia for the Asian market. Fiscal year 1996
"Other Income" included a $1 million payment under the same
agreement.
During fiscal year 1997, management has focused on permanent tax
reduction and tax deferral strategies. The strategies
implemented include a foreign sales corporation, OEA
International Sales, Inc., which was established to service the
Company's increasing sales to foreign customers, and a research
tax credit study regarding the development of hybrid inflators
which was prompted by recent court cases in which the IRS has
broadened its definition of "qualified R&D expenditures." This
resulted in a reduction of the effective tax rate from 37.3% in
fiscal year 1996 to 35.9% in the current year. Additionally,
management has undertaken a cost segregation study to accelerate
the tax depreciation on the Company's domestic production
facilities.
Automotive segment sales for fiscal year 1998 are expected to
increase significantly due to increased demand for driver,
passenger, and side-impact air bags. For additional information
concerning 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 Company anticipates nonautomotive
segment sales during fiscal year 1998 will increase due to
deliveries on a number of programs in the backlog and anticipated
new programs. For additional information concerning
forward-looking statements see "Forward-Looking Statements."
Fiscal Year 1996 vs. 1995
Net sales and operating profits for the fiscal year ended July
31, 1996, were $152.8 million and $39.1 million, respectively,
compared to fiscal 1995 net sales of $129.2 million and operating
profits of $34.9 million. Net earnings and earnings per share
for fiscal year 1996 were $25.5 million and $1.25, respectively,
compared to fiscal 1995 net earnings of $21.3 million and
earnings per share of $1.04.
14
<PAGE>
Consolidated gross margin did, however, decrease from 35.5% in
fiscal year 1995 to 33.3% in fiscal 1996. This was primarily
attributable to $3.2 million of revenue which is in dispute with
Morton International (recently merged into Autoliv). This amount
was not included in fiscal year 1996 revenue; however, management
believes this dispute will be successfully resolved.
Additionally, gross margin was impacted by expenses related to
initial production of the Company's inflator mass-production line
for first generation passenger side air bags, which began
production in the third quarter of fiscal year 1996.
The Automotive Safety Products division was the primary
contributor to the sales and operating profit increases over
fiscal year 1995. Automotive sales and operating profit
increased 28% and 19%, respectively, due primarily to 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 fiscal
1995. This performance was accomplished in spite of an increased
expenditure of funds for Company funded research and development
($4.4 million in 1996 vs. $3.5 million in 1995) primarily for
inflators for automotive air bags.
Liquidity and Capital Resources
The Company's working capital at July 31, 1997, increased to
$91.3 million, from $44.1 million at July 31, 1996, primarily due
to increased inflator production and renegotiation of the
terms of the bank borrowings to long-term debt.
During fiscal year 1997, the Company made capital expenditures
totaling $87.2 million, which compares with $45.5 million and
$19.9 million in fiscal years 1996 and 1995, respectively. These
capital expenditures were funded from bank borrowings. The
Company has capital expenditure commitments totaling
approximately $25.1 million for fiscal year 1998.
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. The Company had $93.2 million of long-term debt
against this credit facility at July 31, 1997. On September 10,
1997, the agreement was amended to increase the revolving credit
facility to $130 million. As of September 1997, borrowings on
the credit facility had increased to $111.4 million. Anticipated
working capital requirements, capital expenditures, and facility
expansions are expected to be met through bank borrowings from
the agreement mentioned above and from internally generated funds.
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 foreign 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.
15
<PAGE>
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.
16
<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 1998 annual shareholders' meeting to be filed
with the Securities and Exchange Commission prior to November 28,
1997.
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 1998 annual shareholders' meeting to be filed
with the Securities and Exchange Commission prior to November 28,
1997.
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 1998 annual shareholders' meeting to be filed
with the Securities and Exchange Commission prior to November 28,
1997.
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 1998 annual shareholders'
meeting to be filed with the Securities and Exchange Commission
prior to November 28, 1997.
17
<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, 1997 and 1996
Consolidated Statements of Earnings
Years ended July 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity
Years ended July 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows
Years ended July 31, 1997, 1996, and 1995
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).
Exhibit 21 - During fiscal year 1997, the Registrant
was the parent company of each of the
following described companies:
18
<PAGE>
Percent of
Corporation Outstanding Stock
Owned by Parent
OEA Aerospace, Inc. 100%
a California corporation, which owns 100%
of Aerotest Operations, Inc.,
a California corporation
Pyroindustrie S.A. 100%
a corporation in France
Foreign Corporate Percentage of
Joint Venture Ownership
PyroAlliance S.A.
a corporation in France
from December 1996 10%
Pyrospace S.A.
a corporation in France
through December 1996 45%
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, 1997.
None
19
<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 10, 1997
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, Principal
Board and Principal Executive Officer Operating Officer, and Director
George S. Ansell, Director J. Robert Burnett, Director
Philip E. Johnson, Director Lewis W. Watson, Director
J. Thompson McConathy, Vice President Jepson S. Fuller, Controller
of Finance and Principal Financial Officer
20
<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, 1997
OEA, Inc. and Subsidiaries
Denver, Colorado
21
<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, 1997 and 1996, and the
related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the three years in the period
ended July 31, 1997. 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, 1997
and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
July 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Denver, Colorado
September 18, 1997
22
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
July 31
1997 1996
-----------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,138 $ 2,560
Accounts receivable 45,099 29,960
Unbilled costs and accrued earnings 4,062 6,845
Inventories 70,406 36,613
Income taxes receivable 2,568 833
Prepaid expenses and other 1,046 768
-----------------------
Total current assets 127,319 77,579
Property, plant, and equipment:
Land and improvements 2,651 1,806
Buildings and improvements 52,449 40,657
Machinery and equipment 174,279 105,150
Furniture and fixtures 9,166 7,333
-----------------------
238,545 154,946
Accumulated depreciation and 54,651 40,800
amortization
-----------------------
183,894 114,146
Cash value of life insurance 317 317
Long-term receivable 3,000 3,000
Investment in foreign joint venture 2,323 3,402
Deferred charges, net of accumulated
amortization of $722 and $0 for 1997
and 1996, respectively 13,527 3,611
Other assets 1,176 1,153
=======================
Total assets $ 331,556 $ 203,208
=======================
</TABLE>
23
<PAGE>
July 31
1997 1996
------------------------
<TABLE>
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 27,043 $ 12,231
Bank borrowings - 14,000
Accrued expenses:
Salaries and wages 2,703 3,273
Profit sharing and pension contributions 2,143 1,389
Other 2,836 1,175
Deferred income taxes 1,306 1,456
------------------------
Total current liabilities 36,031 33,524
Long-term bank borrowings 93,200 -
Deferred income taxes 14,562 8,075
Other 985 1,161
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 2,202 2,202
22,019,700
Additional paid-in capital 12,956 12,467
Retained earnings 176,547 147,268
Treasury stock, 1,467,531 and
1,505,256 shares in 1997 and 1996,
respectively, at cost (2,164) (2,104)
Equity adjustment from translation (2,763) 615
------------------------
Total stockholders' equity 186,778 160,448
------------------------
Total liabilities and stockholders' $ 331,556 $ 203,208
equity
========================
</TABLE>
See accompanying notes.
24
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Statements of Earnings
(in thousands, except share data)
<TABLE>
Year ended July 31
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
Net sales $ 211,557 $ 152,810 $ 129,211
Cost of sales 153,153 101,953 83,399
---------------------------------
Gross profit 58,404 50,857 45,812
General and administrative expenses 7,372 7,375 7,378
Research and development expenses 1,473 4,416 3,507
---------------------------------
Operating profit 49,559 39,066 34,927
Other income (expense):
Interest income 248 685 770
Interest expense (102) (72) (26)
Equity in earnings of foreign
joint venture 302 573 282
Gain on sale of foreign joint venture 3,243 - -
Royalty income 2,255 1,299 3,342
Settlement of environmental matters - - (2,250)
Other, net (201) (868) (819)
------------------------------------
5,745 1,617 1,299
------------------------------------
Earnings before minority interest
and income taxes 55,304 40,683 36,226
Minority interest in net loss of
consolidated subsidiary - 25 519
------------------------------------
Earnings before income taxes 55,304 40,708 36,745
Income tax expense 19,863 15,165 15,469
------------------------------------
Net earnings $ 35,441 $ 25,543 $ 21,276
====================================
Net earnings per share $ 1.73 $ 1.25 $1.04
====================================
Weighted average number of shares
outstanding during year 20,539,993 20,499,373 20,480,060
=====================================
</TABLE>
See accompanying notes.
25
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
<TABLE>
Equity
Common Stock Additional Adjustment Total
--------------------- 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, 1994 22,019,700 $2,202 $11,878 $109,669 $ - $(1,895) $121,854
Issuance of 21,083
shares of treasury stock for - - 134 - - 26 160
options exercised
Net earnings - - - 21,276 - - 21,276
Cash dividends ($0.20 per share) - - - (4,096) - - (4,096)
Translation adjustment - - - - 1,158 - 1,158
------------------------------------------------------------------------------------------------
Balances at July 31, 1995 22,019,700 2,202 12,012 126,849 1,158 (1,869) 140,352
Purchase of 9,254
shares of common stock - - - - - (284) (284)
for treasury
Issuance of 37,070 shares
of treasury stock for
options exercised - - 455 - - 49 504
Net earnings - - - 25,543 - - 25,543
Cash dividends ($0.25 per share) - - - (5,124) - - (5,124)
Translation adjustment - - - - (543) - (543)
-------------------------------------------------------------------------------------------------
Balances at July 31, 1996 22,019,700 2,202 12,467 147,268 615 (2,104) 160,448
Purchase of 2,500
shares of common
stock for treasury - - - - - (117) (117)
Issuance of 40,225
shares of treasury
stock for options exercised - - 489 - - 57 546
Net earnings - - - 35,441 - - 35,441
Cash dividends ($0.30 per share) - - - (6,162) - - (6,162)
Translation adjustment - - - - (3,378) - (3,378)
-------------------------------------------------------------------------------------------------
Balances at July 31, 1997 22,019,700 $2,202 $12,956 $176,547 $(2,763) $(2,164) $186,778
=================================================================================================
</TABLE>
See accompanying notes.
26
<PAGE>
OEA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
Year ended July 31
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings $ 35,441 $ 25,543 $ 21,276
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Undistributed earnings of foreign joint venture (302) (572) (282)
Gain on sale of foreign joint venture (3,243) - -
Depreciation and amortization 15,597 10,186 7,471
Deferred income taxes 6,337 2,681 2,374
Minority interest in net loss of - (25) (519)
consolidated subsidiary
Increase (decrease) in deferrered compensation (177) - 122
Loss on sale of property, plant, and equipment 176 211 759
Changes in operating assets and liabilities:
Accounts receivable (16,127) (6,164) 2,553
Unbilled costs and accrued earnings 2,783 (2,871) (240)
Inventories (34,108) (11,989) 1,734
Prepaid expenses and other (40) (228) 310
Accounts payable and accrued expenses 17,323 7,075 3,417
Income taxes (1,735) 1,644 (2,661)
----------------------------------
Net cash provided by operating activities 21,925 25,491 36,314
Investing activities
Capital expenditures (87,197) (45,500) (19,912)
Cash proceeds from sale of joint venture 4,624 - -
Additions (reductions) to investments
in and advances to affiliates - (1,324) 1,976
Proceeds from sale of property, plant, - 40 68
and equipment
Decrease (increase) in cash value of life insurance - 46 (38)
Increase in deferred charges (10,639) (3,610) -
Increase in other assets, net (102) (792) -
----------------------------------
Net cash used in investing activities (93,314) (51,140) (17,906)
Financing activities
Purchase of common stock for treasury (117) (284) -
Proceeds from issuance of treasury stock 546 504 160
Increase in net bank borrowings 79,200 14,000 -
Payment of dividends (6,162) (5,124) (4,096)
----------------------------------
Net cash provided by (used in) financing activities 73,467 9,096 (3,936)
Effect of exchange rate changes on cash (500) (229) 23
----------------------------------
Net increase (decrease) in cash and cash equivalents 1,578 (16,782) 14,495
Cash and cash equivalents at beginning of year 2,560 19,342 4,847
----------------------------------
Cash and cash equivalents at end of year $ 4,138 $ 2,560 $ 19,342
==================================
Supplemental information:
Interest payments $ 2,348 $ 220 $ 25
Income tax payments 15,017 11,645 15,599
</TABLE>
See accompanying notes.
27
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 1997
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
wholly owned foreign operating subsidiary, Pyroindustrie S.A. All significant
intercompany balances and transactions have been eliminated.
The investment in affiliated companies in which the Company owns greater than
20%, but less than 50%, and can exercise significant influence over operating
and financial policies is accounted for under the equity method. The investment
in affiliated companies in which the Company does not have control or the
ability to exercise significant influence over operating and financial policies,
generally less than 20% ownership, is accounted for using the cost method
(see also Note 3).
Revenue Recognition
Sales of products within the automotive segment are recognized as shipments are
made. Sales of products within the nonautomotive 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.
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
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.
28
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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 $14.8 million, $10.2 million, and
$7.5 million in 1997, 1996, and 1995, respectively. Repairs and maintenance
charged to costs and expenses was $7.7 million, $5.1 million, and $5.0 million
in 1997, 1996, and 1995, 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 adopted Statement No. 121 in the first quarter of
fiscal year 1997. The effect of the adoption was not material.
Deferred Start-Up Costs
During the initial phase of product introduction 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
amortized on a straight-line basis over periods not exceeding five years.
Additions to deferred charges during 1997 relate to the launch of the Company's
second generation passenger, driver and side-impact hybrid inflators.
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.
29
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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 foreign
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.
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, 1997, 1996, and 1995 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.
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.
30
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Fair Value of Financial Instruments
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.
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.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation. These reclassifications had no impact on
the reported results of operations.
31
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Inventories
Inventories are summarized as follows (in thousands):
<TABLE>
July 31
1997 1996
-----------------------
<S> <C> <C>
Raw materials and component parts $39,786 $21,238
Work in process 21,107 11,752
Finished goods 9,513 3,623
=======================
$70,406 $36,613
=======================
</TABLE>
3. Investment in Foreign Joint Ventures
On October 5, 1986, the Company signed a joint venture agreement with two French
companies for the establishment of a company in France, Pyrospace S.A.
("Pyrospace"). Pyrospace is engaged in the design, development, and manufacture
of propellant and explosive devices for European space programs, as well as
aircraft and missiles. Effective December 31, 1996, Pyrospace was merged with
another French aerospace company, Pyromeca S.A., creating a new entity,
PyroAlliance S.A. The Company sold its original ownership share of Pyrospace
(45%) to SNPE S.A. (owner of Pyromeca S.A.) for 25 million French francs
(approximately $4.8 million) and a 10% ownership in PyroAlliance S.A. This
transaction resulted in a gain to the Company of approximately $3.2 million,
which is reflected in "Other Income."
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 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, 1997 totaled
$21.4 million.
4. Royalty Agreement
During 1995, the Company entered into a fifteen-year agreement with Daicel
Chemical Industries, Ltd., Tokyo, Japan ("Daicel"), for the transfer of
technology and supply of the Company's inflators for the passenger, driver and
side-impact automotive air bags. Royalty payments totaling $2.0 million, $1.0
million, and $3.0 million have been received related to this agreement during
1997, 1996, and 1995, respectively.
32
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. 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 July 31, 1997, the
total debt outstanding related to the revolving credit facility was $93.2
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.
As of September 18, 1997, borrowings on the credit facility have increased to
$111.4 million.
Interest costs incurred during 1997 were $3.6 million, including capitalized
interest of $3.5 million. The weighted average interest rate on bank borrowings
during fiscal year 1997 was 6.5%.
6. 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 of $2.3 million.
All amounts were paid in full as of September 1997.
33
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Commitments and Contingencies (continued)
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, 1997 and 1996.
The Company has commitments to purchase approximately $25.1 million of property,
plant, and equipment.
7. 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, 1997, 1996, and 1995 were $2.2 million, $1.4
million, and $1.5 million, 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.
8. 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 net deferred tax liabilities as of July 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
1997 1996
---------------------
<S> <C> <C>
Current deferred tax liabilities:
Unbilled receivables $ 309 $ 520
Inventory valuation 269 271
Prepaid expenses 272 203
Deferred income on Daicel 376 370
agreement
Other 224 124
---------------------
Total current deferred tax 1,450 1,488
liabilities
</TABLE>
34
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
8. Income Taxes (continued)
1997 1996
---------------------
<S> <C> <C>
Long-term deferred tax liabilities:
Plant and equipment $ 8,804 $6,194
Deferred income on Daicel 878 822
agreement
Deferred charges 5,174 1,381
Other - 39
---------------------
Total long-term deferred tax 14,856 8,436
liabilities
---------------------
Total deferred tax liabilities 16,306 9,924
Current deferred tax asset:
Other 144 32
Long-term deferred tax asset:
Deferred compensation 294 361
---------------------
Total deferred tax assets 438 393
---------------------
Net deferred tax liabilities $15,868 $9,531
=====================
</TABLE>
Components of income tax expense (benefit) are as follows (in thousands):
Current Deferred Total
-------------------------------
<TABLE>
<S> <C> <C> <C>
1997:
Federal $11,491 $5,515 $17,006
State 2,035 822 2,857
-------------------------------
$13,526 $6,337 $19,863
===============================
1996:
Federal $10,840 $2,303 $13,143
State 1,644 378 2,022
-------------------------------
$12,484 $2,681 $15,165
===============================
1995:
Federal $11,121 $2,461 $13,582
State 1,974 (87) 1,887
-------------------------------
$13,095 $2,374 $15,469
===============================
</TABLE>
35
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
Actual tax expense for 1997, 1996, and 1995 differs from "expected" tax expense
for those years (computed by applying the U.S. federal corporate tax rate of 35%
to earnings before income taxes) as follows (in thousands):
<TABLE>
1997 1996 1995
---------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $19,356 $14,248 $12,861
Increases (reductions) in taxes
resulting from:
State taxes, net of federal
income tax benefit 1,877 1,315 1,227
Sales to foreign customers (494) - -
Settlement of environmental - - 788
matters
Tax effect of joint venture (105) (297) 727
operations
Income tax credits (915) (175) (461)
Other 144 74 327
---------------------------
Actual tax expense $19,863 $15,165 $15,469
===========================
</TABLE>
9. Stock Options
The Company follows APB No. 25 and related interpretations in accounting for its
employee stock options, and has adopted the disclosure-only option under FASB
Statement No. 123, Accounting for Stock-Based Compensation. Accordingly, no
compensation cost for stock options has been recognized.
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. Employee and
Director stock options have a ten-year life from the date of the grant, except
that any options granted to a recipient who owns more than 10% of the total
36
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Stock Options (continued)
combined voting power of the stock of the Company have a five-year life from the
date of the grant. Shares may be granted from either authorized, but unissued,
common stock or issued shares reacquired and held as treasury stock.
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 ("Previous Employees' Plan"). 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. Options had a ten-year
life from the date of the grant, except that any option granted to a recipient
who owned more than 10% of the total combined voting power of the stock of the
Company had a five-year life from the date of the grant.
The following schedule shows the activity in each of these plans for the past
three years:
<TABLE>
Previous
Employees' Plan Employees' Plan Directors' Plan
Number of Weighted Number of Weighted Number of Weighted
Shares Avg Price Shares Avg Price Shares Avg Price
-------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding at 207,114 $14.09 - $ - - $ -
July 31, 1994
Granted - - - - - -
Exercised (21,083) 7.65 - - - -
Forfeited (10,336) 17.23 - - - -
--------- -------- --------
Options
outstanding at 175,695 14.67 - - - -
July 31, 1995
Granted - - 27,472 28.34 4,375 27.75
Exercised (36,870) 13.65 (200) 28.34 - -
Forfeited (8,311) 26.30 (2,000) 28.34 - -
--------- -------- --------
Options
outstanding at 130,514 14.21 25,272 28.34 4,375 27.75
July 31, 1996
Granted - - 25,800 38.34 4,375 45.13
Exercised (36,950) 12.11 (3,275) 28.34 - -
Forfeited (1,836) 24.20 (2,293) 33.31 - -
--------- -------- --------
Options
outstanding at 91,728 14.86 45,504 33.70 8,750 36.44
July 31, 1997
========== ======== ========
</TABLE>
The following schedule shows the exercise prices, the quantities, and the
weighted average remaining contractual lives for all options outstanding and
exercisable at July 31, 1997:
37
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
9. Stock Options (continued)
Weighted Average Number of Options Weighted Average
Exercise Price Outstanding Remaining Life (years)
---------------------------------------------------------------
<S> <C> <C> <C>
Previous Employees' Plan
$3.31 - $4.67 $ 4.10 42,844 0.9
$19.00 - $33.00 24.40 48,884 4.4
Employees' Plan
$28.00 - $41.66 33.76 45,504 8.2
Directors' Plan
$27.75 - $45.13 36.44 8,750 9.0
</TABLE>
If fair value accounting under Statement No. 123 had been adopted as of the
beginning of fiscal year 1996, the pro forma effects on net earnings and
earnings per share, as calculated using the Black-Scholes option-pricing model,
would have been as follows:
<TABLE>
Fiscal 1997 Fiscal 1996
---------------------------
<S> <C> <C>
Estimated fair value per share of
options granted to:
Employees $ 14.52 $ 11.09
Directors $ 17.40 $ 10.99
Effect on net earnings $(434,000) $(318,000)
Effect on earnings per share $ (0.02) $ (0.02)
Assumptions:
Annualized dividend yield 0.70% 0.72%
Common stock price volatility 35.40% 35.80%
Risk-free rate of return 5.87% 6.52%
Expected option term (years) 5.0 5.0
</TABLE>
38
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. 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 (in thousands):
<TABLE>
1997
-------------------------------------
Automotive Nonautomotive Total
-------------------------------------
<S> <C> <C> <C>
Net sales $168,869 $42,688 $211,557
Operating profit 45,522 4,037 49,559
Identifiable assets 275,153 56,403 331,556
Depreciation and
amortization expense 13,842 1,755 15,597
Capital expenditures 85,304 1,893 87,197
1996
-------------------------------------
Automotive Nonautomotive Total
-------------------------------------
Net sales $115,587 $37,223 $152,810
Operating profit 33,284 5,782 39,066
Identifiable assets 157,569 45,639 203,208
Depreciation and
amortization expense 9,049 1,137 10,186
Capital expenditures 44,550 950 45,500
1995
-------------------------------------
Automotive Nonautomotive Total
-------------------------------------
Net sales $ 90,142 $39,069 $129,211
Operating profit 27,936 6,991 34,927
Identifiable assets 115,910 44,992 160,902
Depreciation and
amortization expense 6,116 1,355 7,471
Capital expenditures 18,888 1,024 19,912
</TABLE>
39
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Segment Information and Major Customers (continued)
The automotive segment includes the design, development and manufacture of
propellant-actuated devices for the use in automotive safety products.
The products currently in production are inflators and electric initiators which
are sold to automotive module and inflator manufacturers. 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 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 are as follows:
<TABLE>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Takata Corporation 24% 6% 2%
Delphi Interior & Lighting 18% 2% 0%
Autoliv ASP, Inc.
(formerly Morton International) 17% 49% 57%
</TABLE>
Sales to foreign customers were 38%, 23%, and 22% of consolidated net sales for
the years 1997, 1996 and 1995, respectively, and consist primarily of sales to
Asian automotive module and inflator manufacturers.
Accounts receivable are summarized as follows (in thousands):
<TABLE>
1997 1996
-----------------------
<S> <C> <C>
Automotive $30,416 $22,057
Nonautomotive 14,683 7,903
=======================
$45,099 $29,960
=======================
</TABLE>
40
<PAGE>
OEA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
11. Quarterly Results of Operations (Unaudited) (in thousands)
October 31 January 31 April 30 July 31
-----------------------------------------------
1997
<S> <C> <C> <C> <C>
Net sales $45,340 $51,486 $54,397 $60,334
Gross profit 14,515 14,457 14,507 14,925
Net earnings 7,105 7,804 10,094 10,438
Earnings per share $ 0.35 $ 0.38 $ 0.49 $ 0.51
1996
Net sales $34,570 $36,738 $35,907 $45,595
Gross profit 12,052 13,925 14,028 10,852
Net earnings 6,088 6,158 6,582 6,715
Earnings per share $ 0.30 $ 0.30 $ 0.32 $ 0.33
</TABLE>
During the quarter ended April 30, 1997, the Company recorded a gain of $2.0
million net of tax, or $0.10 per share, related to the sale of its original
ownership share of Pyrospace.
During the quarter ended July 31, 1997, the Company recorded other income of
$1.8 million net of tax, or $0.09 per share, related to royalty payments
received under the technology transfer agreement with Daicel.
41
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000073864
<NAME> OEA INC / DE /
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 4,138,000
<SECURITIES> 0
<RECEIVABLES> 45,099,000
<ALLOWANCES> 0
<INVENTORY> 70,406,000
<CURRENT-ASSETS> 127,319,000
<PP&E> 238,545,000
<DEPRECIATION> 54,651,000
<TOTAL-ASSETS> 331,556,000
<CURRENT-LIABILITIES> 36,031,000
<BONDS> 0
0
0
<COMMON> 2,202,000
<OTHER-SE> 184,576,000
<TOTAL-LIABILITY-AND-EQUITY> 331,556,000
<SALES> 211,557,000
<TOTAL-REVENUES> 211,557,000
<CGS> 153,153,000
<TOTAL-COSTS> 161,998,000
<OTHER-EXPENSES> (5,745,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,000
<INCOME-PRETAX> 55,304,000
<INCOME-TAX> 19,863,000
<INCOME-CONTINUING> 35,441,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,441,000
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
