SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT - JUNE 4, 1998
(date of earliest event reported)
OEA, INC.
(exact name of registrant as specified in its charter)
COMMISSION FILE NO. 1-6711
DELAWARE 36-2362379
(state of incorporation) (I.R.S. Employer Identification No.)
34501 EAST QUINCY AVENUE
P.O. BOX 100488 80250
DENVER, COLORADO (Zip Code)
(address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 693-1248
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FORM 8-K
OEA, INC.
JUNE 4, 1998
ITEM 5. OTHER EVENTS.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, OEA, Inc. (the "Company") is hereby
filing cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company.
ITEM 7(c). EXHIBITS FILED.
Exhibit Number Description
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99.01 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OEA, INC.
By: /s/ J. Thompson McConathy
---------------------------------
J. Thompson McConathy
Vice President Finance
Dated: June 4, 1998
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Exhibit 99.01
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
OEA, Inc. ("OEA" or the "Company") may, in discussions of its future
plans, objectives, and expected performance in periodic reports filed by the
Company with the Securities and Exchange Commission (or documents incorporated
by reference therein) and in written and oral presentations made by the Company,
include projections or other forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 or Section 21E of the Securities
Exchange Act of 1934, as amended. Such projections and forward-looking
statements are based on assumptions which the Company believes are reasonable,
but are by their nature inherently uncertain. When used in the Company's
documents or oral presentations, the words "anticipate," "estimate," "project,"
"expect," "objective," "intend," and similar expressions are intended to
identify forward-looking statements. In all cases, there can be no assurance
that specified assumptions will prove correct or that projected events will
occur, and actual results could differ materially from those projected. In
addition to any assumptions and other factors referred to specifically in
connection with a forward-looking statement, factors that could cause the
Company's actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
RELIANCE ON MAJOR CUSTOMERS
A relatively small number of automotive parts companies represent a
significant portion of OEA's consolidated sales. Sales to Takata, Delphi,
Autoliv and Daicel represented approximately 24%, 18%, 17% and 7%, respectively,
in fiscal 1997 and 34%, 18%, 9% and 12%, respectively, in the first half of
fiscal 1998. The Company's expectations as to future sales are based upon
letters of intent, annual blanket purchase orders and forecasts received from
customers in the automotive segment and governmental orders received in the
nonautomotive segment. The total volumes associated with annual blanket purchase
orders are not binding on the Company's customers and actual quantities depend
upon weekly releases received from these customers. Accordingly, they are not
committed to purchase specified quantities of products from the Company.
Additionally, many of the Company's major automotive customers not only purchase
inflators and initiators from OEA, but also manufacture similar products for use
in their air bag modules and systems. There can be no assurance that these
customers will continue to purchase products from the Company at levels
consistent with previous purchases. Consequently, the failure by the Company to
develop relationships with significant new customers could have a material
adverse effect on the Company's business, its prospects, financial condition and
results of operations. Further, business or marketplace consolidations affecting
one or more of the Company's major customers could result in the loss of that
customer, which also could have a material adverse effect on the Company's
business, prospects, financial condition or results of operations. However,
because the Company's products have been designed into its customers air bag
modules and inflators, it believes the actual quantity sold will be relatively
proportionate with its customers sales for as long as those designs remain in
use. Governmental orders in the nonautomotive segment can be canceled or
terminated for the convenience of the government. A significant decline in sales
to these customers would have
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a material adverse effect on the Company's business, its prospects, financial
condition and results of operations.
DEPENDENCE ON THE AUTOMOTIVE INDUSTRY
Sales of products to the automotive industry accounted for approximately
80% of the Company's consolidated sales in both fiscal 1997 and the first half
of fiscal 1998 and are expected to continue at this level for the foreseeable
future. OEA's automotive customers are air bag inflator and air bag
module/systems manufacturers who, in turn, sell to automobile manufacturers.
Production volumes are dependent upon general economic conditions and the level
of consumer spending. The volume of automobile production in the North American,
European and Asian markets has fluctuated considerably year to year, and such
fluctuations may cause fluctuations in the demand for OEA's products. Future
declines in automobile production in any of these markets could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
Additionally, many automotive manufacturers and other companies in the
industry are unionized and may, from time to time, experience labor disruptions.
Any production disruptions at the Company's direct or indirect (i.e. automobile
manufacturers) customers could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
LONG LEAD TIMES FOR SALES
The Company typically competes for new business two to three years
before the introduction of new vehicle models to the public and upon the
redesign of existing models by automobile manufacturers. Due to this relatively
long lead time, it may be difficult for the Company to obtain new sales to
replace any unexpected decline in sales to existing customers. The failure of
the Company to obtain new business for new models or to retain or increase
business on redesigned existing models could adversely effect the Company's
business, prospects, financial condition and results of operations.
REGULATORY MATTERS
The automotive safety industry is subject to substantial regulation,
both in the United States and in many other countries, which may affect the
demand for OEA's products. These regulations are subject to frequent review by
applicable regulatory authorities and other governmental entities, and are
subject to change. In the United States, federal legislation requires
driver-side and passenger-side airbags in all new passenger cars effective
September 1, 1997, and in all new light vehicles (unloaded vehicle weight of
5,500 pounds or less) by September 1, 1998. Changes in regulations, including
permitting delays in implementing certain provisions regarding installation of
air bags under applicable U.S. regulations, could have a material impact on the
Company's financial condition and results of operations. Such regulations are
subject to a number of factors that are not within the control of the Company,
including adverse publicity regarding the safety risks of air bags to children
and small adults, domestic and foreign political developments, and litigation
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relating to automotive air bag products. There can be no assurance that
regulatory developments or adverse publicity will not adversely effect customer
demand for automotive safety products or OEA's automotive business. Such changes
could also result in slower increases, or in decreases, in demand for automotive
safety products in other countries. In November and December 1996, the U.S.
National Highway Traffic Safety Administration ("NHTSA") announced a series of
proposed and final regulations relating to air bags. The proposed regulations
include a phase-in of "smart" air bags that adjust deployment based on a number
of factors including certain characteristics of the seat occupant and the
severity of the crash. NHTSA has proposed certain regulations, to be in force
until the regulations requiring "smart" air bags take effect, relating to
de-powering of air bags (adopted in March 1997) and deactivation of air bags at
a customer's request (adopted in December 1997). The effect on the Company of
the above regulations or of future regulatory developments in the United States
or other countries is dependent upon many factors, some of which are outside the
Company's control and cannot be predicted. Such regulations could result in
additional capital expenditures by the Company, could require additional
technological improvements and could result in lower sales than would otherwise
be expected.
The Company uses various hazardous and toxic substances in its
manufacturing processes, including certain solvents, lubricants, and pyrotechnic
materials. The inadvertent release of any of these materials into the
environment could subject the Company to significant liability for clean-up
costs or fines, which could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
Additionally, the Company may be required to make significant expenditures to
ensure that the Company's facilities and operations continue to satisfy
environmental regulations and these regulations may become significantly more
stringent in the future.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success and ability to compete are dependent to a
significant degree on its proprietary technology. The Company relies on a number
of patents, trade secrets, licensing and non-disclosure agreements to protect
its technology. There can be no assurance that any patents now or hereafter
owned by the Company will afford protection against competitors that develop
similar technology. In addition, upon expiration of such patents, competitors
may develop and sell products based on technologies similar or equivalent to
those currently covered by the Company's patents. In addition, the laws of some
foreign countries do not protect the Company's patents and other proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent imitation of its products or technology, that the
Company's proprietary information will not become known to competitors, that the
Company can effectively protect its rights to unpatented proprietary information
or that the Company's competitors will not independently develop products or
technologies that are superior to the Company's products or technologies without
infringing on the Company's intellectual property rights. Although the Company
believes that its products and technology do not infringe on the proprietary
rights of others, there can be no assurance that third parties will not assert
infringement claims in the future.
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TECHNOLOGICAL CHANGE
The underlying technology for automotive occupant restraint systems has
been rapidly advancing in recent years. The Company believes that occupant
restraint systems will continue to change rapidly, with industry participants
seeking to develop and introduce significant systems improvements including
intelligent occupant restraint systems that will be able to react differently to
individual crash situations. The introduction of products that incorporate new
technologies and emergence of new industry standards can render existing
products obsolete and unmarketable. To compete successfully, the Company must
continue to design, develop and sell enhancements to existing products and new
products that provide higher levels of performance and reliability in a timely
manner, take advantage of technological advancements and changes in industry
standards and respond to new customer requirements. There can be no assurance
that the Company will successfully identify new product opportunities or will
achieve market acceptance of new products brought to market. Products developed
by others may render the Company's products obsolete or noncompetitive. Any
failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, any failure of the Company's products to
perform satisfactorily or any significant delay in product development or
introductions could have a material adverse effect on its business, prospects,
financial condition and results of operations. The Company believes that its
future success will depend, in part, upon its ability to enhance its existing
products and to develop new products that meet changing systems requirements
(regulatory, OEM and consumer), particularly requirements for intelligent
occupant restraint systems. There can be no assurance that the Company will meet
these objectives and any failure to do so could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
COMPETITION
The markets for automotive occupant restraint systems and components are
highly competitive. The Company faces continuous demand for new product features
and reduced prices.
Competition may be expected to result in price reductions and potentially in a
loss of market share, either of which would adversely effect the Company's
business, prospects, financial condition and results of operations. Many of the
Company's current and potential competitors have greater financial,
manufacturing, marketing, technological and other resources than the Company,
and longer standing relationships with customers than the Company. Certain of
the Company's principal customers, including Takata, Daicel, Autoliv, and TRW
compete with the Company with respect to certain of the Company's products and
services, and there can be no assurance that these companies will not expand the
range of products and services that they offer in competition with the Company.
There also can be no assurance that other customers will not offer competitive
products or services in the future. The Company expects competition to increase
in the future from existing competitors and from other companies that may enter
the Company's existing or future markets.
The Company believes that its ability to compete successfully depends on
numerous factors, both within and outside of its control, including
responsiveness to customers' needs, quality and reliability of the Company's and
its competitors' products and services, price, project management
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capabilities, technical subject matter expertise, the emergence of new industry
standards, the development of technical innovations, the attraction and
retention of qualified personnel, regulatory changes and general market and
economic conditions. A variety of potential actions by the Company's
competitors, including a reduction of product prices, announcement or
accelerated introduction of new or enhanced products, or cooperative
relationships among competitors, could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
There can be no assurance that the Company will be able to compete successfully
with existing or new competitors or will properly identify and address the
demands of new markets. The failure by the Company to adapt to emerging market
demands, respond to regulatory and technological changes or compete successfully
with existing and new competitors would have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
There can be no assurance that the Company will be able to continue to compete
successfully with its existing competitors or will be able to compete
successfully with new competitors.
PRICING PRESSURES ON OCCUPANT RESTRAINT SYSTEMS
The Company anticipates that the prices of automotive occupant restraint
systems and components such as those sold by the Company will continue to
decline over the next several years as a result of competitive pressures and OEM
requirements. Consistent with common industry practice, the Company expects to
quote fixed or maximum prices for certain long-term supply arrangements. The
Company's future profitability will depend upon, among other things, its ability
to continue to reduce its per-unit costs and maintain a cost structure,
internally and with its suppliers, that will enable it to offer competitive
prices to its customers. There can be no assurance that the Company will be
successful in reducing its per-unit costs at the same rate as prices decrease.
Additionally, the Company's future profitability may be influenced by its
success in designing and marketing technological improvements in components for
automotive occupant restraint systems.
MANUFACTURING RISKS
Future automotive segment sales are expected to consist increasingly of
passenger, driver and side-impact inflators produced in the Company's new
manufacturing facility. This facility is currently in operation. The Company has
committed substantial resources to this facility's operations and expects to
incur significant additional expenses or delays in connection with its attempt
to reach target production efficiencies. There can be no assurance that the
Company will be successful in overcoming the technological, engineering, quality
and management challenges associated with the high volume production of its
products, at any given volume, at acceptable costs, or on a timely or profitable
basis. Additionally, there can be no assurance that the anticipated level of
demand will occur or that the Company will not experience manufacturing
inefficiencies or the underutilization of its new facility.
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DEPENDENCE ON SUPPLIERS
In certain instances, the Company may be dependent on a single supplier
or multiple small suppliers for certain components. Delays or stoppages in the
delivery of components could result in the Company incurring significant premium
freight costs or being unable to supply complete products to its customers. In
addition to reduced sales due to reduced volume, such delays or stoppages could
result in the Company's customers having to halt their own production lines. In
this event, these customers may seek damages from the Company for losses
incurred due to its own lost production and would be likely to seek other
sources of supply. Any production disruptions at the Company could have a
material adverse effect on the Company's business, its prospects, financial
condition and results of operations.
WARRANTY, RECALL AND PRODUCT LIABILITY EXPOSURE
The Company warrants to its customers that its products are free from
defects and that they meet designated customer specifications. The Company's
customers, in turn, offer product warranties to their customers (OEM's), who
offer product warranties to the purchasers of vehicles. In certain instances of
common complaint, the automobile manufacturer will institute a vehicle recall or
will be required by a governmental agency to conduct a recall. As a result, the
Company may receive claims against it and requests for payment from its
customers to remedy complaints made by the purchasers of vehicles. There can be
no assurance that the Company will not incur substantial warranty or recall
expense in the future. Such complaints and the related expenses could have a
material adverse effect on the Company's relationship with its customers, its
business, prospects, financial condition and results of operations.
Additionally, the sale of air bag components entails an inherent risk of
product liability claims. The Company carries product liability insurance with
coverage limits that OEA management believes are sufficient to cover potential
product liability claims. However, a successful claim brought against the
Company resulting in a recovery in excess of its insurance coverage could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Defending such a suit, regardless of its
merits, could involve substantial expense and require the time and attention of
key management personnel, either of which could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. In addition, the Company's business reputation could be adversely
affected by product liability claims, regardless of their merit or the eventual
outcome of such claims.
ASIAN ECONOMIC CONDITIONS
Two of the Company's four largest customers are Japanese companies. The
Asian economic difficulties over this past year, along with other factors, have
caused the Japanese yen to further weaken in relation to the US dollar and major
European currencies. This effectively increases the cost to a Japanese company
of purchasing products from the US or Europe. Further weakening of the yen may
have an adverse effect on the Company's sales to its Asian customers, its
results of operations and its financial condition.
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EXCHANGE RATES
OEA has a wholly owned subsidiary, Pyroindustrie, S.A., in France that
produces automobile air bag initiators for the European market. In the future,
Pyroindustrie is expected to expand its operations by adding an inflator
production facility. Fluctuations in the relative value of US dollars and
certain other currencies may have a significant effect on the translation of the
results of foreign operations into US dollars for consolidated financial
statement purposes. The Company may implement currency-hedging strategies to
help offset the effects of these fluctuations.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results have fluctuated significantly in the
past and are likely to continue to fluctuate significantly in the future. The
Company's quarterly operating results may vary significantly depending on
factors such as the timing of significant orders, the level of sales by
automobile manufacturers, its reliance on several major customers, disruptions
caused by labor disputes or production or supply interruptions and the seasonal
patterns of its customers. The Company's expense levels are based in large part
on its expectations regarding future revenues and a significant portion of the
Company's expenses are fixed and cannot be adjusted in response to a shortfall
in quarterly revenues.
Based on all of the foregoing, the Company believes that future revenue,
expenses and operating results are likely to vary significantly from quarter to
quarter. As a result, quarter-to-quarter comparisons of operating results are
not necessarily meaningful or indicative of future performance. Furthermore, the
Company believes it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts or
investors. In such event, or in the event that adverse conditions prevail, or
are perceived to prevail, with respect to the Company's business or generally,
the market price of the Company's Common Stock would likely be materially
adversely affected.
STOCK PRICE VOLATILITY
The market price of the Company's Common Stock has been and may be
subject to future wide fluctuations in response to the operating results of the
Company or its competitors, actual or anticipated announcements of technical
innovations or new products by the Company or its competitors, contracts with
key customers, new agreement negotiations, changes in analysts' estimates of the
Company's financial performance, general industry conditions, worldwide economic
and financial conditions, and other events or factors which may be beyond the
Company's control. There can be no assurance that the market price of OEA's
Common Stock will not decline below its current level. Additionally, the stock
market has experienced extreme price and volume fluctuations, which have
particularly effected the market price of many technology companies and which
have often been unrelated to the operating performance of such companies. Those
broad market fluctuations and other factors may adversely effect the market
price of the Company's Common Stock.
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MANAGING GROWTH
The Company is experiencing a period of significant growth. Its ability
to manage this growth effectively requires enhancements to its operational,
financial and management information systems and personnel. These enhancements
have been and are being addressed by OEA management. There can be no assurance
that these systems will be implemented without delays or that they will function
as designed. Delays or failures in these systems, failure to successfully
integrate and train new management and personnel or other failure to manage its
growth effectively, could have a material adverse effect on the Company's
business, prospects, financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the efforts of its senior
management team, the loss of any of whom could impede the achievement of
production, product development and marketing objectives and would have a
material adverse effect on the Company. The Company believes that its future
success will depend in large part on its ability to attract and retain qualified
technical personnel for whom there is intense competition in the areas of the
Company's activities. There can be no assurance that the Company will be able to
attract and retain the personnel necessary for the development and integration
of its business. Delays in hiring such personnel could delay the achievement of
the Company's objectives. The loss of the services of key personnel or the
failure to attract additional personnel as required could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to maintain traceability,
process transactions, send invoices, or engage in similar normal business
activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace significant portions of its software so that its
computer systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with modifications to existing software and
conversions of new software, the Year 2000 Issue can be mitigated. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Issue could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
The Company will utilize both internal and external resources to modify,
replace and test its software for Year 2000 compliance. The Company plans to
complete the Year 2000 project by July 1999. To date, the Company has incurred
approximately $1 million related to the assessment of, and
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efforts in connection with, its Year 2000 project. Approximately 75% of which
are capitalized costs related to the purchase and implementation of new computer
software and hardware. The total remaining costs for this project are currently
being assessed and are unknown at this time.
The estimated completion date of the project is based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
this estimate will be achieved and actual results could differ materially from
this plan. Specific factors that might cause such material differences include,
but are not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes, and similar
uncertainties.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company recently adopted a Common Stock Purchase Rights Plan (the
"Rights Plan") intended to protect stockholders from an unsolicited attempt to
acquire the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of Delaware General Corporation Law, which prohibit
the Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in the prescribed manner. The application of the Rights
Plan, Section 203 and certain provisions of the Company's Certificate of
Incorporation and Bylaws may have the effect of delaying or preventing changes
in control of management of the Company, which could adversely affect the market
price of the Company's Common Stock by discouraging or preventing takeover
attempts that might result in the payment of a premium price to the Company's
stockholders.
COMPANY PLANS AND STRATEGIES
Certain of the forward-looking statements made by the Company depend in
part upon the plans and strategies of the Company at the time such statements
are made. Any such statements represent only the expectations and intentions of
the Company at the time such statements are made. Such plans and strategies may
change from time to time depending on a variety of factors including factors
both internal and external to the Company, including those identified above.
Company plans and strategies may also be changed on the basis of management's
business judgment regarding potential risks and benefits of any activity.
Although the Company believes that the assumptions and expectations are
reflected in any forward-looking statements made by it or on its behalf are
reasonable at the time such statements are made, it can give no assurance that
such expectations will prove to have been correct or that the Company will take
any actions that may be planned at the time such statements are made. Any
forward-looking statement made by the Company is based on information available
to the Company on the date such statement is made, and the Company assumes no
obligation to update such forward-looking statements.
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