SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly period ended May 1, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Act of 1934
For the transition period from to
Commission file number 1-6711
OEA, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2362379
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P. O. Box 100488, Denver, Colorado 80250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 693-1248
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
20,594,757 Shares of Common Stock at June 10, 1998.
<PAGE>
INDEX
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets
May 1, 1998 (unaudited)
and July 31, 1997............................... 3
Consolidated Condensed Statements
of Earnings (unaudited)
Three Months and Nine Months
Ended May 1, 1998 and
April 30, 1997.................................. 4
Consolidated Condensed Statements
of Cash Flows (unaudited) Nine Months
Ended May 1, 1998 and
April 30, 1997.................................. 5
Notes to Consolidated Condensed Financial
Statements (unaudited) ......................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 8
<PAGE>
<TABLE>
OEA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
May July
1, 31,
1998 1997
------- -------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 3,282 $ 4,138
Accounts Receivable, Net 45,764 45,099
Unbilled Costs and Accrued Earnings 4,189 4,062
Income Taxes Receivable 12,098 2,568
Inventories
Raw Material and Component Parts 24,424 39,786
Work-in-Process 23,201 21,107
Finished Goods 17,490 9,513
------- -------
65,115 70,406
Prepaid Expenses and Other 1,587 1,046
------- -------
Total Current Assets 132,035 127,319
------- -------
Property, Plant and Equipment 265,345 238,545
Less: Accumulated Depreciation 63,463 54,651
------- -------
Property, Plant and Equipment, 201,882 183,894
Net
Cash Value of Life Insurance 20 317
Long-Term Receivable 3,000 3,000
Investment in Foreign Joint Venture 2,323 2,323
Deferred Charges --- 13,527
Other Assets 1,210 1,176
------- -------
Total Assets $ 340,470 $ 331,556
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 25,341 $ 27,043
Interest Payable 24 1,431
Accrued Expenses 5,896 6,251
Federal and State Income Taxes 1,306 1,306
------- -------
Total Current Liabilities 32,567 36,031
Long-term Bank Borrowings 135,000 93,200
Deferred Income Taxes 9,388 14,562
Other 978 985
------- -------
Total Liabilities 177,933 144,778
------- -------
Stockholders' Equity:
Common Stock - $.10 par value, Authorized 50,000,000 shares:
Issued - 22,019,700 shares 2,202 2,202
Additional Paid-In Capital 13,201 12,956
Retained Earnings 151,801 176,547
Less: Cost of Treasury Shares, (2,142) (2,164)
1,424,943 and 1,467,531
Equity Adjustment from Translation (2,525) (2,763)
------- -------
Total Stockholders' Equity 162,537 186,778
------- -------
Total Liabilities and $ 340,470 $ 331,556
Stockholders' Equity ======= =======
</TABLE>
<PAGE>
<TABLE>
OEA, INC.
CONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS (Unaudited)
(in thousands, except share data)
Three Months Ended Nine Months Ended
May 1, April May 1, April
30, 30,
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Sales $ 63,592 $ 54,397 $ 180,341 $ 151,223
Cost of Sales 76,500 39,890 174,976 107,744
-------- ------- -------- -------
Gross Profit (Loss) (12,908) 14,507 5,365 43,479
General and Administrative Expenses 4,236 1,740 8,239 5,264
Research and Development Expenses 274 109 951 1,376
-------- ------- -------- -------
Operating Profit (Loss) (17,418) 12,658 (3,825) 36,839
Other Income (Expense):
Interest Income 73 62 273 170
Interest Expense (1,749) (94) (4,125) (110)
Other, Net (4,107) 3,453 (4,243) 3,514
-------- ------- -------- -------
(5,783) 3,421 (8,095) 3,574
-------- ------- -------- -------
Earnings (Loss) Before Income (23,201) 16,079 (11,920) 40,413
Taxes
Federal and State Income Tax Expense (8,276) 5,985 (4,005) 15,409
(Benefit)
-------- ------- -------- -------
Net Earnings (Loss) Before
Cumulative Effect of a
Change in Accounting Principle $ (14,925)$ 10,094 $ (7,915) $ 25,004
Cumulative Effect of a Change in --- --- (10,040) ---
Accounting Principle
-------- ------- -------- -------
Net Earnings (Loss) $ (14,925)$ 10,094 $ (17,955)$ 25,004
======== ======= ======= ========
Earnings (Loss) per Share Before
Cumulative Effect of a
Change in Accounting Principle:
Earnings (Loss) per Share - $ (0.72) $ 0.49 $ (0.38) $ 1.22
Basic
Earnings (Loss) per Share - $ (0.72) $ 0.49 $ (0.38) $ 1.21
Diluted
Cumulative Effect of a Change in
Accounting Principle:
Earnings (Loss) per Share - --- --- (0.49) ---
Basic
Earnings (Loss) per Share - --- --- (0.49) ---
Diluted
-------- ------- -------- -------
Net Earnings (Loss) per Share:
Earnings (Loss) per Share - $ (0.72) $ 0.49 $ (0.87) $ 1.22
Basic
Earnings (Loss) per Share - $ (0.72) $ 0.49 $ (0.87) $ 1.21
Diluted ======== ======= ======= ========
<S> <C> <C> <C> <C>
Weighted Average Number of Shares 20,593,570 20,545,595 20,575,583 20,536,284
Outstanding - Basic ========= ========== ========= =========
Weighted Average Number of Shares 20,602,500 20,632,767 20,588,775 20,605,378
Outstanding - Diluted ========= ========== ========= =========
</TABLE>
<PAGE>
<TABLE>
OEA, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH
FLOWS (Unaudited)
(in thousands)
Nine Months Ended
May 1, April
30,
1998 1997
------- -------
Operating Activities:
<S> <C> <C>
Net Earnings $ (17,955) $ 25,004
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of foreign joint 10,040 ---
venture
Cumulative effect of a change in accounting --- (301)
principal
Depreciation and amortization --- (3,243)
Increase in deferred compensation payable 17,046 11,246
Loss on disposal of property, plant and --- 92
equipment
Changes in operating assets and liabilities: 4,709 ---
Accounts receivable
Unbilled costs and accrued earnings (469) (7,018)
Inventories (127) (53)
Prepaid expenses and other 5,342 (16,884)
Accounts payable and accrued expenses (537) 791
Income taxes payable (3,661) (652)
(8,749) 1,913
------- -------
Net cash provided by/(used in) 5,639 10,895
operating activities
Investing activities:
Capital expenditures --- 4,624
Proceeds from sale of property, plant, and (41,660) (58,856)
equipment
Increase in deferred charges 283 ---
Increase in other assets, net --- (7,428)
190 (6)
------- -------
------- -------
Net cash used in investing (41,187) (61,666)
activities
Financing activities:
Purchases of common stock for treasury (43) (117)
Proceeds from issuance of treasury stock 310 488
Increase in borrowings, net (6,791) (6,162)
41,800 61,000
------- -------
Net cash provided by financing 35,276 55,209
activities
Effect of exchange rate changes (584) (574)
on cash
------- -------
Net increase/(decrease) in cash (856) 3,864
and cash equivalents
Cash and cash equivalents at beginning of 4,138 2,560
period
------- -------
Cash and cash equivalents at end of period $ 3,282 $ 6,424
======= =======
</TABLE>
<PAGE>
Notes to Consolidated Condensed Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The unaudited financial statements furnished above have been restated to reflect
the early adoption of the AICPA's Statement of Position 98-5 "Reporting on the
Costs of Start-up Activities" (see Note 3 below). Additionally, the unaudited
financial statements reflect all other adjustments (consisting primarily of
normal recurring accruals) which are, in the opinion of OEA's management,
necessary for a fair statement of the results for the three-month and nine-month
periods ended May 1, 1998 and April 30, 1997. Certain amounts in the 1997
financial statements have been reclassified to conform with the 1998
presentation. These reclassifications had no impact on the reported results of
operations.
Refer to the Company's annual financial statements for the year ended July 31,
1997, for a description of the accounting policies, which have been continued
without change, except for the Company's policy with respect to deferred
start-up costs, as discussed at Note 3 below. Also, refer to the footnotes with
those financial statements for additional details of the Company's financial
condition, results of operations, and changes in financial position. The details
in those notes have not changed, except as a result of normal transactions in
the interim.
Note 2 - Earnings per Share
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
became effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has adopted
Statement No. 128 for all periods presented.
Earnings per share of common stock is computed on the basis of the weighted
average number of shares outstanding during the year. The dilutive effects on
reported basic earnings per share from the assumed exercise of stock options
outstanding were 8,930 shares and 13,192 shares, respectively, for the three
months and nine months ended May 1, 1998. The dilutive effects on reported basic
earnings per share were 87,172 shares and 69,094 shares, respectively, for the
prior-year periods.
Note 3 - Start-up Costs
In April 1998, the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-5, "Reporting on the Costs of Start-up Activities." This Statement requires
entities to expense costs of start-up activities as they are 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." Statement of Position No. 98-5 is effective for fiscal
years beginning after December 15, 1998. However, in July 1998 the Company
elected to adopt Statement of Position 98-5 retroactively to the first quarter
of fiscal 1998. This election required the restatement of fiscal 1998 quarterly
financial statements to reflect a $10 million cumulative effect of a change in
accounting principle in the first quarter and to expense start-up costs
previously capitalized during the year.
Note 4 - Recently Issued Pronouncements
In June 1997, the FASB issued Statement No. 130, Reporting
Comprehensive Income. The Statement establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Statement No. 130 will be effective for
fiscal years beginning after December 15, 1997. The Company will adopt Statement
No. 130 during the first quarter of fiscal year 1999, and does not expect the
impact to be material.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement requires public business
enterprises to report certain information about operating segments in complete
sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate, and their major customers.
Statement No. 131 will be effective for fiscal years beginning after December
15, 1997. The Company will adopt Statement No. 131 in its fiscal year 1999.
Note 5 - Bank Borrowings
On April 10, 1998, the Company entered into a $180 million Amended and Restated
Revolving Credit Agreement with a group of seven banks. This agreement was
amended on June 11, 1998. The Company's principal bank is acting as agent for
this agreement. At May 1, 1998, the Company had $135 million of long term debt
drawn down on this credit facility. All outstanding debt at May 1, 1998 is
classified as long-term since no portion is either due or expected to be
permanently repaid within the next twelve-month period. Please refer to
Management's Discussion and Analysis Liquidity and Capital Resources for further
information regarding this credit facility.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements within the meaning of
Section 27E of the Securities Exchange Act of 1934, as amended, including
statements regarding Company strategy, its soundness, the inflator and
initiator market, inflator and initiator demand, sales volume increases, the
benefits of cost reduction programs and improved manufacturing processes,
implementation of ERP systems, correction of quality issues, improved customer
relations, year 2000 compliance, as well as other statements or implications
regarding future events. Actual results or events may differ materially from
these forward-looking statements depending on a variety of factors. Reference
is made to the cautionary statements under the caption "Forward-Looking
Statements" in OEA's Annual Report on Form 10-K for the year ended July 31,
1997 and the Company's report on Form 8-K filed on June 4, 1998 for a
description of various factors that might cause OEA's actual results to differ
materially from those contemplated by such forward-looking statements.
A summary of the principal items included in the consolidated statements of
earnings is shown below:
<TABLE>
Three Months Ended
==============================================
May 1, 1998 April 30, 1997
Dollars Dollars
(in thousand%)of Sales (in thousand%)of Sales
--------------------- ----------------------
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales 63,592 100.0% 54,397 100.0%
Cost Of Sales 76,500 120.3% 39,890 73.3%
========= ========= ========== ==========
Gross Margin (12,908) (20.3%) 14,507 26.7%
General and
Administrative Expenses 4,236 6.7% 1,740 3.2%
Research and
Development Expenses 274 0.4% 109 0.2%
========= ========= ========== ==========
Operating Profit (Loss) (17,418) (27.4%) 12,658 23.3%
Other Income (Expense) (5,783) (9.1%) 3,421 6.3%
========= ========= ========== ==========
Earnings (Loss) Before Tax (23,201) (36.5%) 16,079 29.6%
Income Tax Expense (Benefit) (8,276) (13.0%) 5,985 11.0%
========= ========= ========== ==========
Net Earnings (Loss)
Before Cumulative Effect of a
Change in Accounting Principle (14,925) (23.5%) 10,094 18.6%
Cumulative Effect of a
Change in Accounting Principle --- --- --- ---
========= ========= ========== ==========
Net Earnings (Loss) (14,925) (23.5%) 10,094 18.6%
========= ========= ========== ==========
========= ========= ========== ==========
Nine Months Ended
==============================================
May 1, 1998 April 30, 1997
Dollars Dollars
(in thousand%)of Sales (in thousand%)of Sales
--------------------- ----------------------
--------- --------- ---------- ----------
Net Sales 180,341 100.0% 151,223 100.0%
Cost Of Sales 174,976 97.0% 107,744 71.2%
========= ========= ========== ==========
Gross Margin 5,365 3.0% 43,479 28.8%
General and
Administrative Expenses 8,239 4.6% 5,264 3.5%
Research and
Development Expenses 951 0.5% 1,376 0.9%
========= ========= ========== ==========
Operating Profit (Loss) (3,825) (2.1%) 36,839 24.4%
Other Income (Expense) (8,095) (4.5%) 3,574 2.4%
========= ========= ========== ==========
Earnings (Loss) Before Tax (11,920) (6.6%) 40,413 26.7%
Income Tax Expense (Benefit) (4,005) (2.2%) 15,409 10.2%
========= ========= ========== ==========
Net Earnings (Loss)
Before Cumulative Effect of a
Change in Accounting Principle (7,915) (4.4%) 25,004 16.5%
Cumulative Effect of a
Change in Accounting Principle (10,040) (5.6%) --- ---
========= ========= ========== ==========
Net Earnings (Loss) (17,955) (10.0%) 25,004 16.5%
========= ========= ========== ==========
</TABLE>
<PAGE>
NET SALES
Net sales increased 16.9% to $63.6 million for the three months ended May
1, 1998, and 19.3% for the nine months ended May 1, 1998, as compared to
the prior-year periods, due to increased sales in both the automotive and
nonautomotive segments. The automotive segment sales increased 17.6% ($7.8
million) to $52.2 million in the third quarter, and 18.7% ($22.8 million)
to $145.0 million for the first nine months, as compared to the prior
year. These increases were due to increases in inflator sales of $13.1
million and $41.1 million for the three and nine months ended May 1, 1998,
respectively, partially offset by lower initiator sales. The increased
inflator sales reflect continued strong customer acceptance of the
Company's inflator program and increased demand for air bags from both
domestic and foreign automobile manufacturers. The reduced initiator sales
resulted from a temporary (one year) reduction in demand from a major
customer. This customer has recently agreed to significantly increase its
commitments for next fiscal year (see "Settlement of Legal Claim" below
for further detail). The nonautomotive segment sales increased by 13.8%
($1.4 million) to $11.4 million for the third quarter, and 21.6% ($6.3
million) to $35.3 million for the first nine months, as compared to the
prior year. These were primarily due to increases in engineering
development contracts and the Delta satellite launcher program.
COST OF SALES
Cost of sales for the quarter and nine months ended May 1, 1998 were $76.5
million and $175.0 million, respectively, as compared to $39.9 million and
$107.7 million, respectively, for the quarter and nine months ended April
30, 1997. Automotive segment cost of sales for the quarter and nine months
ended May 1, 1998 were $65.6 million and $144.7 million, respectively, as
compared to $30.6 million and $83.8 million, respectively, for the quarter
and nine months ended April 30, 1997. These increases primarily reflect
increased inflator volume, partially offset by reduced initiator volume;
$3.6 million related to a parts shortage resulting in periodic production
shut-downs on the Company's passenger inflator lines; increased overhead
and other costs associated with the Company's new inflator production
facility, which is currently operating below target utilization; and $19.0
million in one-time charges (see "One-Time Charges" below).
Automotive segment cost of sales was additionally impacted by the adoption
of the AICPA's Statement of Position 98-5, "Reporting the Costs of
Start-up Activities." This resulted in expensing previously capitalized
inflator start-up costs totaling $.4 million and $6.5 million,
respectively, for the three and nine months ended May 1, 1998. These costs
were offset by the reversal of capitalized start-up amortization expense
in the amount of $1.2 million and $2.5 million, respectively, for the
three and nine month periods.
Nonautomotive segment cost of sales for the quarter and nine months ended
May 1, 1998 were $10.9 million and $30.3 million, respectively, as
compared to $9.3 million and $24.0 million, respectively, for the quarter
and nine months ended April 30, 1997. These increases primarily reflect
higher segment sales and $1.4 million in one-time charges (see "One-Time
Charges" below).
GROSS MARGIN
Gross margin was ($12.9) million and $5.4 million (-20.3% and 3.0% of net
sales), respectively, for the quarter and nine months ended May 1, 1998,
as compared to $14.5 million and $43.5 million (26.7% and 28.8% of net
sales), respectively, for the comparable prior-year periods. Automotive
segment gross margin was ($13.4) million and $.4 million (-25.7% and .3%
of net automotive sales), respectively, for the quarter and nine months
ended May 1, 1998, as compared to $13.8 million and $38.4 million (31.0%
and 31.4% of net automotive sales), respectively, for the comparable
prior-year periods. These decreases in gross margin were primarily due to
the increased inflator costs as discussed above, lower leverage of fixed
initiator costs due to reduced volume, adoption of SOP 98-5 relating to
start-up costs and $19.0 million in one-time charges (see "One-Time
Charges" below). Excluding the one-time charges, automotive segment gross
margins would have been $5.6 million and $19.4 million (10.7% and 13.4% of
net sales), respectively, for the quarter and nine months ended May 1,
1998.
Nonautomotive segment gross margins were $.5 million and $5.0 million
(4.4% and 14.1% of net nonautomotive sales), respectively, for the quarter
and nine months ended May 1, 1998, as compared to $.7 million and $5.1
million (7.4% and 17.5% of net nonautomotive sales), respectively, for the
comparable periods of the prior year. Excluding the $1.4 million one-time
charge, nonautomotive segment gross margins would have been $1.9 million
and $6.4 million (16.7% and 18.1% of net sales), respectively, for the
quarter and nine months ended May 1, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the quarter and nine months ended
May 1, 1998 were $4.2 million and $8.2 million (6.7% and 4.6% of net
sales), respectively, as compared to $1.7 million and $5.3 million (3.2%
and 3.5% of net sales), respectively, for the comparable periods of the
prior year. These increases were primarily due to a $1.8 million one-time
charge related to the settlement of a legal claim (see "One-Time Charges"
below). Excluding the one-time charge, general and administrative expenses
as a percentage of net sales would have been 3.8% and 3.5%, respectively,
for the quarter and nine months ended May 1, 1998.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter and nine months ended
May 1, 1998 were $.3 million and $1.0 million, respectively, as compared
to $.1 million and $1.4 million, respectively, for the comparable
prior-year periods. Development costs are not expected to increase
significantly from the current level for the remainder of fiscal year
1998.
OPERATING PROFIT
Operating profit (loss) for the quarter and nine months ended May 1, 1998
was ($17.4) million and ($3.8) million (-27.4% and -2.1% of net sales),
respectively, as compared to $12.7 million and $36.8 million (23.3% and
24.4% of net sales), respectively, for the comparable prior-year periods.
Excluding one-time charges, operating profit would have been $4.8 million
and $18.4 million (7.6% and 10.2% of net sales), respectively, for the
quarter and nine months ended May 1, 1998.
OTHER INCOME (EXPENSE)
Other expenses for the quarter and nine months ended May 1, 1998 were
($5.8) million and ($8.1) million, respectively, as compared to other
income of $3.4 million and $3.6 million, respectively, for the comparable
prior-year periods. The current-year periods include a $4.7 million
one-time charge for the disposal of idle and obsolete automotive segment
equipment (see "One-Time Charges" below), while the prior-year periods
include $3.2 million in income for the sale of the Company's foreign joint
venture, Pyrospace S.A. Additionally, the current year includes net
interest expense of $1.7 million and $3.9 million, respectively, for the
quarter and nine months ended May 1, 1998, as compared to $.0 million and
$.1 million, respectively, for the comparable prior-year periods. Interest
costs have increased due to the Company's higher debt level of $135.0
million on May 1, 1998, as compared to $75.0 million on April 30, 1997.
Additionally, the significant capital assets (i.e. building and equipment)
acquired in the prior year have been installed and placed in service in
the current year; therefore, the interest costs associated with these
assets are no longer being capitalized.
NET EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Net earnings (loss) before cumulative effect of a change in accounting
principle for the quarter and nine months ended May 1, 1998 were ($14.9)
million and ($7.9) million, respectively, as compared to $10.1 million and
$25.0 million for the comparable prior-year periods. Basic earnings (loss)
per share before cumulative effect of a change in accounting principle for
the quarter and nine months ended May 1, 1998 were ($.72) and ($.38),
respectively, as compared to $.49 and $1.22, respectively, for the
prior-year periods. Excluding one-time charges, net earnings before
cumulative effect of a change in accounting principle would have been $2.2
million and $9.2 million, respectively, and basic earnings per share
before cumulative effect of a change in accounting principle would have
been $.11 and $.45, respectively, for the quarter and nine months ended
May 1, 1998.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" (SOP 98-5). This Statement requires entities to
expense costs of start-up activities as they are 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." Start-up activities are defined broadly as those
one-time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new
process in an existing facility, or commencing some new operation.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
However, in July 1998 the Company elected to adopt it retroactively to the
first quarter of fiscal 1998. Accordingly, the fiscal 1998 quarterly
financial statements have been restated to expense start-up costs in the
net amount of $4.0 million for the nine months ended May 1, 1998 (see
"Cost of Sales" above). Additionally, the Company wrote off in the first
quarter the net book value ($10.0 million) of its start-up and related
costs included in the scope of SOP 98-5 as a one-time adjustment referred
to as a Cumulative Effect of a Change in Accounting Principle. The total
after-tax amount of these adjustments was $12.8 million for the nine
months ended May 1, 1998.
NET EARNINGS
Net earnings (loss) for the quarter and nine months ended May 1, 1998 were
($14.9) million and ($18.0) million, respectively, as compared to $10.1
million and $25.0 million for the comparable prior-year periods. Basic
earnings (loss) per share for the quarter and nine months ended May 1,
1998 were ($.72) and ($.87), respectively, as compared to $.49 and $1.22,
respectively, for the prior-year periods. Excluding one-time charges, net
earnings would have been $2.2 million and ($.8) million, respectively, and
basic earnings per share would have been $.11 and ($.04), respectively,
for the quarter and nine months ended May 1, 1998.
ONE-TIME CHARGES
The Company has recognized one-time charges in the fiscal 1998 third
quarter of $17.2 million, net of taxes, or $.84 per share. Explanations of
the more significant charges for the quarter are detailed below.
Inventory Adjustments
The Company booked inventory adjustments totaling $11.3 million ($7.3
million after tax) in the fiscal 1998 third quarter primarily related to
the start-up of its new inflator production lines. These adjustments
resulted from a combination of the rapid expansion of the inflator
program, including significant additions in personnel, and system
conversion issues associated with the implementation of a new, fully
integrated Enterprise Resource Planning (ERP) System for the Company's
automotive operations. The Company has completely re-implemented the ERP
system and has brought in consultants to review the system set-up and
procedures, and to re-train all employees. Management believes that this
problem is resolved; however, physical inventories will be taken each
quarter-end until it is fully demonstrated that the system is functioning
properly.
Disposal of Inflators
The Company disposed of early production inflators from its new facility
for a total cost of $3.9 million ($2.5 million after tax) in the quarter,
which includes both production and disposal costs. This resulted from a
very unusual quality issue that affected one in ten thousand units.
However, due to the unusual nature of the problem, the actual units
affected could not be identified. The Company's automotive products are
propellant-actuated, life-saving devices and only the highest level of
quality is acceptable. Therefore, all potentially affected units
(approximately 130,000 inflators) were disposed of to ensure that they
could not be installed in air bag modules or automobiles. Corrective
action, which management believes will prevent any future occurrences, was
implemented immediately and has been approved by the Company's customers.
Production and customer shipments have resumed.
Domestic Initiator Consolidation
The Company incurred costs totaling $5.1 million ($3.2 million after tax)
in the quarter related to the consolidation of its domestic initiator
production operations into its Utah facility. These costs consist of $.5
million for equipment and personnel relocation and a $4.6 million charge
for idled and/or obsolete equipment and inventory. This consolidation is
expected to generate significant annual cost savings, while maintaining
the Company's domestic initiator capacity of 45 million units.
Additionally, the Company's French facility has a capacity of 20 million
units, which supplies the European market and serves as a back up to its
domestic production.
Settlement of Legal Claim
In consideration of new business and improving relations, the Company
settled a lawsuit with a major initiator customer. This resulted in a
charge of $2.5 million ($1.6 million after tax) for trade receivables and
obsolete inventory. In return, its customer committed to significantly
higher initiator purchases in fiscal 1999. This resolution is an important
milestone toward improving the Company's relationship with this customer
and should benefit both its initiator and inflator operations.
Inflator Equipment Obsolescence
The Company wrote off $1.9 million ($1.2 million after tax) of low-volume
inflator production equipment. This equipment was originally purchased to
support customers' requirements by bridging the gap between prototype
production and high-volume production. Now that the Company's new
high-volume inflator production lines are becoming more efficient, this
low-volume production equipment has become idled and obsolete.
Aerospace Inventory Obsolescence
As the Company's aerospace business shifts from traditional
defense/government business to commercial business (satellites and
satellite launch vehicles), a more stringent obsolescence approach is
required. The new approach was adopted during the quarter and resulted in
a charge of $1.4 million ($.9 million after tax).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased during the quarter to $99.5
million from $107.5 at January 30, 1998. During the nine months ended May
1, 1998, the Company made capital expenditures totaling approximately
$41.7 million, which were funded from bank borrowings. On April 10, 1998,
the Company entered into a four-year, $180 million Amended and Restated
Revolving Credit Agreement with a group of seven banks. This agreement was
amended on June 11, 1998. The Company's principal bank is acting as agent
for this agreement. The interest rate (applicable margin plus federal
funds or LIBOR) is progressive and based upon the Company's ratio of
indebtedness to EBITDA. The margin will fluctuate up or down as determined
by the above ratio. At May 1, 1998, the interest rate was 6.26%. At the
Company's discretion, it may convert all or part of the total debt to
Eurodollar or Alternate Base Rate loan(s). This credit facility expires on
December 18, 2000, and provides for two twelve-month extensions to the
termination date. At May 1, 1998, the Company had $135.0 million of
long-term debt drawn down on this credit facility. Anticipated working
capital requirements, capital expenditures, and facility expansions are
expected to be met through bank borrowings and from internally generated
funds.
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 current assessments, the Company is progressing with its
modification and replacement of significant portions of its software so
that its computer systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with its modifications to
existing software and conversions of new software, the Year 2000 Issue
will 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, financial condition and
results of operations.
The Company is utilizing 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
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OEA, INC.
(Registrant)
October 27, 1998 /S/ J Thompson McConathy
Date J. Thompson McConathy
Vice President Finance
(Principal Financial and Accounting Officer)
October 27, 1998 /s/ Charles B Kafadar
Date Charles B. Kafadar
Chief Executive Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000073864
<NAME> OEA, INC./DE/
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> MAY-01-1998
<EXCHANGE-RATE> 1.00
<CASH> 3,282,000
<SECURITIES> 0
<RECEIVABLES> 45,764,000
<ALLOWANCES> 0
<INVENTORY> 65,115,000
<CURRENT-ASSETS> 132,035,000
<PP&E> 265,345,000
<DEPRECIATION> 63,463,000
<TOTAL-ASSETS> 340,470,000
<CURRENT-LIABILITIES> 32,567,000
<BONDS> 0
0
0
<COMMON> 2,202,000
<OTHER-SE> 160,335,000
<TOTAL-LIABILITY-AND-EQUITY> 340,470,000
<SALES> 180,341,000
<TOTAL-REVENUES> 180,341,000
<CGS> 174,976,000
<TOTAL-COSTS> 184,166,000
<OTHER-EXPENSES> 8,095,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,125,000
<INCOME-PRETAX> (11,920,000)
<INCOME-TAX> (4,005,000)
<INCOME-CONTINUING> (7,915,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (10,040,000)
<NET-INCOME> (17,955,000)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
