FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly period ended January 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Act of 1934
For the transition period from to
Commission file number 1-6711
OEA,INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2362379
(State or other jurisdiction of (I.R.S.Employer Identification
incorporation or organization) Number)
P. O. Box 100488, Denver, Colorado 80250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 693-1248
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
20,544,919 Shares of Common Stock at March 7, 1997.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Index to Financial Statements Page No.
Consolidated Condensed Balance Sheets
January 31, 1997 (unaudited)
and July 31, 1996............................... 2
Consolidated Condensed Statements
of Earnings (unaudited)
Three Months and Six Months
Ended January 31, 1997 and 1996................. 3
Consolidated Condensed Statements
of Cash Flows (unaudited) Six Months
Ended January 31, 1997 and 1996................. 4
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OEA, INC.
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CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
January 31, 1997 July 31, 1996
---------------- -------------
(Unaudited)
Current Assets:
Cash and Cash Equivalents $ 2,817,870 $ 2,560,213
Accounts Receivable, Net 33,570,969 29,960,161
Unbilled Costs and Accrued Earnings 7,462,100 6,845,200
Income Taxes Receivable --- 832,906
Inventories
Raw Material and Component Parts 22,885,256 21,238,135
Work-in-Process 16,611,844 11,751,544
Finished Goods 4,733,372 3,623,341
------------- -------------
44,230,472 36,613,020
Prepaid Expenses and Other Current Assets 741,613 767,952
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Total Current Assets 88,823,024 77,579,452
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Cash Value of Life Insurance 317,094 317,094
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Property, Plant and Equipment 192,646,186 154,946,472
Less: Accumulated Depreciation 47,578,619 40,800,194
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Property, Plant and Equipment,Net 145,067,567 114,146,278
Long-Term Receivable 3,000,000 3,000,000
Investment in Foreign Joint Venture 3,703,501 3,402,230
Deferred Charges 7,169,745 3,610,300
Other Assets 1,135,490 1,152,417
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Total Assets $ 249,216,421 $ 203,207,771
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 8,154,234 $ 12,230,628
Bank Borrowings --- 14,000,000
Accrued Expenses 3,063,487 5,630,624
Deferred Income 206,168 206,168
Federal and State Income Taxes 2,386,449 1,456,238
------------- -------------
Total Current Liabilities 13,810,338 33,523,658
Bank Borrowings 58,000,000 ---
Deferred Compensation Payable 1,005,491 944,339
Deferred Income Taxes 8,074,731 8,074,731
Deferred Income 216,735 216,735
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Total Liabilities 81,107,295 42,759,463
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Stockholders' Equity:
Common Stock - $.10 par value, Authorized 50,000,000 shares:
Issued - 22,019,700 shares 2,201,970 2,201,970
Additional Paid-In Capital 12,781,213 12,467,556
Retained Earnings 155,915,317 147,267,964
Less: Cost of Treasury Shares, 1,475,681 and 1,505,256 (2,175,929) (2,104,218)
Equity Adjustment from Translation (613,445) 615,036
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Total Stockholders' Equity 168,109,126 160,448,308
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Total Liabilities and Stockholders' Equity $ 249,216,421 $ 203,207,771
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2
OEA, INC.
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CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended January 31, Six Months Ended January 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net Sales $ 51,486,209 $ 36,738,105 $ 96,825,917 $ 71,307,491
Cost of Sales 37,029,068 22,813,563 67,853,484 45,330,669
------------- ------------- ------------- -------------
Gross Profit 14,457,141 13,924,542 28,972,433 25,976,822
General and Administrative Expenses 1,950,424 1,883,216 3,524,257 3,515,535
Research and Development Expenses 82,956 2,088,795 1,266,623 2,858,271
------------- ------------- ------------- -------------
Operating Profit 12,423,761 9,952,531 24,181,553 19,603,016
Other Income (Expense):
Interest Income 63,460 228,701 108,000 544,214
Interest Expense (2,760) (57,059) (16,079) (70,063)
Other, Net 174,005 (86,403) 60,205 (211,553)
------------- ------------- ------------- -------------
234,705 85,239 152,126 262,598
------------- ------------- ------------- -------------
Earnings Before Minority Interest and 12,658,466 10,037,770 24,333,679 19,865,614
Income Taxes
Minority Interest in Net Loss of Consolidated --- 28,233 --- 24,594
Subsidiary
------------- ------------- ------------- -------------
Earnings Before Income Taxes 12,658,466 10,066,003 24,333,679 19,890,208
Federal and State Income Tax Expense 4,854,082 3,908,022 9,424,120 7,644,738
------------- ------------- ------------- -------------
Net Earnings $ 7,804,384 $ 6,157,981 $ 14,909,559 $ 12,245,470
============= ============= ============= =============
Earnings Per Share $ 0.38 $ 0.30 $ 0.73 $ 0.60
============= ============= ============= =============
Weighted Average Number of Shares Outstanding 20,541,348 20,495,789 20,531,781 20,491,894
============= ============= ============= =============
3
OEA, INC.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended January 31,
1997 1996
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Operating Activities:
Net Earnings $ 14,909,559 $ 12,245,470
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of foreign joint venture (301,271) (135,140)
Depreciation and amortization 7,387,885 5,011,949
Increase in deferred compensation payable 61,152 61,152
Loss on disposal of property, plant and equipment --- 94,331
Changes in operating assets and liabilities:
Accounts receivable (3,012,227) 3,376,498
Unbilled costs and accrued earnings (616,900) (4,156,100)
Inventories (7,769,112) (5,361,468)
Prepaid expenses and other 19,022 (18,398)
Accounts payable and accrued expenses (6,377,577) (682,718)
Minority interest in loss of consolidated subsidiary --- (24,594)
Income taxes payable 930,212 (211,317)
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Net cash provided by operating activities 5,230,743 10,199,665
Investing activities:
Reductions to investments in and advances to affiliates --- (1,324,010)
Capital expenditures (38,930,502) (15,458,629)
Proceeds from sale of property, plant, and equipment --- 12,800
Increase in start-up costs (3,920,475) ---
Increase in other assets, net (22,634) (535,933)
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Net cash used in investing activities (42,873,611) (17,305,772)
Financing activities:
Purchases of common stock for treasury (116,875) (164,459)
Proceeds from issuance of treasury stock 358,820 276,378
Payment of dividends (6,162,208) (5,124,289)
Increase in borrowings, net 44,000,000 ---
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Net cash provided by financing activities 38,079,737 (5,012,370)
Effect of exchange rate changes on cash (179,212) (292,093)
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Net increase/(decrease) in cash and cash 257,657 (12,410,570)
equivalents
Cash and cash equivalents at beginning of period 2,560,213 19,342,034
------------- -------------
Cash and cash equivalents at end of period $ 2,817,870 $ 6,931,464
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4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A summary of the period to period changes in the principal items included in the
consolidated statements of earnings is shown below:
Comparisons of
----------------------------------------------------
Three Months Six Months
Ended January 31, Ended January 31,
1997 and 1996 1997 and 1996
Increase (Decrease) Increase (Decrease)
------------------- -------------------
Net Sales $14,748,104 40.1% 25,518,426 35.8%
Cost of Sales 14,215,505 62.3% 22,522,815 49.7%
General and
Administrative
Expenses 67,208 3.6% 8,722 0.2%
Research and
Development
Expenses (2,005,839) (96.0%) (1,591,648) (55.7%)
Net Earnings 1,646,403 26.7% 2,664,089 21.8%
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NET SALES
The 40.1% increase in sales for the three months ended January 31,
1997, and the 35.8% increase for the six months ended January 31, 1997,
as compared to prior-year periods, were primarily due to the sales of
OEA's first generation hybrid inflator for passenger side air bags,
which began high-volume production in the third quarter of fiscal year
1996. Automotive segment sales increased by 53.2% for the second
quarter and by 49.9% for the first half due to strong customer
acceptance of the Company's hybrid inflator program and to increased
demand for air bags from both domestic and foreign automobile
manufacturers. Nonautomotive segment sales increased by 3.6% for the
second quarter and decreased by 2.0% for the first half of fiscal year
1997, as compared to the prior-year periods.
COST OF SALES
Cost of sales increased by 62.3% for the three months ended January 31,
1997, and by 49.7% for the six months ended January 31, 1997, as
compared to the prior-year periods. Gross margins were $14,457,100, or
28.1% of sales, for the second quarter and $28,972,400, or 29.9% of
sales, for the first half of fiscal year 1997 as compared to prior-year
margins of $13,924,500, or 37.9% of sales, for the second quarter and
$25,976,800, or 36.4% of sales, for the first half. This reflects a
major shift in product mix in the automotive segment. In the fiscal
year 1996 period, initiator sales represented a significantly higher
percentage of total automotive segment sales than for the six months
ended January 31, 1997. This decrease was directly related to
increased hybrid inflator sales. Initiators represent a more mature,
higher margin product line, whereas hybrid inflators are in the early
production and start-up stages of the products' life cycle. As
production increases and the products mature, hybrid inflator margins
are expected to improve. The three new major product lines currently
in the start-up stage are: 1)the driver's side hybrid inflator, 2)the
side-impact hybrid inflator, and 3)the second generation passenger side
hybrid inflator. The Company is currently in a low-volume production
mode for these three products. This further reduces margins because
low-volume production has significantly higher costs per unit than
high-volume production; however, it is an essential bridge in the
Company's rapid ramp-up to high-volume production of hybrid inflators.
Initial high-volume production of these hybrid inflators is scheduled
for the fourth quarter of fiscal year 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses remained flat for the three months
and for the six months ended January 31, 1997, as compared to the
prior-year periods. The expenses, as a percentage of sales, were as
follows:
Three Months ended January 31, 1996 and 1997 5.1% to 3.8%
Six Months ended January 31, 1996 and 1997 4.9% to 3.6%
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RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs decreased by $2,005,800 for the three
months ended January 31, 1997, and $1,591,600 for the six months ended
January 31, 1997, as compared to the prior-year periods. The Company
has temporarily shifted its resources from product research and
development to product launch for its driver's side hybrid inflator,
its side-impact hybrid inflator, and its second generation passenger
side hybrid inflator. Development costs are expected to remain at a low
level for the remainder of fiscal year 1997.
NET EARNINGS
Net earnings increased by $1,646,400, or 26.7%, for the three months
ended January 31, 1997, and by $2,664,100, or 21.8%, for the six months
ended January 31, 1997, as compared to prior-year periods. These
increases were primarily due to the increased sales of the automotive
segment, partially offset by the effects of its changing product mix.
Additionally, the significant reduction in development costs was
largely offset by the additional costs of running low-volume production
lines for OEA's new hybrid inflators.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the quarter to
$75,012,700. During the six-month period ended January 31, 1997, the
Company made capital expenditures totaling approximately $38,930,500
which were funded from bank borrowings and from operations. On December
18, 1996, the Company entered into a four-year, $100,000,000 Revolving
Credit Agreement with a group of four banks. The Company's principal
bank is acting as agent for this agreement. The Company had $58,000,000
of long-term debt against this credit facility at January 31, 1997. The
Company incurred gross interest charges of $692,229, of which $676,150
was capitalized, related to bank borrowings during the six months ended
January 31, 1997. 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 subsidiary. A translation adjustment results from
translating the foreign subsidiary's accounts from functional
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currencies to U.S. dollars. Exchange gains (losses) resulting from
foreign currency gains (losses) resulting from foreign currency
transactions are included in the consolidated statements of earnings.
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, may cause the Company's actual results to differ
materially from those contemplated by these forward-looking statements.
The Registrant's automotive safety products have historically consisted
of initiators which were sold to other companies for incorporation into
inflators and ultimately into air bag modules. The Company's future
sales in the automotive segment are expected to consist increasingly of
"smokeless" hybrid inflators to be produced by the Company in new
manufacturing facilities being constructed and to be constructed. The
Company's inflator sales will depend on its success in manufacturing
inflators in volume which meet the expectations of its customers in
1997 and increasing its penetration of the inflator market over time.
The Company's expectations as to future sales are based upon annual
blanket purchase orders received by customers in the automotive segment
and governmental orders received in the nonautomotive segment. Annual
blanket purchase orders are not binding on the Company's customers and
actual quantities will depend upon weekly releases received from these
customers. However, because the customers have designed the Company's
products into their air bag modules, the Company believes that the
actual quantity sold will vary based on its customers sales.
Governmental orders in the nonautomotive segment can be cancelled or
terminated for the convenience of the government. In addition, future
technological developments could adversely impact sales of the
Company's products.
The unaudited financial statements furnished above reflect all adjustments
(consisting primarily of normal recurring accruals) which are, in the opinion of
OEA's management, necessary for a fair statement of the results for the
three-month and the six-month periods ended January 31, 1997.
Refer to the Company's annual financial statements for the year ended July 31,
1996, for a description of the accounting policies, which have been continued
without change. Also, refer to the footnotes with those financial statements for
additional details of the Company's financial condition, results of operations,
and changes in financial position. The details in those notes have not changed
except as a result of normal transactions in the interim.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual stockholders' meeting held on January
10, 1997, nine directors were elected for the ensuing year.
Results of Shareholders' Voting at Annual Meeting
Votes Cast
No Proxy Total Shares
Directors Elected: For Against Withheld Received Outstanding
Ahmed D. Kafadar, Chairman 19,106,681 - 31,671 1,402,342 20,540,694
Charles B. Kafadar 19,114,936 - 23,416 1,402,342 20,540,694
Ralph A.L. Bogan, Jr. 19,115,136 - 23,216 1,402,342 20,540,694
James R. Burnett 19,111,541 - 26,811 1,402,342 20,540,694
Lewis W. Watson 19,115,556 - 22,796 1,402,342 20,540,694
Philip E. Johnson 19,121,831 - 16,521 1,402,342 20,540,694
George S. Ansell 19,113,556 - 24,796 1,402,342 20,540,694
Robert J. Schultz 19,115,251 - 23,101 1,402,342 20,540,694
Erwin H. Billig 19,113,736 - 24,616 1,402,342 20,540,694
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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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 thereunto duly authorized.
OEA, INC.
(Registrant)
March 14, 1997 J. Thompson McConathy
Date Vice President Finance
March 14, 1997 Charles B. Kafadar
Date President
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