SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly period ended January 30, 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 March 5, 1998.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Financial Statements Page No.
Consolidated Condensed Balance Sheets
January 30, 1998 (unaudited)
and July 31, 1997.............................. 3
Consolidated Condensed Statements
of Earnings (unaudited)
Three Months and Six Months
Ended January 30, 1998 and
January 31, 1997............................... 4
Consolidated Condensed Statements
of Cash Flows (unaudited) Six Months
Ended January 30, 1998 and
January 31, 1997............................... 5
Notes to Consolidated Condensed Financial
Statements (Unaudited)......................... 6
2
OEA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
January 30, 1998 July 31, 1997
Current Assets: (Unaudited)
Cash and Cash Equivalents $ 2,747 $ 4,138
Accounts Receivable, Net 48,926 45,099
Unbilled Costs and Accrued Earnings 4,189 4,062
Income Taxes Receivable --- 2,568
Inventories
Raw Material and Component Parts 41,470 39,786
Work-in-Process 23,637 21,107
Finished Goods 13,189 9,513
------ -----
78,296 70,406
Prepaid Expenses and Other 1,646 1,046
----- -----
Total Current Assets 135,804 127,319
------- -------
Property, Plant and Equipment 268,477 238,545
Less: Accumulated Depreciation 65,037 54,651
------ ------
Property, Plant and Equipment, Net 203,440 183,894
Cash Value of Life Insurance 317 317
Long-Term Receivable 3,000 3,000
Investment in Foreign Joint Venture 2,323 2,323
Deferred Charges 18,458 13,527
Other Assets 1,218 1,176
----- -----
Total Assets $ 364,560 $ 331,556
======= =================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 19,821 $ 27,043
Interest Payable 2,034 1,431
Accrued Expenses 5,541 6,251
Federal and State Income Taxes 3,374 1,306
----- -----
Total Current Liabilities 30,770 36,031
Long-term Bank Borrowings 128,000 93,200
Deferred Income Taxes 14,562 14,562
Other 985 985
--- ---
Total Liabilities 174,317 144,778
------- -------
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 13,144 12,956
Retained Earnings 179,956 176,547
Less: Cost of Treasury Shares, 1,442,943 and 1,467,531 (2,169) (2,164)
Equity Adjustment from Translation (2,890) (2,763)
------ ------
Total Stockholders' Equity 190,243 186,778
------- -------
Total Liabilities and Stockholders' Equity $ 364,560 $ 331,556
======= =================
3
OEA, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
(in thousands, except share data)
Three Months Ended Six Months Ended
January 30, January 31, January 30, January 31,
1998 1997 1998 1997
------------- ------------ -------------- -------------
Net Sales $ 59,414 $ 51,486 $ 116,749 $ 96,826
Cost of Sales 48,741 37,029 93,636 67,853
------ ------ ------ ------
Gross Profit 10,673 14,457 23,113 28,973
General and Administrative Expenses 2,118 1,950 4,003 3,524
Research and Development Expenses 376 83 677 1,267
--- -- --- -----
Operating Profit 8,179 12,424 18,433 24,182
Other Income (Expense):
Interest Income 69 63 200 108
Interest Expense (1,401) (3) (2,376) (16)
Other, Net (291) 174 (137) 60
---- --- ---- --
(1,623) 234 (2,313) 152
------ --- ------ ---
Earnings Before Income Taxes 6,556 12,658 16,120 24,334
Federal and State Income Tax Expense 2,469 4,854 5,921 9,424
----- ----- ----- -----
Net Earnings $ 4,087 $ 7,804 $ 10,199 $14,910
===== ======== ======== =======
Earnings Per Share - Basic $ 0.20 $ 0.38 $ 0.50 $0.73
==== ======== ====== =====
Earnings Per Share - Diluted $ 0.20 $ 0.38 $ 0.50 $0.72
==== ======== ====== =====
Weighted Average Number of Shares Outstanding - Basic 20,576,208 20,541,348 20,566,693 20,531,781
========== ========== ========== ==========
Weighted Average Number of Shares Outstanding - Diluted 20,610,612 20,617,819 20,596,784 20,605,581
========== ========== ========== ==========
4
OEA, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended
January 30, January 31,
1998 1997
----------------- ----------------
Operating Activities:
Net Earnings $ 10,199 $ 14,910
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of foreign joint venture --- (301)
Depreciation and amortization 11,856 7,388
Increase in deferred compensation payable --- 61
Loss on disposal of property, plant and equipment 3 ---
Changes in operating assets and liabilities:
Accounts receivable (3,758) (3,012)
Unbilled costs and accrued earnings (127) (617)
Inventories (7,883) (7,769)
Prepaid expenses and other (598) 19
Accounts payable and accrued expenses (7,339) (6,378)
Income taxes payable 4,636 930
----- ---
Net cash provided by operating activities 6,989 5,231
Investing activities:
Capital expenditures (30,757) (38,931)
Proceeds from sale of property, plant, and equipment 255 ---
Increase in deferred charges (5,829) (3,920)
Increase in other assets, net (80) (23)
--- ---
Net cash used in investing activities (36,411) (42,874)
Financing activities:
Purchases of common stock for treasury (43) (117)
Proceeds from issuance of treasury stock 226 359
Payment of dividends (6,791) (6,162)
Increase in borrowings, net 34,800 44,000
------ ------
Net cash provided by financing activities 28,192 38,080
Effect of exchange rate changes on cash (161) (179)
---- ----
Net increase/(decrease)in cash and cash (1,391) 258
equivalents
Cash and cash equivalents at beginning of period 4,138 2,560
----- -----
Cash and cash equivalents at end of period $ 2,747 $ 2,818
===== =====
5
Notes to Consolidated Condensed Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The unaudited financial statements furnished above reflect all adjustments
(consisting primarily of normal recurring accruals) which are, in the opinion of
OEA's management, necessary for a fair statement of the results for the
six-month period ended January 30, 1998.
Refer to the Company's annual financial statements for the year ended July 31,
1997, for a description of the accounting policies, which have been continued
without change. Also, refer to the footnotes with those financial statements for
additional details of the Company's financial condition, results of operations,
and changes in financial position. The details in those notes have not changed,
except as a result of normal transactions in the interim.
Note 2 - Earnings per Share
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
the second quarter of fiscal 1998.
Earnings per share of common stock is computed on the basis of the weighted
average number of shares outstanding during the year. The dilutive effect on
reported basic earnings per share from the assumed exercise of stock options
outstanding was 34,404 shares for the three months ended January 30, 1998 and
30,091 shares for the six months ended January 30, 1998. The dilutive effects on
reported basic earnings per share were 76,471 and 73,800, respectively, for the
prior-year periods.
Note 3 - Recently Issued Pronouncements
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
The Statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Statement No. 130 will be effective for fiscal years beginning after December
15, 1997. The Company will adopt Statement No. 130 during the first quarter of
fiscal year 1999, and does not expect the impact to be material.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement requires public business
enterprises to report certain information about operating segments in complete
sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate, and their major customers.
Statement No. 131 will be effective for fiscal years beginning after December
15, 1997. The Company will adopt Statement No. 131 in its fiscal year 1999.
6
Note 4 - Bank Borrowings
On December 18, 1996, the Company entered into an unsecured, four-year, $100
million Revolving Credit Agreement with a group of four banks. This agreement
was amended on September 10, 1997 to increase the revolving credit facility to
$130 million. The interest rate is .625% above the federal funds rate when total
indebtedness is equal to or less than 30% of total capitalization and increases
to .7% above the federal funds rate when total indebtedness exceeds 30% of total
capitalization. Additionally, the Company pays an annual fee equal to .125% of
the banks' total commitment. At the Company's discretion, it may convert all or
part of the total debt to Eurodollar or Alternate Base Rate loan(s). The credit
facility expires on December 18, 2000, and provides for annual twelve-month
extensions to the termination date. In addition to this facility, the Company
recently secured a $10 million line of credit with an interest rate of .8% above
the federal funds rate from two of the banks participating in the $130 million
revolving credit facility. At January 30, 1998, the total debt outstanding
related to these credit facilities was $128 million. All outstanding debt at
January 30, 1998 is classified as long-term since no portion is either due or
expected to be permanently repaid within the next twelve-month period.
7
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, with respect to the Company's sales, earnings, market
penetration, plans, products, projections and other matters. These
statements are based on assumptions as to future events and are
therefore inherently uncertain. A number of factors, including those
discussed below and elsewhere herein, may cause the Company's actual
results to differ materially from those contemplated by these
forward-looking statements.
The Company's future sales in the automotive segment are expected to
consist increasingly of passenger, driver and side-impact inflators
that are being produced by the Company in new manufacturing facilities.
These facilities are currently in operation and are expected to have
the ability to run at full capacity by the fourth quarter of fiscal
year 1998. The Company's future inflator sales and market penetration
will depend on its success in achieving planned automation and
production efficiencies in its new inflator facilities and on its
continued success in manufacturing inflators that meet the expectations
of its customers in 1998 and beyond.
The Company's expectations as to future sales are based upon annual
blanket purchase orders received by customers in the automotive segment
and governmental orders received in the nonautomotive segment. Annual
blanket purchase orders are not binding on the Company's customers and
actual quantities will depend upon weekly releases received from these
customers. However, because the customers have designed the Company's
products into their air bag modules and inflators, the Company believes
the actual quantity sold will vary based on its customers sales.
Governmental orders in the nonautomotive segment can be canceled or
terminated for the convenience of the government. In addition, future
technological developments could adversely impact sales of the
Company's products.
8
A summary of the period to period changes in the principal items included in the
consolidated statements of earnings is shown below:
Comparison of
-----------------------------------------------------------------------------
Three Months Ended Six Months Ended
January 30, 1998 January 30, 1998
and January 31, 1997 and January 31, 1997
Increase (Decrease) Increase (Decrease)
(in thousands) (in thousands)
-------------------------------- ---------------------------------
Net Sales 7,928 15.4% 19,923 20.6%
Cost Of Sales 11,712 31.6% 25,783 38.0%
General and
Administrative Expenses 168 8.6% 479 13.6%
Research and
Development Expenses 293 353.0% (590) (46.6%)
Net Earnings (3,717) (47.6%) (4,711) (31.6%)
9
NET SALES
Net sales increased 15.4% for the three months ended January 30, 1998,
and 20.6% for the six months ended January 30, 1998, as compared to the
prior-year periods, primarily due to increased sales in both the
automotive and nonautomotive segments. The automotive segment sales
increased 15.4% ($6.4 million) to $47.8 million in the second quarter
and 19.3% ($15.0 million) to $92.8 million for the first half of the
fiscal year. These increases are due primarily to increased inflator
sales, 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 nonautomotive
segment sales increased by 15.4% ($1.5 million) to $11.6 million for
the second quarter, and by 25.8% ($4.9 million) to $23.9 million for
the first half of the fiscal year. This is primarily due to increases
in engineering development contracts, the Delta satellite launcher
program and the V-22 Osprey (tiltrotor aircraft) program.
COST OF SALES
Cost of sales increased by 31.6% for the three months ended January 30,
1998, and by 38.0% for the six months ended January 30, 1998, as
compared to the prior-year periods. Gross margins were $10.7 million,
or 18.0% of sales, for the second quarter and $23.1 million, or 19.8%
of sales, for the first half of fiscal year 1998, as compared to the
prior-year margins of $14.5 million, or 28.1% of sales, for the second
quarter and $29.0 million, or 29.9% for the first half. Both initiator
and inflator gross margins for the first half of fiscal 1998 were below
prior-year levels in the automotive segment. Initiator margins in the
second quarter were consistent with the prior-year period; however,
margins for the first half were lower than the prior-year period due to
scheduled price reductions and lower leverage of fixed costs. These
factors, plus lower volume, resulted in a $5.1 million decrease in
initiator gross margins for the first half of fiscal 1998, as compared
to the prior-year period. Inflator costs for both the second quarter
and the first half were higher than in the prior-year periods due to 1)
costs for the continued ramp-up of the Company's four new inflator
production lines, including delays in reaching target efficiencies; 2)
a parts shortage resulting in periodic production shut-downs on the
Company's passenger inflator lines; and 3) reduced driver and
second-generation passenger volume due to customer program delays.
During the second quarter, the Company produced in excess of 1.4
million inflators. When the new inflator production lines are fully
implemented, the Company's annual production capacity is expected to
increase from 3 million to 15 million units. Initial production on
these new inflator lines began late in the fourth quarter of fiscal
1997 and the production ramp-up is expected to continue through the
fourth quarter of fiscal 1998. Automotive margins were further reduced
2.1 percentage points by the continuing shift in product mix from
initiators to inflators. Initiators represent a more mature, higher
margin product line, whereas inflators are in the early production and
start-up stages of the products' life cycle. As production and
productivity increase, inflator margins are expected to improve.
10
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $0.2 million for the
three months ended January 30, 1998, and $0.5 million for the first
half of fiscal 1998, as compared to the prior-year periods. These
increases were primarily attributed to increases in general and
administrative support necessary for the new inflator production lines.
As a percentage of sales, general and administrative expenses decreased
to 3.6% in the second quarter of fiscal 1998 and 3.4% for the first
half of fiscal 1998 from 3.8% and 3.6%, respectively, in the prior-year
periods.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs increased $0.3 million for the three
months ended January 30, 1998 and decreased $0.6 million for the six
months ended January 30, 1998, as compared to the prior-year periods.
Because the Company has completed the product development phase for its
driver, side-impact, and second-generation passenger inflators,
development costs are not expected to increase significantly for the
remainder of fiscal year 1998.
NET EARNINGS
For the reasons described above, net earnings decreased $3.7
million, or 47.6%, for the three months ended January 30, 1998 and
decreased $4.7 million, or 31.6%, for the six months ended January
30, 1998, as compared to the prior-year periods. This resulted in a
decrease in basic earnings per share to $.20 for the second quarter and
$.50 for the first half of fiscal 1998 from $.38 and $.73,
respectively, for the prior-year periods.
The Company has taken and is planning to take a number of steps that it
believes will improve earnings in future periods. To further improve
margins in initiator production, the Company's domestic initiator
operations will be consolidated in the Utah facility in the second half
of fiscal 1998. Additionally, several steps are being taken to improve
inflator margins, including certain equipment design modifications to
improve efficiencies in the Company's three new product lines, and
material cost reductions resulting from design improvements and new
supplier partnering arrangements.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the quarter to $105.0
million. During the six months ended January 30, 1998, the Company made
capital expenditures totaling approximately $30.8 million, which were
funded from bank borrowings. On December 18, 1996, the Company entered
into a four-year, $100 million Revolving Credit Agreement with a group
of four banks. The Company's principal bank is acting as agent for this
agreement. On September 10, 1997, the agreement was amended to increase
the revolving credit facility to $130 million. In addition to this
facility, the Company recently secured a $10 million line of credit
with two of the banks participating in the $130 million revolving
credit facility. The Company had $128 million of long-term debt against
these credit facilities at January 30, 1998. Anticipated working
capital requirements, capital expenditures, and facility expansions are
expected to be met through bank borrowings and from internally
generated funds.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company sold 25,750 shares of unregistered common stock
pursuant to the exercise of options by six executive officers and
key employees in the first half of fiscal 1998 as follows:
Date Number Aggregate
of Sale Of Shares Offering Price
--------- --------- --------------
8/29/97 1,250 $36,500
10/9/97 18,000 $59,625
10/15/97 500 $2,333
10/16/97 1,500 $7,000
11/7/97 4,000 $111,120
12/24/97 500 $9,500
Such sales were made pursuant to the exemption from registration
available under Section 4(2) of the Securities Act of 1993.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual stockholders' meeting held on January 15,
1998, nine directors were elected and the proposed OEA, Inc. 1997
Employee Stock Purchase Plan (the "Plan") was adopted.
The Plan provides for the purchase of up to 100,000 share of the
Common Stock ("Shares") by employees of the Company at a discount
from market price. The Plan provides for payments for the Shares
to be made through direct payroll deductions. The purpose of the
Plan is to provide a method by which eligible employees of the
Company and its U.S. subsidiaries may purchase shares of Common
Stock of the Company by payroll deduction and at favorable prices.
By this means, eligible employees will be given an opportunity to
acquire an additional interest in the prosperity, growth and
earnings of the Company and a further incentive to promote the
best interests of the Company. A detailed description of the Plan
was included in and is incorporated by reference from the
Registrant's definitive proxy statement for its 1998 annual
shareholders' meeting, which was filed with the Securities and
Exchange Commission on November 28, 1997.
Results of Shareholders' Voting at Annual Meeting
Votes Cast
------------------------------------- No Proxy Total Shares
Directors Elected: For Against Witheld Received Outstanding
Ahmed D. Kafadar, Chairman 19,012,020 --- 93,947 1,470,290 20,576,257
Charles B. Kafadar 19,016,197 --- 89,770 1,470,290 20,576,257
Ralph A.L.Bogan Jr. 19,011,680 --- 94,287 1,470,290 20,576,257
James R. Burnett 19,012,327 --- 93,640 1,470,290 20,576,257
Lewis W. Watson 19,016,457 --- 89,510 1,470,290 20,576,257
Philip E. Johnson 19,017,227 --- 88,740 1,470,290 20,576,257
George S. Ansell 19,016,649 --- 89,318 1,470,290 20,576,257
Robert J. Schultz 19,015,812 --- 90,155 1,470,290 20,576,257
Erwin H. Billig 19,014,537 --- 91,430 1,470,290 20,576,257
No Proxy Total Shares
For Against Abstain Received Outstanding
OEA, Inc. 1997 Employee
Stock Purchase Plan 18,778,672 155,691 171,604 1,470,290 20,576,257
14
ITEM 5. OTHER INFORMATION
Ahmed D. Kafadar, OEA's Chairman, CEO and Founder, passed away on
January 17, 1998 at his home in Englewood, Colorado.
The Board of Directors unanimously elected Robert J. Schultz as
the succeeding Chairman of the Board and Charles B. Kafadar, the
son of Ahmed D. Kafadar, as the succeeding Chief Executive
Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
15
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 9, 1998
Date /S/J. Thompson McConathy
Vice President Finance and CFO
March 9, 1998
Date /S/Charles B. Kafadar
President and CEO
16