-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QSEjwgn6m7DwL9yD3H6fj/mcVhOcSkFE3cJdI6MDmiT+99680qtsBjP4ILBntIUT Nz/hRWbXg3FxKnF902AG+g== 0000073864-97-000002.txt : 19970430 0000073864-97-000002.hdr.sgml : 19970430 ACCESSION NUMBER: 0000073864-97-000002 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19970307 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OEA INC /DE/ CENTRAL INDEX KEY: 0000073864 STANDARD INDUSTRIAL CLASSIFICATION: 3714 IRS NUMBER: 322362379 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06711 FILM NUMBER: 97553064 BUSINESS ADDRESS: STREET 1: 34501 E QUINCY AVE CITY: AURORA STATE: CO ZIP: 80015 BUSINESS PHONE: 3036931248 MAIL ADDRESS: STREET 1: P O BOX 100488 CITY: DENVER STATE: CO ZIP: 80250 10-K/A 1 FOR THE YEAR ENDED JULY 31, 1996 OEA, INC. FORM 10-K/A Fiscal Year Ended July 31, 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 31, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission file number 1-6711. OEA, INC. (Exact name of registrant as specified in its charter) Delaware 36-2362379 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization.) 34501 East Quincy Avenue, P. O. Box 100488, Denver, Colorado 80250 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (303) 693-1248 Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange Title of each class on which registered: Common Stock, Par Value $0.10 New York Stock Exchange - - -------------------------------- ------------------------- Securities registered pursuant to Section 12(g) of the Act: NONE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []. The aggregate market value of the voting stock held by nonaffiliates of the registrant as of October 21, 1996. Common Stock, $.10 par value - $602,712,950. The number of shares outstanding of the issuer's classes of common stock as of October 21, 1996. Common Stock $.10 par value - 20,538,444. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual shareholders meeting to be held January 10, 1997, are incorporated by reference into Part III. PART I ITEM 1 - BUSINESS General Development of Business OEA, Inc. ("Registrant" or the "Company") was organized as a Delaware business corporation on October 1, 1969. Its predecessor, Ordnance Engineering Associates, Inc., an Illinois corporation, was organized on July 13, 1957, and was merged into the Registrant on December 3, 1969. OEA, Inc. consists of the OEA Automotive Safety Products Divisions, OEA Aerospace, Inc., Pyroindustrie S.A. and Pyrospace S.A. (45% ownership). OEA Automotive Safety Products consists of the Automotive Initiator Division - Denver, the Automotive Initiator Division - - - Utah, and the Hybrid Inflator Division. Effective August 1, 1996, the Hybrid Gas Generator Division was merged into the Hybrid Inflator Division. Explosive Technology, Inc. was acquired as a wholly owned subsidiary of the Registrant on March 30, 1971. It was organized as a California business corporation on June 21, 1961. Effective December 11, 1989, the subsidiary's name was changed to ET, Inc. On October 1, 1994, the name was again changed to OEA Aerospace, Inc. Aerotest Operations, Inc., a California corporation, was acquired as a wholly owned subsidiary of OEA Aerospace, Inc. (described above) on April 1, 1974. Pyrospace S.A. was organized on July 29, 1987, in France as a joint venture (45% OEA, Inc. ownership) with two French firms, Aerospatiale and SNPE. Its facility is located in Les Mureaux, 25 miles northwest of Paris. Pyroindustrie S.A. was incorporated on June 21, 1994, in France as a joint venture (80% OEA, Inc., 20% Pyrospace S.A.) with Pyrospace. On January 1, 1996, OEA, Inc. purchased the remaining 20% ownership from Pyrospace S.A. and Pyroindustrie S.A. now operates as a wholly owned subsidiary of OEA, Inc. Its facility is collocated with Pyrospace in Les Mureaux, 25 miles northwest of Paris. There has been no material change in the mode of business conducted by the Registrant or its above-named subsidiaries and divisions during fiscal year 1996, except as mentioned above. 1 Financial Information about Industry Segments
FY 1996 FY 1995 FY 1994 ------- ------- ------- Sales to Unaffiliated Customers Automotive $ 115,586,930 $ 90,141,512 $ 67,652,256 Nonautomotive 37,222,579 39,069,259 42,240,486 ------------------ ------------------ ------------------ Total $ 152,809,509 $ 129,210,771 $ 109,892,742 ================== ================== ================== Inter-Segment Sales or Transfers Automotive $ 122,719 $ 120,532 $ 3,500 Nonautomotive 139,524 117,061 81,916 ----------------- ------------------ ----------------- Total $ 262,243 $ 237,593 $ 85,416 ================= ================= ================= Operating Profit Automotive $ 33,283,955 $ 27,935,374 $ 21,026,298 Nonautomotive 5,782,314 6,991,332 9,045,161 ----------------- ------------------ ----------------- Total $ 39,066,269 $ 34,926,706 $ 30,071,459 ================= ================== ================= Identifiable Assets Automotive $ 157,569,207 $ 115,910,167 $ 81,435,183 Nonautomotive 45,638,564 44,991,668 53,879,721 ----------------- ------------------ ----------------- Total $ 203,207,771 $ 160,901,835 $ 135,314,904 ================= ================== ================= 2
Narrative Description of Business Automotive Safety Products The Company established the Automotive Safety Products division in 1989 as a separate division to support the rapid growth in automotive air bags and related technologies. Prior to 1989, automotive-related work was performed in the aerospace division. The division designs, tests, develops, and manufactures pyrotechnic devices for use in automotive safety products. Major products currently in production include electric initiators, hybrid inflators and linear cord, all for use in air bag modules. These products are sold to automotive inflator and module manufacturers for assembly into air bag modules delivered to the auto companies. The Company began production this past year of "smokeless" hybrid inflators for passenger, driver and side-impact inflators. These products are environmentally friendly and produce no dust or smoke. In addition, these inflators are smaller, lighter, and less expensive than current designs in production. High-volume production of the new "smokeless" hybrid inflators began in April 1996. The inflators are sold to module manufacturers for delivery to the auto companies. The Company's principal officers and senior engineers represent its sales force. A significant investment in plant and equipment was required by the Company to provide the previously announced projected sales of inflators of more than 2.5 million units for model year 1997. This equipment has been in place for several months and is functioning as designed. Significant additional investment in equipment will be required again in fiscal year 1997 to meet inflator demand for model year 1998. While the Company has ordered equipment from companies experienced in the manufacture of automated high-rate production equipment, no assurance can be given that the equipment will perform as designed and at the capacity required until the equipment has been operated for a period of time in our plant. For additional information concerning these forward-looking statements see "Forward-Looking Statements." The automotive segment accounted for approximately 76%, 70%, and 62% of the Company's net sales for fiscal years 1996, 1995, and 1994, respectively. Initiators are produced in three plants owned by the Company with highly automated equipment: Denver, Colorado; Tremonton, Utah; and Les Mureaux, France. Hybrid inflators are produced in Denver with highly automated equipment. Raw materials used by the Company include stamped and machined parts, elastomer seals, and commercially available pyrotechnic materials. The Company is not dependent upon any one source for purchased materials because alternate sources of supply are generally available in the marketplace. 3 The initiator business is not dependent upon patented items, trademarks, franchises, concessions, or licenses thereunder. The Company does not pay any royalties or similar payments in connection with any patents or license agreements. The "smokeless" hybrid inflator business is covered by several patents. Some of the patents have been issued, others will be issued soon and others are pending relating to technology used in the "smokeless" hybrid inflator business. The Company's business is not seasonal in nature. Products are manufactured to order; accordingly, significant amounts of inventory are not required to be maintained. Most customers operate in a "just-in-time" inventory environment. The automotive segment inventories have increased by $6.6 million during the year primarily due to the recent product launch of hybrid inflators. Customer payments are reasonably prompt and extended terms are not required. The Company's customer providing more than 10% of consolidated sales for the fiscal year ended July 31, 1996, was Morton International, 49%. The loss of OEA's primary automotive safety products customer, Morton International, would have a materially adverse effect on the Company. As the Company's sales of inflators to module manufacturers grow, its sales to Morton International will decrease as a percentage of total sales. The Company estimates that Morton International will represent less than 25% of fiscal year 1997 sales. There is no particular relationship between the Company and its customers other than that of supplier/customer, except for the following: 1. An agreement with Daicel Chemical Industries, Ltd., Tokyo, Japan, for the transfer of technology and manufacture of OEA's automotive air bag initiators for the Asian market, and 2. An agreement with Daicel Chemical Industries, Ltd., Tokyo, Japan, for the transfer of technology and manufacture of OEA's "smokeless" hybrid inflators for passenger, driver and side-impact automotive air bags for manufacture in Asia for the Asian market. The initial payment for this fifteen year agreement was received in 1995, with a second payment received in 1996. OEA understands that Daicel intends to manufacture OEA's initiators and inflators in the near future. Auto manufacturers generally change designs every three to five years. The Company receives annual blanket purchase orders, but deliveries are specified by customers on weekly releases for deliveries over the next 10 to 12 weeks. Because this is the accepted practice in the automotive industry, the amount of backlog at any given time is not representative of annual sales. The Company currently has received annual blanket purchase orders from Takata Corporation, Daicel Chemical Industries and Delphi Interior & Lighting, a 4 division of General Motors, to supply in excess of 2.5 million passenger inflators for model year 1997. Additionally, the Company has received annual blanket purchase orders from the above companies, as well as additional customers, for driver, side-impact, and passenger inflators to supply in excess of 7.0 million inflators for model year 1998. For additional information concerning these forward-looking statements see "Forward-Looking Statements." The Company believes that OEA is the only independent inflator manufacturer in the world that is not affiliated with, or owned by, a module manufacturer. This independence gives the Company wide latitude to sell to all module manufacturers. By fiscal year 2000, OEA's Inflator Division could be the largest customer of the OEA Initiator Division. Currently, there are three major automotive initiator manufacturers in the United States: Imperial Chemical Industries, Inc., Special Devices, Inc., and the Company. Additionally, there are four major automotive initiator manufacturers in Europe: Davey Bickford Smith, Nouvelle Cartoucherie de Survilliers, Patvag and Pyroindustrie (wholly owned by OEA, Inc.). The Company is currently the world's leading producer of initiators for automotive air bags. Other companies may enter the automotive initiator market; however, substantial financial resources, development, and qualification time would be required to achieve design and product verification. Contracts are generally awarded based upon competitive price, product reliability and production capacity. The Registrant believes it is in a good competitive position. Currently, the Company is aware of three major hybrid inflator manufacturers in the world, a joint venture between Atlantic Research Corporation and Allied Signal, Morton International, and the Company. The Company is currently one of the world's leading producers of hybrid inflators for automotive air bags. The estimated amount spent by the automotive segment during each of the last three fiscal years for customer-sponsored and company-sponsored research and development activities was: Customer- Company- Sponsored Sponsored Fiscal year 1996 $ 500,000 $4,400,000 Fiscal year 1995 500,000 3,300,000 Fiscal year 1994 300,000 1,600,000 Compliance with federal, state, and local provisions regulating the discharge of materials into the environment is not expected to materially affect capital 5 expenditures, earnings, or competitive position of the Registrant or its subsidiaries. The Registrant, together with its consolidated subsidiaries and divisions, employs approximately 950 people in its automotive segment. Nonautomotive Products The nonautomotive segment of the business is primarily aerospace (Defense, Space and Commercial). OEA Aerospace, Inc. designs, develops, and manufactures propellant and explosive-actuated devices used in (1) personnel escape systems in high-speed aircraft, (2) separation and release devices for space vehicles and aircraft, (3) control, separation, ejection, and jettison of missiles, and (4) flexible linear-shaped charges, mild detonating cord systems and TLX energy transfer systems. The principal customers for such products are the United States Government and major aircraft and aerospace companies. Other products and services include hot gas and explosive initiated valves, fluid control systems, inflatable systems, and the largest neutron radiography inspection operation of its kind. Sales are made directly to the customer. The Company's principal officers and senior engineers represent its sales force. The nonautomotive segment accounted for approximately 24%, 30% and 38% of the Company's net sales for fiscal years 1996, 1995, and 1994, respectively. The nonautomotive products are produced principally in Fairfield, California. A smaller test facility is located in San Ramon, California. The Registrant's customers are primarily in the defense and space field under prime government contracts. The major portion of the Registrant's business comes from subcontracts which are generally awarded on a fixed-price basis. Each new contract involves either the design and manufacture of a new product to meet a specific requirement, or a follow-on order for additional items previously manufactured under other contracts. Inasmuch as the Company's aerospace business involves constant development and engineering of products required by its customers, it would be inappropriate to announce each new item as a new product. Raw materials used by the Company include aluminum, inconel, monel, molybdenum, rubbers, copper, alloy and stainless steel, ceramics, silver, titanium alloys, certain commercially available and special-order propellants and explosives, elastomer seals to government specifications, and epoxy sealing materials. The Company is not dependent upon any one source for purchased materials because alternate sources of supply are generally available in the marketplace. 6 The Registrant's business is not dependent upon patented items, trademarks, franchises, concessions, or licenses thereunder. The Registrant does not pay any substantial royalties or similar payments in connection with any patents or license agreements. The Registrant's business is not seasonal in nature. Products are manufactured to order; accordingly, significant amounts of inventory are not required to be maintained. Inventories have increased by $5.3 million in the nonautomotive segment based on a higher funded backlog and anticipated higher sales in fiscal year 1997. Deliveries are made according to contract usually in a "just-in-time" environment. Customer payments are reasonably prompt and extended terms are not required. The Company did not have a customer providing more than 10% of consolidated sales in the nonautomotive segment for the fiscal year ended July 31, 1996. Transactions with the United States Government are with several procurement agencies and/or prime contractors. Although the loss of all government contracts would have an adverse effect, the loss of any one agency or prime contract would not have a materially adverse effect on the Registrant. There is no particular relationship between the Company and its customers other than that of supplier/customer. The Company's nonautomotive funded backlog of orders as of July 31, 1996, was $45,800,000. The Company estimates that $9,600,000 of its current backlog will not be recorded as a sale within its fiscal year ending July 31, 1997. The majority of the business of the Registrant with the United States Government is subject to termination of contracts for the convenience of the United States Government. Such termination, however, is not a frequent occurrence. In addition, a significant portion of the Registrant's sales for the current and prior years is subject to audit by the Defense Contract Audit Agency. Such audits may occur at any time up to three years after contract completion. The Registrant competes for new contracts with a number of larger corporations with substantially greater resources. Other companies, both larger and smaller than the Registrant, also have capabilities and resources to design and develop similar items. There is no official information available concerning total annual purchases from all manufacturers of the types of products which the Registrant produces for the nonautomotive segment. The Registrant believes it has at least seven competitors in its principal field of propellant and explosive devices. No 7 individual competitor dominates the field. The Registrant believes it is in a good competitive position. On new development and qualification programs, contract awards are based upon technical and competitive price proposals. Subsequent production awards are both negotiated with the customer and subject to competitive bid. The estimated amount spent by the nonautomotive segment during each of the last three fiscal years for customer-sponsored and company-sponsored research and development activities was:
Customer- Company- Sponsored Sponsored Fiscal year 1996 $2,600,000 $ 50,000 Fiscal year 1995 3,200,000 200,000 Fiscal year 1994 4,500,000 200,000
Compliance with federal, state, and local provisions regulating the discharge of materials into the environment is not expected to materially affect capital expenditures, earnings, or competitive position of the Registrant or its subsidiaries. The Registrant, together with its subsidiaries and divisions, employs approximately 380 people in its nonautomotive segment. Forward Looking Statements This Report contains certain forward-looking statements with respect to the Company's sales, plans, products, projections and other matters. These statements are based on assumptions as to future events and are therefore inherently uncertain. A number of factors, including those discussed below and elsewhere herein, may cause the Company's actual results to differ materially from those contemplated by these forward-looking statements. The 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 during the next fiscal year. 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 impact adversely sales of the Company's products. 8 (d)Financial Information about Foreign and Domestic Operations and Export Sales
Sales to Unaffiliated Customers FY 1996 FY 1995 FY 1994 United States $ 117,386,137 $ 100,980,428 $ 97,209,060 Foreign Sales Europe 10,208,606 4,845,644 4,576,576 Asia 23,821,498 22,470,143 7,700,842 Other 1,393,268 914,556 406,264 ---------------- ---------------- ---------------- Total Foreign Sales 35,423,372 28,230,343 12,683,682 ---------------- ---------------- ---------------- Total Sales $ 152,809,509 $ 129,210,771 $ 109,892,742 ================ ================ ================
Notes: (1) There were no sales or transfers between the geographic areas reported above. (2) It is not possible, under the existing accounting systems, to isolate profits and identifiable assets by geographic areas. 9 ITEM 2 - PROPERTIES The Registrant's properties are located in Arapahoe County, Colorado (near Denver); Fairfield, California; San Ramon, California; Tremonton/Garland, Utah; and Les Mureaux, France. The Arapahoe County facilities are located on 960 acres of land which the Registrant owns. In fiscal year 1996, automotive operations were conducted in various one-story brick and steel buildings containing 226,000 square feet of floor space in the aggregate. Additionally, a 172,000 square foot manufacturing facility will be completed in December 1996 which will be dedicated to the production of smokeless hybrid inflators. The Fairfield, California, facilities are occupied by OEA Aerospace, Inc., a wholly owned subsidiary of the Registrant. Its nonautomotive and automotive operations are conducted in twenty buildings containing 162,700 square feet of floor space in the aggregate, located on 515 acres of land which the Company owns. All parts of the various buildings are occupied and used in the operations of the Company's business. The San Ramon, California, property consists of a 10,000 square foot steel building situated on approximately one acre of land which the Company owns. It is occupied by Aerotest Operations, Inc., a wholly owned subsidiary of OEA Aerospace, Inc., which conducts neutron radiography therein. Also contained in this building, as a part of the premises, is a 250-kilowatt nuclear reactor used in the process. The property in Tremonton/Garland, Utah, consists of a 66,000 square-foot manufacturing facility located on 160 acres which the Registrant owns. This facility will accommodate the growing demand for air bag initiators and other automotive safety products. The property in Les Mureaux, France, consists of a 34,600 square foot manufacturing facility located on 6 acres which the Company owns. It is occupied by Pyroindustrie S.A., and will accommodate the growing demand for air bag initiators and other automotive safety products for the European market. The above-described properties are considered suitable and adequate for the Registrant's operations. 10 ITEM 3 - LEGAL PROCEEDINGS None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 11 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) (1) (i) Registrant has only common capital stock, $0.10 par value, issued. Its principal United States market is made on the New York Stock Exchange, New York, New York, where such shares have been listed. (ii) The high and low sales prices for the Registrant's shares traded, as reported in the consolidated transaction reporting system over the last two fiscal years on a quarterly basis, are as follows:
Fiscal Year 1995 High Low 1st Quarter 32.00 24.25 2nd Quarter 27.75 21.88 3rd Quarter 31.25 23.88 4th Quarter 30.75 26.00 Fiscal Year 1996 High Low 1st Quarter 33.38 26.88 2nd Quarter 30.75 25.38 3rd Quarter 40.00 25.50 4th Quarter 41.38 32.13
(iii) Not applicable (iv) Not applicable (v) Not applicable (b) The approximate number of holders of record of Registrant's issued and outstanding shares at October 18, 1996, was 1,232. (c) The Board of Directors has declared dividends during the last three fiscal years as follows:
Amount Declared Payable Per Share November 12, 1993 December 13, 1993 $ .15 November 4, 1994 December 9, 1994 .20 November 3, 1995 December 8, 1995 .25
12 ITEM 6 - SELECTED FINANCIAL DATA Consolidated Summary of Operations
1996 1995 1994 1993 1992 ---------------- ---------------- ---------------- ---------------- ---------------- Net Sales $ 152,809,509 129,210,771 109,892,742 94,184,193 88,071,691 Operating Profit 39,066,269 34,926,706 30,071,459 23,632,845 18,481,827 Earnings Before Minority Interest and Income Taxes 40,683,008 36,225,734 29,465,492 23,676,115 23,115,911 Minority Interest 24,594 519,564 ---- ---- ---- Income Taxes (15,165,119) (15,469,088) (11,512,973) (9,105,017) (7,866,954) Net Earnings (Loss) Before Settlement of Environmental Matters 25,542,483 23,526,210 17,952,519 14,571,098 15,248,957 From Settlement of Environmental Matters (Note 1) ---- (2,250,000) ---- ---- ---- ---------------- ---------------- ---------------- ---------------- ---------------- Total Net Earnings $ 25,542,483 21,276,210 17,952,519 14,571,098 15,248,957 ================ =============== ================ ================ ================ Earnings (Loss) Per Share (Note 2) Before Settlement of Environmental Matters 1.25 1.15 .88 .72 .75 From Settlement of Environmental Matters ---- (0.11) ---- ---- ---- ---------------- ---------------- ---------------- ---------------- ---------------- Total Earnings Per Share $ 1.25 1.04 .88 .72 .75 ================ =============== ================ =============== =============== Cash Dividends Per Share $ .25 .20 .15 .12 .10 ================ =============== ================ =============== =============== Stock Dividends ---- ---- ---- ---- 200% ================ =============== ================ =============== =============== Weighted Average Number of Shares Outstanding During Year 20,499,373 20,480,060 20,438,587 20,376,308 20,315,240 ================ =============== ================ =============== =============== (Note 2) Total Number of Shares Outstanding at Year End 20,514,444 20,486,628 20,465,545 20,413,146 20,350,609 ================ =============== ================ ============== ============== (Note 2) Notes: (1)On December 13, 1994, the Company reached a final settlement in its environmental matters in the net amount of $2,250,000. (2)The number of shares outstanding and per-share amounts have been adjusted to give effect to treasury share transactions and stock distributions effected in the form of a 200 percent stock dividend paid on February 14, 1992.
13 Balance Sheet Data at July 31,
1996 1995 1994 1993 1992 --------------- --------------- --------------- --------------- --------------- Current Assets $ 77,579,452 74,871,359 62,389,466 60,913,834 56,949,971 Current Liabilities $ 33,523,658 12,160,275 8,882,678 11,944,465 7,835,271 Working Capital $ 44,055,794 62,711,084 53,506,788 48,969,369 49,114,700 Working Capital Ratio 2.3 to 1 6.2 to 1 7.0 to 1 5.1 to 1 7.3 to 1 Total Assets $ 203,207,771 160,901,835 135,314,904 123,178,155 106,180,082 Shareholders' Equity $ 160,448,308 140,352,333 121,854,462 106,801,460 94,535,957 Book Value Per Share $ 7.82 6.85 5.95 5.23 4.65
14 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Fiscal Year 1996 vs. 1995 Net sales and operating profits for the fiscal year ended July 31, 1996, were a record $152,809,500 and $39,066,300, respectively, compared to prior-year net sales of $129,210,800 and operating profits of $34,926,700. Net earnings and earnings per share for fiscal year 1996 were $25,542,500 and $1.25, respectively, compared to prior-year net earnings of $21,276,200 and earnings per share of $1.04. The Automotive Safety Products division was again the primary contributor to the sales and operating profit increases over the prior year. Automotive sales and operating profit increased by 28% and 19%, respectively, due primarily to the increased volume. Nonautomotive sales decreased 5% with an operating profit decrease of 17%. Total operating profit as a percentage of sales for fiscal year 1996 was 26%, compared to 27% for the prior year. This performance was accomplished in spite of an increased expenditure of funds for Company funded research and development ($4,416,000 in 1996 vs. $3,507,300 in 1995) primarily for "smokeless" hybrid inflators for automotive air bags. Automotive segment sales for fiscal year 1997 are expected to increase significantly due to the increased demand for driver, passenger, and side-impact air bags. For additional information concerning these forward-looking statements see "Forward-Looking Statements." Potential effects of changes in defense spending are not expected to have a material impact upon the operations of the nonautomotive segment. The Registrant anticipates that nonautomotive segment sales during fiscal year 1997 will increase due to deliveries on a number of programs currently in the backlog and programs expected to book soon. For additional information concerning these forward-looking statements see "Forward-Looking Statements." The Registrant's contract pricing methods have offset the effect of inflation. 15 Fiscal Year 1995 vs. 1994 Net sales and operating profits for the fiscal year ended July 31, 1995, were $129,210,800 and $34,926,700, respectively, compared to fiscal year 1994 net sales of $109,892,700 and operating profits of $30,071,500. Net earnings and earnings per share for fiscal year 1995 were $21,276,200 and $1.04, respectively, compared to fiscal year 1994 net earnings of $17,952,500 and earnings per share of $0.88. In the first half of fiscal year 1995, the Company reached a final settlement in its environmental matters in the net amount of $2,250,000 or $0.11 per share. Eliminating the effect of the above settlement, fiscal year 1995 net earnings from operations would have been $23,526,200 and earnings per share would have been $1.15. The Automotive Safety Products division was the primary contributor to the sales and operating profit increases over fiscal year 1994. Automotive sales and operating profit both increased 33% due primarily to the increased volume. Nonautomotive sales decreased 8% with an operating profit decrease of 23%. Total operating profit as a percentage of sales for fiscal year 1995 was 27%, consistent with fiscal year 1994. This performance was accomplished in spite of an increased expenditure of funds for Company funded research and development ($3,507,300 in 1995 vs. $1,814,800 in 1994) primarily for "smokeless" hybrid inflators for automotive air bags. Liquidity and Capital Resources The Company's working capital at July 31, 1996, decreased to $44,055,800, from the $62,711,100 at July 31, 1995, primarily due to significantly increased capital expenditures, partially offset by increased earnings from operations. This resulted in short-term borrowings of $14,000,000, discussed below. During fiscal year 1996, the Company made capital expenditures totaling $45,500,000 as compared to $19,912,300 and $16,823,900 in fiscal years 1995 and 1994, respectively. These capital expenditures were funded principally from operations and from the Company's line of credit discussed below. Currently the Company has capital expenditure commitments totaling approximately $62,000,000 for fiscal year 1997. In January 1996 the Company renewed an $8,000,000 Revolving Credit Agreement with its principal bank, which, subsequent to year end, was increased to $35,000,000 with an expiration date of September 30, 1997. At July 31, 1996, the Company had a $14,000,000 outstanding balance against this line of credit. Anticipated working capital requirements, capital expenditures, and facility expansions are expected to be met through internally generated funds and additional borrowings from the agreement mentioned above, which will be increased as required. 16 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 currencies to U.S. dollars. Exchange gains (losses) resulting from foreign currency transactions are included in the consolidated statements of earnings. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and financial statement schedules of the Company filed as part of this report on Form 10-K are listed in Item 14. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 17 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning the directors and executive officers of the Registrant: Name Position with Company Ahmed D. Kafadar............. Chairman of the Board and Chief Executive Officer Charles B. Kafadar(1)........ President, Chief Operating Officer and Director Ralph A. L. Bogan, Jr.(2)(3). Director James R. Burnett(3)(1)....... Director Lewis W. Watson(2)........... Director Philip E. Johnson(2)(4)...... Director George S. Ansell(4)(1)....... Director Robert J. Schultz(4)(1)...... Director Erwin H. Billig(3)........... Director Paul J. Martin............... Vice President Administration J. Thomas McConathy.......... Vice President Finanance, CFO Nuri Y. Olcer................ Vice President of Engineering Mechanics Ben E. Paul.................. President of OEA Aerospace, Inc. - - ----------- (1) The Company's Directors serve for one year tems. The Company's executive officers serve at the will of the Board of Directors. (2) Member of Audit Committee. (3) Member of Compensation Committee. (4) Member of Corporate Responsibility Committee. (5) Member of Board Committee. Ahmed D. Kafadar is Chairman of the Board of Directors and Chief Executive Officer of the Company, and has held such positions since 1957. Mr. Kafadar, 81, is the founder of the Company. Charles B. Kafadar has been a Director of the Company since 1977 and was elected President and Chief Operating Officer of the Company in 1985. Dr. Kafadar, 51, is the son of Ahmed D. Kafadar. Ralph A. L. Bogan, Jr. has been a Director of the Company since 1969. Mr. Bogan, 74, was Chairman and Chief Executive Officer of National Security Bank, Chicago from 1982 until his retirement in 1991, and is now a financial consultant. James R. Burnett has been a Director of the Company since 1977. Dr. Burnett, 71, was Executive Vice President and Deputy General Manager, Space and Defense Sector, of TRW, Inc. (manufacturers of military electronics and space hardware) from 1987 until his retirement in 1991, and is now a consultant. Lewis W. Watson has been a Director of the Company since 1981. Mr. Watson, 55, has been President and Director of Intermountain Resources, Inc. (working in mining exploration) since 1981 and formerly was an Audit Partner with Peat, Marwick, Mitchell & Co., certified public accountants, through 1980. Philip E. Johnson has been a Director of the Company since 1986. Mr. Johnson, 49, is currently Chairman of the Board of Katy Industries, Inc. and a Director of Bennington, Johnson, Ruttum & Reeve, P.C., a Denver law firm. George S. Ansell has been a Director of the Company since 1993. Dr. Ansell, 62, has been President of Colorado School of Mines (CSM) since 1984. He came to CSM after serving as Dean of the School of Engineering at Rensselaer Polytechnic Institute (RPI) in New York where he was a 24-year member of the RPI faculty. Dr. Ansell is also a Director of Cyprus Amax Minerals Company. Robert J. Schultz has been a Director of the Company since 1993. Mr. Schultz, 66, Vice Chairman of General Motors from August 1990 until his retirement in January 1993, was responsible for GM Hughes Electronics (defense and automotive electronics), Electronic Data Systems Corporation (information technology), and GM's Corporate Information Activity. Prior to this position, Mr. Schultz was Group Executive in charge of GM's former Chevrolet-Pontiac-GM of Canada group from 1984 through 1989. In 1989, he was elected an Executive Vice President of GM. Erwin H. Billig became a Director of the Company in January 1996. Mr. Billig, 69, has been Vice Chairman of MascoTech, Inc. (major supplier to Ford, Chrysler, GM and European auto manufacturers) since 1993, Chairman of Titan Wheel International since 1993, and Vice Chairman of Delco Remy America since 1994. Prior to his current positions, Mr. Billig was Vice President of International Operations at MascoTech from 1977 to 1984 and President and Chief Operating Officer from 1984 to 1993. Paul J. Martin, 56, was elected Vice President Administration in October 1996 and Secretary in March 1995. Prior to this recent election, Mr. Martin served as Vice President/Treasurer of OEA, Inc. since August 1994, and Vice President/Treasurer of OEA Aerospace, Inc. since 1979, and has been employed by the Company since 1967. J. Thompson McConathy, 49, joined OEA and was elected Vice President Finance and CFO in October 1996. Prior to joining OEA, Mr. McConathy held several senior financial positions with the Black & Decker Corporation over the past eight years and since 1990 served as the Vice President of Finance for the Commercial & Industrial Group. Nuri Y. Olcer, 64, was elected Vice President Engineering Mechanics of the Company in 1985. Prior to this election, Dr. Olcer served as Manager, Engineering Mechanics, for twelve years and has been employed by the Company since 1968. Ben E. Paul, 68, was elected President of OEA Aerospace, Inc. in May 1995. Prior to this election, Mr. Paul was Vice President of OEA Aerospace, Inc. since June 1994 and Director, Technical Operations since July 1992. Prior to rejoining OEA, Mr. Paul was Manager, Advanced Technology at Scot, Inc. (manufacturer of aerospace propellant devices) from 1978 to 1992. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that during the fiscal year ended July 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors, and greater than 10% beneficial owners were complied with; except that one report covering the grant of options pursuant to the 1994 Employee Stock Option Plan was filed late by each of Messrs. A. D. Kafadar, Martin, and Olcer; a Form 3 report and a report covering the grant of options pursuant to the 1994 Employee Stock Option Plan was filed late by Mr. Paul, and two reports covering the grant of options pursuant to the 1994 Employee Stock Option Plan and one other transaction was filed late by Dr. C. B. Kafadar. ITEM 11 - EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth a summary of the compensation paid by the Company during the last three fiscal years ended July 31, 1994, 1995 and 1996, to its Chief Executive Officer and the four other most highly compensated executive officers (the "named executive officers").
Summary Compensation Table Name and Principal Position Year Salary Bonus Other Annual Restricted Stock Options LTIP All Other ($)(1) ($)(2) Compensation Award(s)($) (#) Payouts Compensation ($)(3) ($) ($)(4) Annual Compensation Long-Term Compensation ------------------- ---------------------- Awards Payouts ----------------- --------- Other Annual Restricted LTIP All Other Salary Bonus Compensation Stock Options Payouts Compensation Name and Principal Position Year ($)(1) ($)(2) ($)(3) Award(s)($) (#) ($) ($)(4) - - --------------------------- ---- ------ ------ ------------ ----------- ------- ------- ------------ Ahmed D. Kafadar............. 1996 442,000 53,000 -- -- 2,500 -- 8,413 Chairman of the Board and 1995 442,000 72,000 -- -- -- -- 9,223 Chief Executive Officer 1994 410,463 69,000 -- -- 3,334 -- 14,423 Charles B. Kafadar........... 1996 350,002 49,000 -- -- 2,500 -- 7,940 President and Chief 1995 350,002 63,000 -- -- -- -- 8,703 Operating Officer 1994 324,778 57,000 -- -- 3,000 -- 13,869 Paul J. Martin............... 1996 175,011 24,000 -- -- 2,000 -- 8,189 Vice President 1995 155,779 30,000 -- -- -- -- 8,977 Administration 1994 127,273 25,000 -- -- 1,000 -- 7,945 Nuri Y. Olcer................ 1996 138,008 4,000 -- -- 400 -- 7,552 Vice President 1995 138,008 5,000 -- -- -- -- 8,397 Engineering Mechanics 1994 130,906 5,000 -- -- 500 -- 8,445 Ben E. Paul.................. 1996 190,781 3,000 -- -- 1,000 -- 7,567 President of OEA 1995 163,982 30,000 -- -- -- -- 8,293 Aerospace, Inc. 1994 132,710 10,000 -- -- 1,000 -- 7,798 - - -----------
(1) Amounts shown include compensation earned and received by executive officers as well as amounts earned but deferred at the election of those officers. (2) Represents amounts accrued for executive officers pursuant to the Company's Incentive Compensation Plan. (3) Other annual compensation provided during 1996, 1995, and 1994 did not exceed disclosure thresholds established by the Securities and Exchange Commission. (4) Amounts include the Company's contribution to the Company's Profit Sharing Plan and Pension Plan. Incentive Compensation The Board has, in each of the past several years, authorized payments of incentive compensation (bonus) to employees of the Company, in an aggregate amount to be allocated and distributed at the discretion of the Chairman and President. Sums shown above under "Bonus" include the incentive compensation accrued to the named officers and expensed for financial reporting purposes in fiscal years 1996, 1995 and 1994. Directors' Compensation The Directors of the Company who are employed by it or its subsidiaries were not additionally compensated for their services as Directors during fiscal year 1996. Directors not employed by the Company or its subsidiaries received a base compensation of $9,000 per annum, committee chairmen received an additional base compensation of $1,000 per annum, additional compensation of $2,900 for each board meeting attended, $2,500 for each committee meeting attended on days the Board of Directors did not meet and $2,300 for each committee meeting on days that the Board of Directors met. Directors utilized for consulting purposes received $2,500 per day for their services. Profit Sharing Plan The Company and its wholly owned subsidiary (OEA Aerospace, Inc.) maintain a profit sharing plan with salary reduction provisions permitted by Section 401(k) of the Internal Revenue Code of 1986, as amended, covering all of their employees. Each fiscal year, the Board of Directors of each Company determine the amount of its contribution to its plan up to 10% of the total compensation of all participants for such fiscal year. These contributions are allocated to the accounts of the participants based on a formula which takes into account the compensation and length of service of each participant. Vesting occurs at the rate of 20% at the end of two years of service, as defined in the plan, and 20% for each year of service thereafter, with full vesting at the end of six years of service. Upon normal retirement, death, disability or termination of employment, a participant's account balance is payable, at the administrative committee's option, either in a lump sum or in periodic payments over a period not to exceed ten years. The compensation column headed "All Other Compensation" includes the listed officers' benefits under the applicable profit sharing plan which were accrued during fiscal years 1996, 1995 and 1994. Pension Plan The Company and its wholly owned subsidiary (OEA Aerospace, Inc.) maintain a pension plan covering all of their employees. Each fiscal year the Company and its subsidiary contribute an amount equal to 5% of the aggregate compensation of all participants in the plan for such fiscal year. Vesting occurs at the rate of 20% at the end of two years of service, as defined in the plan, and 20% for each year of service thereafter, with full vesting at the end of six years of service. Upon normal retirement, death, disability or termination of employment, a participant's account balance is payable in the form of a joint and survivor amount if the participant is married, provided, however, if the participant is not married, or if the participant and his or her spouse so elect, the account balance may be paid in a lump sum or, with the administrative committee's permission, in periodic payments over a period not to exceed ten years. The Compensation column headed "All Other Compensation" includes the listed officers' benefits under the applicable pension plan which were accrued during fiscal years 1996, 1995 and 1994. Employment Agreements The Company has entered into an employment agreement with Ahmed D. Kafadar dated May 5, 1989, providing for his full time, active service as Chairman of the Board of Directors and Chief Executive Officer for an indefinite term. Mr. Kafadar's employment is terminable at any time at his election, or by the Company for any reason. The agreement provides for payments upon termination, pursuant to a formula based on his compensation for the three years prior to his termination, to Mr. Kafadar during his lifetime and to his surviving spouse for up to 15 years following his death. If Mr. Kafadar had terminated his employment as of July 31, 1996, payments calculated in accordance with the agreement would have approximated $170,600 per year for Mr. Kafadar, or $102,400 per year for his surviving spouse. The Company has entered into an employment agreement with Charles B. Kafadar dated March 15, 1990, providing for his full time, active service as President and Chief Operating Officer for an indefinite term. Dr. Kafadar's employment is terminable at his election after age 65 and 33 years of continuous service, or by the Company at any time for any reason. Upon termination or retirement, the agreement provides for payments, pursuant to a formula based on his compensation for the three years prior to his termination, to Dr. Kafadar during his lifetime and, in the event of his death, his surviving spouse for up to 10 years. Dr. Kafadar will not be eligible to elect under the agreement to terminate his employment until 2010. If Dr. Kafadar had terminated his employment as of July 31, 1996, termination payments calculated in accordance with the agreement would have approximated $193,300 per year for Dr. Kafadar, or $96,700 per year for his surviving spouse. Incentive Stock Option Plans The stockholders approved an Employees' Stock Option Plan (the "Employees' Plan") on January 13, 1995, and a Nonemployee Directors' Stock Option Plan (the "Directors' Plan") on January 12, 1996. These plans provide for stock options to be granted for a maximum of 600,000 shares of Common Stock under the Employees' Plan and a maximum of 50,000 shares of Common Stock under the Directors' Plan. Options may be granted to employees and nonemployee directors at prices not less than fair market value of the Company's Common Stock on the date of grant. Options granted under the Employees' Plan may be exercised at any time after the grant date, except for executive officers which may be exercised after six months, and options issued under the Directors' Plan may be exercised after the first six months following the grant date. All options must be exercised within 10 years of the grant date, except for those options granted to recipients who own more than 10% of the total combined voting power of the stock of the Company which must be exercised within 5 years of the grant date. Shares may be granted from either authorized but unissued Common Stock or issued shares reacquired and held as treasury stock. The Company maintains an incentive stock option plan, for grants prior to July 28, 1994, which provides for the grant, by the Board of Directors, of options to purchase shares of the Company's Common Stock to those officers and key employees of the Company and its subsidiaries who have performed services, which in the opinion of the Board of Directors, were of special importance in the management, operation and development of the Company. Options granted are exercisable during the period commencing one year after the date of grant and ending ten years after the date of grant, except that any option granted to a recipient who owns more than 10% of the total combined voting power of the stock of the Company is exercisable only until five years after the date of grant. The exercise price of the options granted is to be equal to 100% of the fair market value of the Company's Common Stock on the date of the grant, except that the exercise price of any option granted to a recipient who owns more than 10% of the total voting power of the stock of the Company is to be equal to 110% of the fair market value of the Company's Common Stock on the date of the grant. The following table sets forth information on option grants made during fiscal year 1996 to the named executive officers. (None of the named executive officers have ever received stock appreciation rights.)
Option Grants in Last Fiscal Year Potential Realizable Value at Assumed Annual Rates of % of Total Stock Price Options Appreciation for Options Granted to Option Term(2) Granted Employees in Exercise Price Expiration ------------------- Name (#)(1)(4) Fiscal 1996(3) ($/Share)(1) Date 5%($) 10%($) ---- --------- -------------- -------------- ---------- ------ -------- Ahmed D. Kafadar........... 3,334 12.14 30.80 11/03/00 28,371 62,692 Charles B. Kafadar......... 3,000 10.92 28.00 11/03/05 52,827 133,874 Paul J. Martin............. 2,000 7.28 28.00 11/03/05 35,218 89,250 Nuri Y. Olcer.............. 400 1.46 28.00 11/03/05 7,044 17,850 Ben E. Paul................ 2,000 7.28 28.00 11/03/05 35,218 89,250 - - -----------
(1) On November 3, 1995, the Board of Directors granted options to purchase an aggregate of 27,472 shares of the Company's $0.10 par value Common Stock at an exercise price equal to $28.00 per share, except that the exercise price of the options granted to any recipient who owns more than 10% of the total voting power of the Company was equal to $30.80 per share. The options granted will expire on November 3, 2005, except that the options granted to any recipient who owns more than 10% of the total voting power of the Company will expire on November 3, 2000. No consideration was or is to be received by the Company for the granting of any option. Under present law and interpretations thereof, the federal income tax treatment of the stock options, in general, is that the optionee is not subject to federal income tax upon the grant of an option or upon the exercise of an option unless the alternative minimum tax requirements of the Internal Revenue Code apply. (2) Potential realizable value is calculated based on an assumption that the price of the Company's Common Stock appreciates at the annual rate shown (5% and 10%), compounded annually, from the date of grant of the option until the end of the option term. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not in any way represent the Company's estimate or projection of future stock prices. Actual gains, if any, upon future exercise of any of these options will depend on the actual performance of the Company's Common Stock and the continued employment of the executive officer holding the option through its vesting period. (3) Based on options to purchase an aggregate of 27,472 shares granted during fiscal year 1996. (4) All options vest May 3, 1996. The following table sets forth information on option exercises in fiscal year 1996 by the named executive officers and the value of such officers' unexercised options at July 31, 1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Number of Value of Unexercised Unexercised In-the-Money Options at Options at Fiscal Number of Fiscal Year-End Year-End($)(1) Shares ---------------- --------------------- Acquired on Value Exercisable/ Exercisable/ Name Exercise Realized($) Unexercisable Unexercisable ---- ------------ ----------- ---------------- --------------------- Ahmed D. Kafadar......................... -- -- 16,668/ -- 130,005/ -- Charles B. Kafadar....................... -- -- 69,000/ -- 1,819,873/ -- Paul J. Martin........................... 3,750 30,000 4,250/ -- 30,125/ -- Nuri Y. Olcer............................ -- -- 5,900/ -- 76,012/ -- Ben E. Paul.............................. -- -- 3,000/ -- 18,250/ -- - - -----------
(1) Only the value of unexercised, in-the-money options are reported. Value is calculated by (i) subtracting the total exercise price per share from the year-end market value of $34.75 per share and (ii) multiplying by the number of shares subject to the option. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee (the "Committee") is pleased to present its report on executive compensation. This Committee report documents the components of the Company's executive officer compensation programs and describes the basis on which fiscal year 1996 compensation determinations were made by the Committee with respect to the Chief Executive Officer and other executive officers of the Company. Compensation Philosophy and Overall Objectives of Executive Compensation Programs It is the philosophy of the Company and Committee to ensure that executive compensation be primarily linked to corporate performance and increases in shareholder value. The following objectives have been adopted by the Committee as guidelines for compensation decisions: - Provide a competitive total compensation package that enables the Company to attract and retain key executives. - Integrate all pay programs with the Company's annual and long-term business objectives and strategy, and focus executive performance on the fulfillment of those objectives. - Provide variable compensation opportunities that are directly linked with the performance of the Company and that align executive remuneration with the interests of stockholders. Compensation Program Components The Committee annually reviews the Company's compensation program to ensure that pay levels and incentive opportunities are competitive and reflect the performance of the Company. The particular elements of the compensation program for executive officers are as follows: Base Salary -- Base salary levels are determined largely through comparisons with companies of similar revenue size and industry groups. Base pay levels for the executive officers are competitive within a range that the Committee considers reasonable and appropriate. Actual salaries reflect overall Company performance and contributions of the individual within a competitive salary range which is established through job evaluations and market comparisons. Management performance goals were met for the fiscal years ended July 31, 1994, July 31, 1995, and July 31, 1996. The Committee recommended that executive salaries be increased effective May 1, 1993, consistent with a 1993 Executive Compensation Review of five (5) published surveys of base salary and total cash compensation comparisons. The 1993 review, adjusted for period differences, and a company survey of automotive safety products and aerospace companies of similar revenue size was utilized for executive salary increases during the fiscal years 1994 and 1995. The Crystal Report of middle market-cap firms was also utilized for the fiscal year 1995 and 1996 determinations. Annual Incentive Compensation -- The Company's officers, senior management personnel and all other personnel are eligible to participate in an annual incentive compensation plan with awards based primarily on the achievement of certain corporate net earnings goals and related stock price appreciation. These goals are normally considerably higher than those being attained by other companies of similar or larger revenue size within its primary industry segments. The objective of this plan is to pay competitive levels of total compensation for the attainment of financial objectives that the Committee believes are primary determinants of share price over time. Specifically, the plan intends to focus corporate and individual performance on consistent and steady earnings growth. Targeted awards and base compensation for executive officers under this plan are consistent with targeted awards of companies of similar size and complexity to the Company. Actual awards are subject to increase or decrease on the basis of the Company's earnings performance and at the discretion of the Committee. Stock Option Plan -- The Committee believes that the best interests of stockholders will be served by providing executive officers and other key personnel who have substantial responsibility for the continued success and profitability of the Company with an opportunity to increase their ownership of Company Stock. Therefore, from time to time as recommended by the Committee, executive officers and key personnel are granted stock options in accordance with the Company's Incentive Stock Option Plan. These personnel have the right to purchase shares of Common Stock of the Company in the future, at the market value price of the stock on the date of the grant. The value of the options granted relates to personal performance and corporate goals achieved. Chief Executive Officer Compensation -- In determining Mr. Ahmed D. Kafadar's fiscal year 1996 pay and the structure of his total compensation package, the Committee considered OEA's technical and financial performance during 1996, the magnitude and effectiveness of the Company's continued expansion into the automotive products industry, the relationship of Mr. Kafadar's compensation with the 75th Percentile Market Consensus for Executive Compensation established in the "1993 Executive Compensation Review" commissioned by the Committee, comparisons with executives of automotive safety products and aerospace companies of similar revenue size, and the 1996 Crystal Report on the total direct compensation of CEO's in 500 middle market-cap firms. During fiscal year 1996, OEA had another record year and continued its successful growth in its automotive safety products segment. In 1996, the Company increased automotive sales by 28% and operating profit by 19% which were derived from airbag initiators, inflators, gas generators and igniter cord. Automotive product sales increased to 76% of total sales compared to 70% in the prior year and 62% in 1994. Production of the "smokeless" hybrid inflators was successfully launched in Denver during the year for delivery to module manufacturers. OEA's continued expansion in the automotive air bag market should provide continued growth and profitability. The Committee recognizes Mr. Kafadar's significant contribution to the above; however, his base salary was not increased during 1996 and a modest decrease in incentive compensation was granted pending completion of a study regarding near-term and long-term incentives. Summary -- Based upon the 1996 Crystal Reports and its review of base salary and total cash executive compensation comparisons for companies of similar revenue and industry groups, the Committee believes that the total compensation program for certain executive personnel of the Company may not be competitive. This matter is being thoroughly reviewed at this time. The Committee also believes that the stock option program provides opportunities to participants that are consistent with the returns generated for the Company's Stockholders. Dr. J. Robert Burnett, Chairman Ralph A. L. Bogan, Jr. Erwin H. Billig The following graph compares the yearly percentage change in cumulative total stockholder return on the Company's Common Stock during the five years ended July 31, 1996, with the cumulative total return on the S&P 500 Index and the S&P Automobiles Index. The comparison assumes $100 was invested on July 31, 1991, in the Company's Common Stock and in each of such indices and assumes reinvestment of dividends, if any. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Data Points 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- o OEA, Inc...................... 100 169 184 219 219 256 + S&P 500....................... 100 113 123 129 163 190 * S&P Automobiles............... 100 127 164 186 182 204
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Certain Beneficial Owners As of November 29, 1996, the following persons, exclusive of management, were known to the Company to own beneficially more than 5% of the only class of voting securities of the Company (i.e. Common Stock, $0.10 par value):
Amount and Name and Address of Nature of Percent Beneficial Owner Beneficial Ownership* of Class* ------------------- --------------------- --------- Raymond Shaheen, Esq., Trustee 1,376,616(1) 6.7 20 North Wacker Drive Chicago, Illinois 60606 T. Rowe Price Associates, Inc. 1,491,000(2) 7.3 100 E. Pratt Street Baltimore, Maryland 21202 - - -----------
* This information is taken from statements filed by beneficial owners with the SEC and by reference to the transfer agent's records as of November 29, 1996. (1) Mr. Shaheen holds record title and voting rights to such shares under the terms of four separate trusts established by Ahmed D. Kafadar in 1960 for the benefit of his children. (2) T. Rowe Price Associates, Inc. is a Registered Investment Advisor and the shares are owned on behalf of their clients. T. Rowe Price has sole investment authority over all shares and sole voting authority for 136,500 shares and no voting authority over 1,354,500 shares. Management As of November 29, 1996, the following Directors and Officers, individually, and all Directors and Officers as a group, beneficially owned shares of the only class of voting securities of the Company (i.e. Common Stock, $0.10 par value) as follows:
Amount and Nature of Percent Name of Beneficial Owner Beneficial Ownership** of Class** ------------------------ ---------------------- ---------- Ahmed D. Kafadar...................... 2,640,861(1)(4) 12.9 Charles B. Kafadar.................... 134,421(2)(4) -- Ralph A. L. Bogan, Jr. ............... 119,225 -- James R. Burnett...................... 18,625(3) -- Lewis W. Watson....................... 2,125 -- Philip E. Johnson..................... 12,625 -- George S. Ansell...................... 825 -- Robert J. Schultz..................... 4,625 -- Erwin H. Billig....................... 625 -- Paul J. Martin........................ 28,534(4) -- J. Thompson McConathy................. 100 -- Nuri Y. Olcer......................... 40,956(4) -- Ben E. Paul........................... 47,568(4) -- All Directors and Executive Officers as a group(the 13 persons named above). 3,051,115 14.9 - - -----------
** This information is taken from statements filed by beneficial owners with the SEC and by reference to the transfer agent's records as of November 29, 1996. A line indicates ownership of less than 1%. (1) Includes 21,768 shares held by Mr. Kafadar of record, 66,012 shares held in joint tenancy with his wife, 1,167,597 shares held as trustee of the Ahmed D. Kafadar Family Trust, 568,838 shares held as trustee of the Maryanna B. Kafadar Family Trust and 803,478 shares held as trustee of the Ahmed D. Kafadar Marital Trust. Does not include 41,266 shares held by his wife in her own name, of which he disclaims beneficial ownership. (2) Includes 48,445 shares held by Dr. Kafadar of record and 32,476 shares held in joint tenancy with his wife, in which voting power is shared. Does not include 10,250 shares held by his wife in her own name or 38,584 shares held by his wife as custodian for their children, of which he disclaims beneficial ownership. (3) Dr. Burnett holds these shares in a living trust with his wife, and in which voting power is shared. (4) Includes unexercised stock options under the Company's Incentive Stock Option Plan: Mr. A. D. Kafadar, 13,168 shares; Dr. C. B. Kafadar, 53,500 shares; Mr. R. A. L. Bogan, Jr., 625 shares; Dr. J. R. Burnett, 625 shares; Mr. L. W. Watson, 625 shares; Mr. P. E. Johnson, 625 shares; Dr. G. S. Ansell, 625 shares; Mr. R. J. Schultz, 625 shares; Mr. E. H. Billig, 625 shares; Mr. P. J. Martin, 6,250 shares; Dr. N. Y. Olcer, 6,300 shares; and Mr. B. E. Paul, 4,000 shares. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item, if any, will appear in, and is incorporated by reference from, the Registrant's definitive proxy statement for its 1997 annual shareholders meeting to be filed with the Securities and Exchange Commission prior to November 29, 1996. 18 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as a part of this report: (1) Financial Statements: Report of Independent Auditors Consolidated Balance Sheets - July 31, 1996 and 1995 Consolidated Statements of Earnings Years ended July 31, 1996, 1995, and 1994 Consolidated Statements of Stockholders' Equity Years ended July 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows Years ended July 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements (2) Financial Statement Schedules required to be filed by Item 8 of Form 10-K and by paragraph (d) of this Item 14: The schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted. (3) Exhibits required to be filed by Item 601 of Regulation S-K and paragraph (c) of this Item 14: Exhibit 3 - Articles of Incorporation, as amended, (incorporated by reference) and By- laws, as amended (incorporated by reference). Exhibit 10 - Material contracts between the Registrant and its Chairman/CEO and President/COO include retirement agreements dated May 5, 1989, and May 15, 1990, respectively, (incorporated by reference). 19 Exhibit 22 - During fiscal year 1996, the Registrant was the parent company of each of the following described companies: Percent of Outstanding Corporation Stock Owned by Parent OEA Aerospace, Inc. 100% a California corporation, which owns 100% of Aerotest Operations, Inc., a California corporation Pyroindustrie S.A. a corporation in France August 1995 through December 1995 80% January 1996 through July 1996 100% Foreign Corporate Percentage of Joint Venture Ownership Pyrospace S.A. 45% a corporation in France The above entities are included in the consolidated financial statements of the Registrant being submitted herewith. (b) Reports on Form 8-K during the quarter ended July 31, 1996. None 20 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: October 25, 1996 OEA, INC. Registrant By_________________________ Ahmed D. Kafadar, Chairman and Chief Executive Officer DIRECTORS AND OFFICERS Ahmed D. Kafadar,Chairman of the Charles B. Kafadar, President, Board and Principal Executive Principal Operating Officer, and Officer Director J. Robert Burnett, Director Philip E. Johnson, Director Lewis W. Watson, Director Paul J. Martin, Vice President/ Treasurer and Principal Financial Officer John E. Banko IV, Controller 21 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14 (a)(1) and (2) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES Year Ended July 31, 1996 OEA, Inc. and Subsidiaries Denver, Colorado 22 Report of Independent Auditors The Board of Directors and Stockholders OEA, Inc. We have audited the accompanying consolidated balance sheets of OEA, Inc. and subsidiaries as of July 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OEA, Inc. and subsidiaries at July 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP Denver, Colorado October 9, 1996 23 OEA, Inc. and Subsidiaries Consolidated Balance Sheets
July 31 1996 1995 ---------------------------------- Assets Current assets: Cash and cash equivalents $ 2,560,213 $ 19,342,034 Accounts receivable 29,960,161 23,879,495 Unbilled costs and accrued earning 6,845,200 3,974,500 Inventories 36,613,020 24,656,806 Income taxes receivable 832,906 2,476,800 Prepaid expenses and other 767,952 541,724 ---------------------------------- Total current assets 77,579,452 74,871,359 Property, plant, and equipment: Land and improvements 1,805,943 1,726,211 Buildings and improvements 40,657,235 32,898,017 Machinery and equipment 105,149,565 70,409,817 Furniture and fixtures 7,333,729 5,687,470 ---------------------------------- 154,946,472 110,721,515 Accumulated depreciation and amortization 40,800,194 31,276,450 ---------------------------------- 114,146,278 79,445,065 Cash value of life insurance 317,094 363,508 Long-term receivable 3,000,000 3,000,000 Investment in foreign joint venture 3,402,230 2,829,554 Deferred charges 3,610,300 - Other assets 1,152,417 392,349 ---------------------------------- Total assets $ 203,207,771 $ 160,901,835 ==================================
24
July 31 1996 1995 ----------------------------------- Liabilities and stockholders' equity Current liabilities: Accounts payable $ 12,230,628 $ 5,769,163 Bank borrowings 14,000,000 - Accrued expenses: Salaries and wages 3,273,342 2,628,992 Profit sharing and pension contributions 1,388,717 1,501,958 Other 968,565 975,881 Deferred income 206,168 206,168 Deferred income taxes 1,456,238 1,078,113 ---------------------------------- Total current liabilities 33,523,658 12,160,275 Deferred income 216,735 216,735 Deferred income taxes 8,074,731 5,771,775 Deferred compensation 944,339 944,339 Commitments and contingencies Minority interest - 1,456,378 Stockholders' equity: Common stock, $0.10 par value: Authorized shares - 50,000,000 Issued and outstanding shares - 22,019,700 2,201,970 2,201,970 Additional paid-in capital 12,467,556 12,012,450 Retained earnings 147,267,964 126,849,357 Treasury stock, 1,505,256 and 1,533,072 shares in 1996 and 1995, respectively, at cost (2,104,218) (1,869,483) Equity adjustment from translation 615,036 1,158,039 --------------------------------------- Total stockholders' equity 160,448,308 140,352,333 --------------------------------------- Total liabilities and stockholders' equity $203,207,771 $160,901,835 =======================================
See accompanying notes. 25 OEA, Inc. and Subsidiaries Consolidated Statements of Earnings
Year ended July 31 1996 1995 1994 --------------------------------------------------------- Net sales $152,809,509 $129,210,771 $109,892,742 Cost of sales 101,952,970 83,399,001 71,558,302 --------------------------------------------------------- Gross profit 50,856,539 45,811,770 38,334,440 General and administrative expenses 7,374,245 7,377,782 6,448,215 Research and development expenses 4,416,025 3,507,282 1,814,766 --------------------------------------------------------- Operating profit 39,066,269 34,926,706 30,071,459 Other income (expense): Interest income 684,988 769,718 410,006 Interest expense (72,388) (25,770) (112,111) Equity in earnings of foreign joint venture 572,676 282,139 42,833 Other, net 431,463 272,941 (946,695) --------------------------------------------------------- 1,616,739 1,299,028 (605,967) --------------------------------------------------------- Earnings before minority interest and income taxes 40,683,008 36,225,734 29,465,492 Minority interest in net loss of consolidated subsidiary 24,594 519,564 - --------------------------------------------------------- Earnings before income taxes 40,707,602 36,745,298 29,465,492 Income tax expense 15,165,119 15,469,088 11,512,973 --------------------------------------------------------- Net earnings $25,542,483 $21,276,210 $17,952,519 ========================================================= Net earnings per share $1.25 $1.04 $0.88 ========================================================= Weighted average number of shares outstanding during year 20,499,373 20,480,060 20,438,587 =========================================================
See accompanying notes. 26 OEA, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Equity Additional Adjustment Total Common Stock Paid-In Retained From Treasury Stockholders' -------------------------- Shares Amount Capital Earnings Translation Stock Equity ----------------------------------------------------------------------------------------------------- Balances at July 31, 1993 22,019,700 $2,201,970 $11,452,217 $ 94,782,895 $ - $(1,635,622) $106,801,460 Purchase of 11,433 shares of common stock for treasury - - - - - (329,344) (329,344) Issuance of 63,832 shares of treasury stock for options exercised - - 425,907 - - 69,774 495,681 Net earnings - - - 17,952,519 - - 17,952,519 Cash dividends ($0.15 per share) - - - (3,065,854) - - (3,065,854) ----------------------------------------------------------------------------------------------------- Balances at July 31, 1994 22,019,700 2,201,970 11,878,124 109,669,560 - (1,895,192) 121,854,462 Issuance of 21,083 shares of treasury stock for options exercised - - 134,326 - - 25,709 160,035 Net earnings - - - 21,276,210 - - 21,276,210 Cash dividends ($0.20 per share) - - - (4,096,413) - - (4,096,413) Translation adjustment - - - - 1,158,039 - 1,158,039 ----------------------------------------------------------------------------------------------------- Balances at July 31, 1995 22,019,700 2,201,970 12,012,450 126,849,357 1,158,039 (1,869,483) 140,352,333 Purchase of 9,254 shares of common stock for treasury (283,887) (283,887) Issuance of 37,070 shares of treasury stock for options exercised - - 455,106 - - 49,152 504,258 Net earnings - - - 25,542,483 - - 25,542,483 Cash dividends ($0.25 per share) - - - (5,123,876) - - (5,123,876) Translation adjustment - - - - (543,003) - (543,003) ----------------------------------------------------------------------------------------------------- Balances at July 31, 1996 22,019,700 $2,201,970 $12,467,556 $147,267,964 $615,036 $(2,104,218) $160,448,308 =====================================================================================================
See accompanying notes. 27 OEA, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year ended July 31 1996 1995 1994 --------------------------------------------------------- Operating activities Net earnings $25,542,483 $21,276,210 $17,952,519 Adjustments to reconcile net earnings to net cash provided by operating activities: Undistributed earnings of foreign joint venture (572,676) (282,139) (42,833) Depreciation and amortization 10,186,075 7,471,300 5,502,125 Deferred income taxes 2,681,081 2,374,190 170,755 Minority interest in net loss of consolidated subsidiary (24,594) (519,564) - Increase in deferred compensation - 122,304 60,756 Loss on sale of property, plant, and equipment 211,369 759,430 708,639 Changes in operating assets and liabilities: Accounts receivable (6,163,965) 2,553,125 214,541 Unbilled costs and accrued earnings (2,870,700) (239,979) 2,957,882 Inventories (11,989,079) 1,734,084 (1,075,020) Prepaid expenses and other (227,572) 309,561 (34,853) Accounts payable and accrued expenses 7,074,831 3,416,518 (154,498) Deferred income - - (58,802) Income taxes 1,643,894 (2,660,577) 171,704 --------------------------------------------------------- Net cash provided by operating activities 25,491,147 36,314,463 26,372,915 Investing activities (Reductions)additions to investments in and advances to affiliates (1,324,010) 1,975,942 - Decrease in marketable securities - - 376,818 Capital expenditures (45,500,031) (19,912,283) (16,823,885) Proceeds from sale of property, plant, and equipment 40,000 68,379 535 Decrease (increase) in cash value of life insurance 46,414 (37,944) (5,698) Increase in deferred charges (3,610,300) - - Increase in other assets, net (792,392) - - --------------------------------------------------------- Net cash used in investing activities (51,140,319) (17,905,906) (16,452,230) Financing activities Purchase of common stock for treasury (283,887) - (329,344) Proceeds from issuance of treasury stock 504,258 160,035 495,681 Increase (decrease) in net bank borrowings 14,000,000 - (2,900,000) Decrease in deferred income - - (206,168) Payment of dividends (5,123,876) (4,096,413) (3,065,854) --------------------------------------------------------- Net cash provided by (used in) financing activities 9,096,495 (3,936,378) (6,005,685) Effect of exchange rate changes on cash (229,143) 23,123 - --------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (16,781,820) 14,495,302 3,915,000 Cash and cash equivalents at beginning of year 19,342,033 4,846,732 931,732 --------------------------------------------------------- Cash and cash equivalents at end of year $ 2,560,213 $19,342,034 $ 4,846,732 ========================================================= Supplemental information: Interest payments $ 220,136 $ 24,935 $ 112,111 Income tax payments 11,645,000 15,599,291 11,226,646
See accompanying notes. 28 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements July 31, 1996 1. Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts and transactions of OEA, Inc. (the "Company"), its wholly owned subsidiary, OEA Aerospace, Inc., and a wholly owned foreign subsidiary, Pyroindustrie S.A. All significant intercompany balances and transactions have been eliminated. The investment in a foreign joint venture in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies (greater than 20% ownership), is accounted for using the equity method, under which the Company's share of earnings of the joint venture is reflected in income as earned and distributions will be credited against the investment when received. Revenue Recognition Sales of products within the government contracting segment are recognized as deliveries are made or when the products are completed and held on the Company's premises to meet specified contract delivery dates. Sales of undelivered products are included in unbilled costs and accrued earnings and are anticipated to be delivered and billed within 12 months of the balance sheet date. Costs are based on the estimated average cost per unit based on units to be produced under the contract. Inventories Inventories of raw materials and component parts are stated at the lower of cost (principally first-in, first-out) or market. Inventoried costs of work in process and finished goods are stated at average production costs consisting of materials, direct labor, and manufacturing overhead, reduced by costs identified with recorded sales. General and administrative expenses, initial tooling, and other nonrecurring costs are not included in inventoried costs. Stock Based Compensation In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123 is applicable for fiscal years beginning after December 15, 1995 and gives the option to either follow fair value accounting or to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations. 29 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) The Company has determined it will follow APB No. 25 and related interpretations in accounting for its employee stock options. The Company has not yet determined the impact on its financial position or results of operations had fair value accounting been adopted. Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to earnings as incurred and major renewals and betterments are capitalized. Upon sale or retirement, the cost of the assets and related allowances for depreciation are removed from the accounts, and the resulting gains or losses are reflected in operations. Depreciation is computed on the straight-line, double-declining balance, and units-of-production methods at rates calculated to amortize the cost of the depreciable assets over the related useful lives. Depreciation charged to costs and expenses was $10,153,751, $7,454,851 and $5,485,673 in 1996, 1995, and 1994, respectively. Repairs and maintenance charged to costs and expenses was $5,064,962, $5,027,645 and $4,090,642 in 1996, 1995, and 1994, respectively. In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. The Company will adopt Statement No. 121 in the first quarter of fiscal year 1997 and, based on current circumstances does not believe the effect of adoption will be material. Earnings per Share Earnings per share of common stock is computed on the basis of the weighted average number of shares outstanding during the year. The effect on reported earnings per share from the assumed exercise of stock options outstanding during the years ended July 31, 1996, 1995, and 1994 would be insignificant. 30 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Research and Development Expenses for new products or improvements of existing products, net of amounts reimbursed from others, are charged against operations in the year incurred. Foreign Currency Translation Assets and liabilities of the Company's foreign subsidiary (Pyroindustrie S.A.) are translated to U.S. dollars at period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the period. The local currency is used as the functional currency for the subsidiary. A translation adjustment, which is recorded as a separate component of stockholders' equity, results from translating the foreign subsidiary's accounts from functional currencies to U.S. dollars. Exchange gains (losses) resulting from foreign currency transactions are included in the consolidated statements of earnings. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosures of fair value information about financial instruments for which it is practicable to estimate that value. The Company's financial instruments consist principally of cash and cash equivalents, receivables, unbilled costs and accrued earnings, accounts payable and bank borrowings. The Company believes all of the financial instruments' recorded values approximate current values. 31 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) Deferred Start-Up Costs During the initial phase of new product introductions or development of significant new plant facilities for which prospective sales and cost recovery are based upon long-term commitments from customers, start-up costs are deferred and are amortized on a straight-line basis over periods not exceeding five years. 2. Inventories Inventories are summarized as follows:
July 31 1996 1995 ------------------------------------- Raw materials and component parts $21,238,135 $11,316,265 Work in process 11,751,544 10,754,339 Finished goods 3,623,341 2,586,202 ------------------------------------- $36,613,020 $24,656,806 =====================================
3. Investment in Foreign Joint Ventures On October 5, 1986, a joint venture agreement was signed between the Company and two French companies for the establishment of a company (Pyrospace S.A.) in France. Pyrospace is engaged in the design, development, and manufacture of propellant and explosive devices for European space programs, as well as aircraft and missiles. The Company is a 45% owner of Pyrospace. During October 1993, a joint venture agreement was signed between the Company (80% owner) and Pyrospace (20% owner) for the establishment of a company in France, Pyroindustrie S.A.. Pyroindustrie is engaged in the manufacture of initiators for the European air bag market. In January of 1996, the Company acquired the remaining 20% of Pyroindustrie making Pyroindustrie a wholly owned subsidiary of the Company. Net assets of Pyroindustrie at July 31, 1996 totaled $9,937,919. 32 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Bank Borrowings At July 31, 1996, the Company has a $15,000,000 unsecured revolving credit line with a financial institution with an interest rate at the lower of the institution's prime interest rate or .625% per annum above the federal funds rate. In addition, at the request of the borrower, the financial institution, in its sole discretion, may make loans to the borrower at an interest rate equal to "LIBOR" plus .625%. The Company is required to pay an annual commitment fee equal to .1875 of 1% on the total amount of the commitment. The facility will expire on December 31, 1996. At July 31, 1996, the debt outstanding relating to the line of credit is $14,000,000. Interest costs incurred during 1996 were $220,136, including capitalized interest costs of $147,748. The weighted average interest rate on bank borrowings during fiscal year 1996 was 6%. 5. Commitments and Contingencies Contract disputes and other claims may arise in connection with government contracts and subcontracts. A substantial portion of the Company's nonautomotive sales for the current and prior years is subject to audit by the Defense Contract Audit Agency. Such audits may occur at any time up to three years after contract completion. In the opinion of the Company's management, a provision for government claims is not necessary. During December 1994, the Company effected a complete settlement of the previously reported Colorado Department of Health ("CDH") civil action and U.S. Environmental Protection Agency federal criminal investigation. Under the terms of the settlement agreements, the Company agreed to pay fines in the amount of $2,250,000. The Company has paid $2,160,000 and has accrued $90,000 as of July 31, 1996. The Company has employment agreements with the Chairman of the Board and the President providing for their full-time active service with specified retirement benefits after employment termination. The estimated discounted present value of these retirement benefits has been accrued as of July 31, 1996 and 1995. 33 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. Commitments and Contingencies (continued) The Company has commitments to purchase approximately $62,000,000 of property, plant, and equipment. 6. Profit Sharing and Pension Plans The Company has noncontributory profit sharing and defined contribution pension plans covering all full-time employees. Combined contributions to these plans for the years ended July 31, 1996, 1995, and 1994 were $1,410,449, $1,501,958 and $1,430,984, respectively. The Company is committed to contribute to the pension plans 5% of participants' eligible annual compensation as defined in the plan documents. Employer contributions to the profit sharing plans are discretionary, but are not to exceed 10% of eligible annual compensation. 7. Income Taxes Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of July 31, 1996 and 1995 are as follows:
1996 1995 --------------------------------- Current deferred tax liabilities: Unbilled receivables $ 520,036 $ 510,886 Inventory valuation 270,897 - Prepaid expenses 202,785 175,463 Deferred income on DAICEL agreement 370,280 370,280 Other 123,845 43,538 --------------------------------- Total current deferred tax liabilities 1,487,843 1,100,167
34 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Income Taxes (continued)
1996 1995 ----------------------------------- Long-term deferred tax liabilities: Book basis of plant and equipment in excess of tax basis $6,194,481 $5,286,379 Deferred income on DAICEL agreement 821,925 821,925 Deferred charges 1,380,940 - Other 38,595 13,141 ----------------------------------- Total long-term deferred tax liabilities 8,435,941 6,121,445 ----------------------------------- Total deferred tax liabilities 9,923,784 7,221,612 Current deferred tax asset: Other 31,605 22,054 Long-term deferred tax asset: Deferred compensation 361,210 349,670 ----------------------------------- Total deferred tax assets 392,815 371,724 ----------------------------------- Net deferred tax liabilities $9,530,969 $6,849,888 ===================================
Components of income tax expense (benefit) are as follows:
Current Deferred Total ----------------------------------------------------- 1996: Federal $10,839,695 $2,302,850 $13,142,545 State 1,644,343 378,231 2,022,574 ----------------------------------------------------- $12,484,038 $2,681,081 $15,165,119 ===================================================== 1995: Federal $11,120,737 $2,461,113 $13,581,850 State 1,974,161 (86,923) 1,887,238 ----------------------------------------------------- $13,094,898 $2,374,190 $15,469,088 ===================================================== 1994: Federal $ 9,473,180 $ (51,740) $ 9,421,440 State 1,869,038 222,495 2,091,533 ----------------------------------------------------- $11,342,218 $ 170,755 $11,512,973 =====================================================
35 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Income Taxes (continued) Actual tax expense for 1996, 1995, and 1994 differs from "expected" tax expense for those years (computed by applying the U.S. federal corporate tax rate of 35% for 1996, 35% for 1995 and 35% for 1994 to earnings before income taxes) as follows:
1996 1995 1994 ----------------------------------------------------- Computed "expected" tax expense $14,247,661 $12,860,854 $10,312,922 Increases (reductions) in taxes resulting from: State taxes, net of federal income tax benefit 1,314,673 1,226,705 1,359,496 Settlement of environmental matters - 787,500 - (Income) loss from foreign operations (296,706) 727,300 - Income tax credits (175,000) (461,074) (89,748) Other 74,491 327,803 (69,697) ----------------------------------------------------- Actual tax expense $15,165,119 $15,469,088 $11,512,973 =====================================================
8. Stock Options The shareholders approved an Employees' Stock Option Plan (the "Employees' Plan") on January 13, 1995 and a Nonemployee Directors' Stock Option Plan (the "Directors' Plan") on January 12, 1996. These plans provide for stock options to be granted for a maximum of 600,000 shares of common stock under the Employees' Plan and a maximum of 50,000 shares of common stock under the Directors' Plan. Options may be granted to employees and nonemployee directors at prices not less than fair market value of the Company's common stock on the date of grant. Options granted under the Employees' Plan may be exercised at any time after the grant date and options issued under the Directors' Plan may be exercised after the first six months following the grant date. Shares may be granted from either authorized but unissued common stock or issued shares reacquired and held as treasury stock. Under the Employees' Plan, options for 25,472 shares, net of forfeitures, were granted at an average option price of $28.34, and options for 25,272 shares remain outstanding as of July 31, 1996. During 1996, options for 2,000 shares were forfeited, and options for 200 shares were exercised at an average option price of $28.00. There were no options exercised during 1995 under the Employees' Plan. 36 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. Stock Options (continued) Under the Directors' Plan options for 4,375 shares were granted at an average option price of $27.75 and remain outstanding as of July 31, 1996. During 1996 there were no options exercised or forfeited. Prior to July 28, 1994, the Company had a qualified incentive stock option plan for key employees of the Company whereby a total of 666,000 shares of common stock were reserved for issuance. Options were granted to key employees at prices not less than the fair market value of the Company's common stock on the date of grant, and were exercisable after one year of continuous employment following the date of grant. Under this plan, options for 615,842 shares, net of forfeitures, were granted at an average option price of $7.25, and options for 130,514 shares remain outstanding as of July 31, 1996. During 1996, options for 8,311 shares were forfeited. During 1996 and 1995, options for 36,870 and 21,083 shares, respectively, were exercised at an average price of $13.52 and $7.59, respectively. 9. Segment Information and Major Customers The Company operates primarily in two industry segments, automotive and nonautomotive. Financial information for each segment and major customers is summarized as follows:
1996 ---------------------------------------------------------------- Automotive Nonautomotive Total ---------------------------------------------------------------- Net sales $115,586,930 $37,222,579 $152,809,509 Operating profit 33,283,955 5,782,314 39,066,269 Identifiable assets 157,569,207 45,638,564 203,207,771 Depreciation expense 9,016,668 1,137,083 10,153,751 Capital expenditures 44,550,191 949,840 45,500,031 1995 ---------------------------------------------------------------- Automotive Nonautomotive Total ---------------------------------------------------------------- Net sales $ 90,141,512 $39,069,259 $129,210,771 Operating profit 27,935,374 6,991,332 34,926,706 Identifiable assets 115,910,167 44,991,668 160,901,835 Depreciation expense 6,099,672 1,355,179 7,454,851 Capital expenditures 18,888,367 1,023,916 19,912,283
37 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. Segment Information and Major Customers (continued)
1994 ---------------------------------------------------------------- Automotive Nonautomotive Total ---------------------------------------------------------------- Net sales $67,652,256 $42,240,486 $109,892,742 Operating profit 21,026,298 9,045,161 30,071,459 Identifiable assets 81,435,183 53,879,721 135,314,904 Depreciation expense 3,533,462 1,952,211 5,485,673 Capital expenditures 15,999,897 823,988 16,823,885
The automotive segment includes the manufacturing and sales of automotive safety products for both domestic and foreign automobile manufacturers and suppliers. The nonautomotive segment primarily includes the manufacture and sale of propellant and explosive-actuated devices for the U.S. government and prime contractors of the U.S. government and foreign governments, and also includes the manufacture and sale of similar explosive-actuated devices for commercial aircraft. Customer payments of accounts receivable are reasonably prompt and collateral is not required. Customers representing 10% or more of consolidated net sales in each of the years 1996, 1995, and 1994 are as follows: 1996 1995 1994 ----------------------------------------------- U.S. government agencies 6% 5% 10% Morton International 49% 57% 52% Accounts receivable are summarized as follows: 1996 1995 --------------------------------------- Automotive $22,057,199 $14,208,599 Nonautomotive 7,902,962 9,670,896 --------------------------------------- $29,960,161 $23,879,495 ======================================= 38 OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Quarterly Results of Operations for 1996 and 1995 (Unaudited)
October 31 January 31 April 30 July 31 ---------------------------------------------------------------------------- 1996 Net sales $34,569,386 $36,738,105 $35,907,188 $45,594,830 Gross profit 12,052,280 13,924,542 14,028,163 10,851,554 Net earnings 6,087,489 6,157,981 6,581,744 6,715,269 Earnings per share $0.30 $0.30 $0.32 $0.33 1995 Net sales $28,015,886 $31,896,677 $33,979,628 $35,318,580 Gross profit 10,077,326 10,486,073 12,547,796 12,700,575 Net earnings 2,291,782 5,054,785 6,111,397 7,818,246 Earnings per share $0.11 $0.25 $0.30 $0.38
39 EX-27 2 10-K/A WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 (Replace this text with the legend) 0000073864 OEA INC / DE/ 1 YEAR JUL-31-1996 AUG-1-1995 JUL-31-1996 2,560,213 0 29,960,161 0 36,613,020 77,579,452 154,946,472 40,800,194 203,207,771 33,523,658 0 0 0 2,201,970 158,246,338 203,207,771 152,809,509 152,809,509 101,952,970 113,743,241 (1,616,739) 0 72,388 40,707,602 15,165,119 25,542,483 0 0 0 25,542,483 1.25 1.25
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