-----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, Ugrybfhum/WQvxNKi1mKf4F8IO4oTNgVQ34DAoXSCkbWPLW5FImpUle2inQvj6qJ JYYbsBuZt061vS3rJHAyBA== 0000073864-96-000004.txt : 19961205 0000073864-96-000004.hdr.sgml : 19961205 ACCESSION NUMBER: 0000073864-96-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961030 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06711 FILM NUMBER: 96649750 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 1 FOR THE YEAR ENDED JULY 31, 1996 OEA, INC. FORM 10-K Fiscal Year Ended July 31, 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [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 2-32231. 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 information required by this item 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. ITEM 11 - EXECUTIVE COMPENSATION The information required by this item 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. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item 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. 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. 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 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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