-----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, UBZL6/FyPdO2eHLTnRg4uc+cyL0xrqjG7BWlPK2B+Eh0cfc2Dqs3R3DeVynw6WN6 ggxpKFHKILGDJXaTnKVDMg== 0000927356-99-002006.txt : 19991216 0000927356-99-002006.hdr.sgml : 19991216 ACCESSION NUMBER: 0000927356-99-002006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OEA INC /DE/ CENTRAL INDEX KEY: 0000073864 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 362362379 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06711 FILM NUMBER: 99774913 BUSINESS ADDRESS: STREET 1: 34501 E QUINCY AVE CITY: DENVER STATE: CO ZIP: 80250 BUSINESS PHONE: 3036931248 MAIL ADDRESS: STREET 1: P O BOX 100488 CITY: DENVER STATE: CO ZIP: 80250 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly period ended October 31, 1999 ---------------- OR [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 For the transition period from ________ to ________ Commission file number 1-6711 OEA, INC. (Exact name of registrant as specified in its charter) Delaware 36-2362379 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P.O. Box 100488 Denver, Colorado 80250 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 693-1248 ____________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 20,616,504 Shares of Common Stock at December 10, 1999. ================================================================================ INDEX Page No. -------- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Condensed Balance Sheets October 31, 1999 (unaudited) and July 31, 1999............................................. 3 Consolidated Condensed Statements of Operations (unaudited) Three Months Ended October 31, 1999 and October 30, 1998.......................................... 4 Consolidated Condensed Statements of Cash Flows (unaudited) Three Months Ended October 31, 1999 and October 30, 1998.......................................... 5 Notes to Consolidated Condensed Financial Statements (unaudited)........................................ 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 9 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.... 16 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings............................................. 17 ITEM 2. Changes in Securities and Use of Proceeds..................... 17 ITEM 3. Defaults on Senior Securities................................. 17 ITEM 4. Submission of Matters to a Vote of Security Holders........... 17 ITEM 5. Other Information............................................. 17 ITEM 6. Exhibits and Reports on Form 8-K.............................. 17 2 OEA, INC. --------- CONSOLIDATED CONDENSED BALANCE SHEETS ------------------------------------- (in thousands) ASSETS
October 31, 1999 July 31, 1999 -------------------------- ------------------------ (Unaudited) Current Assets: Cash and Cash Equivalents $ 881 $ 2,445 Accounts Receivable, Net 34,041 35,236 Unbilled Costs and Accrued Earnings 7,568 6,302 Income Taxes Receivable 5,700 3,858 Inventories: Raw Material and Component Parts 21,974 24,056 Work-in-Process 14,779 12,139 Finished Goods 7,369 7,399 ---------------------- -------------------- Total Inventory 44,122 43,594 Prepaid Expenses and Other 5,180 4,440 ---------------------- -------------------- Total Current Assets 97,492 95,875 Property, Plant and Equipment 292,047 287,624 Less: Accumulated Depreciation 97,624 90,907 ---------------------- -------------------- Property, Plant and Equipment, Net 194,423 196,717 Long-term Receivable 2,000 2,000 Investment in Foreign Joint Venture 2,323 2,323 Other Assets 1,438 1,443 ---------------------- -------------------- Total Assets $ 297,677 $ 298,358 ====================== ==================== LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts Payable $ 26,521 $ 25,665 Interest Payable 2,013 2,137 Accrued Expenses 8,150 6,390 ---------------------- -------------------- Total Current Liabilities 36,684 34,192 Long-term Bank Borrowings 91,000 91,000 Deferred Income Taxes 16,009 16,009 Other 582 583 ---------------------- -------------------- Total Liabilities 144,275 141,784 Stockholders' Equity: Common Stock - $.10 par value, Authorized 50,000,000 Shares: Issued - 22,019,700 Shares 2,202 2,202 Additional Paid-In Capital 13,417 13,376 Retained Earnings 143,578 146,333 Less: Cost of Treasury Shares, 1,403,903 and 1,408,379 (2,110) (2,117) Equity Adjustment from Translation (3,686) (3,220) ---------------------- -------------------- Total Stockholders' Equity 153,401 156,574 ---------------------- -------------------- Total Liabilities and Stockholders' Equity $ 297,677 $ 298,358 ====================== ====================
3 OEA, INC. --------- CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (Unaudited) ---------------------------------------------------------- (in thousands, except share data)
Three Months Ended October 31, 1999 October 30, 1998 ---------------------- -------------------- Net Sales $ 59,974 $ 56,793 Cost of Sales 57,578 55,284 ---------------------- -------------------- Gross Profit 2,397 1,509 Selling, General and Administrative Expenses 4,288 2,725 Research and Development Expenses 1,452 1,005 ---------------------- -------------------- Operating Profit (Loss) (3,343) (2,221) Other Income (Expense): Interest Income 52 34 Interest Expense (1,882) (1,916) Royalty Income & Other, Net 795 113 ---------------------- -------------------- (1,035) (1,769) ---------------------- -------------------- Earnings (Loss) Before Income Tax Benefit (4,378) (3,990) Federal and State Income Tax Benefit (1,623) (1,274) ---------------------- -------------------- Net Earnings (Loss) $ (2,754) $ (2,716) ====================== ==================== Earnings (Loss) Per Share - Basic & Diluted $ (0.13) $ (0.13) ====================== ==================== Weighted Average Number of Shares Outstanding : Basic 20,612,037 20,595,964 ====================== ==================== Weighted Average Number of Shares Outstanding : Diluted 20,612,037 20,595,964 ====================== ====================
4 OEA, INC. --------- CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited) ---------------------------------------------------------- (in thousands)
Three Months Ended October 31, 1999 October 30, 1998 ---------------------- -------------------- Operating Activities Net Loss $ (2,754) $ (2,716) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and Amortization 6,880 5,788 Decrease in deferred compensation payable --- (9) (Gain) loss on disposal of property, plant, and equipment 4 (1) Changes in operating assets and liabilities: Accounts receivable 1,147 (1,505) Unbilled costs and accrued earnings (1,266) (644) Inventories (558) 5,960 Prepaid expenses and other (741) 518 Accounts payable and accrued expenses 2,557 (1,015) Income taxes payable (1,869) 3,888 ---------------------- -------------------- Net cash provided by operating activities 3,400 10,264 Investing Activities: Capital expenditures (4,959) (6,613) Proceeds from sale of property, plant, and equipment 3 3 Decrease in cash value of life insurance 20 --- Increase in other assets, net (70) (38) ---------------------- -------------------- Net cash used in investing activities (5,006) (6,648) Financing Activities: Proceeds from issuance of treasury stock 31 20 Capital contributions 17 --- Increase in borrowings, net --- 11,000 ---------------------- -------------------- Net cash provided by financing activities 48 11,020 Effect of exchange rate changes on cash (6) (1,067) ---------------------- -------------------- Net increase (decrease) in cash and cash equivalents (1,564) 13,569 Cash and cash equivalents at beginning of period 2,445 1,920 ---------------------- -------------------- Cash and cash equivalents at end of period $ 881 $ 15,489 ====================== ====================
5 Notes to Consolidated Condensed Financial Statements (Unaudited) Note 1 - Basis of Presentation The unaudited financial statements furnished above reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of OEA's management, necessary for a fair statement of the results of operations for the three month period ended October 31, 1999. Refer to the Company's annual financial statements for the year ended July 31, 1999, for a description of the accounting policies, which have been continued without change. Also, refer to the footnotes with those financial statements for additional details of the Company's financial condition, results of operations, and changes in financial position. Note 2- Comprehensive Income During the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standard No. 130, Reporting Comprehensive Income. Comprehensive income generally represents all changes in stockholders' equity, except those resulting from investments or contributions by stockholders. Total comprehensive income for the first three months of fiscal 2000 and fiscal 1999 were: FY 2000 FY 1999 --------- --------- Net Loss $ (2,754) $ (2,716) Equity Adjustment from Translation (466) 637 --------- --------- Total Comprehensive Loss $ (3,220) $ (2,079) ========= ========= Note 3 - Segment Information In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information. The Statement requires public companies to report certain information about operating segments in complete sets of financial statements and in condensed financial statements of interim periods issued to shareholders. Under Statement No. 131, operating segments are to be determined based on how management measures performance and makes decisions about allocating resources. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. Statement No. 131 is effective for fiscal years beginning after December 15, 1997. The Company adopted Statement No. 131 in the fourth quarter of fiscal 1999. 6 OEA, INC. --------- Financial Information about Industry Segments (Unaudited) -------------------------------------------------------- (in thousands)
Three Months Ended October 31, 1999 October 30, 1998 ---------------------- --------------------- Sales to Unaffiliated Customers - ------------------------------- Automotive $ 51,074 $ 46,435 Aerospace 8,900 10,358 ---------------------- --------------------- TOTAL $ 59,974 $ 56,793 ====================== ===================== Inter-Segment Sales or Transfers - -------------------------------- Automotive $ --- $ --- Aerospace 2 26 ---------------------- --------------------- TOTAL $ 2 $ 26 ---------------------- --------------------- Operating Profit (Loss) - ----------------------- Automotive $ (3,646) $ (2,769) Aerospace 302 548 ---------------------- --------------------- TOTAL $ (3,343) $ (2,221) ====================== =====================
7 Note 4 - Bank Borrowings On April 10, 1998, the Company entered into a $180 million Amended and Restated Revolving Credit Agreement with a group of seven banks. This agreement was amended on June 11, 1998 and December 10, 1998 and is secured by substantially all of the Company's assets. At the Company's request, this agreement was again amended effective December 9, 1999 to reduce the amount of the facility to $125 million, effective immediately, with a further reduction to $115 million effective January 31, 2000, and to waive compliance with the debt to EBITDA covenant for the first quarter of fiscal 2000. The Company's principal bank is acting as agent for the banks under this agreement. At October 31, 1999, the Company had $91 million of long term debt outstanding on this credit facility. All outstanding debt at October 31, 1999 is classified as long-term because no portion is either due or expected to be permanently repaid within the next twelve-month period. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for further information regarding this credit facility. 8 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OEA, Inc. is referred to herein as "OEA" or the "Company." This report contains certain forward-looking statements within the meaning of Section 27E of the Securities Exchange Act of 1934, as amended, including statements regarding Company strategy, its soundness, the inflator and initiator market, inflator prices, inflator and initiator demand, sales volume increases, the utilization rate of the Company's inflator manufacturing facility, the timing and benefits of cost reduction programs and improved manufacturing processes, year 2000 compliance, as well as other statements or implications regarding future events. Actual results or events may differ materially from these forward- looking statements depending on a variety of factors. Reference is made to the cautionary statements under the caption "Disclosure Regarding Forward-Looking Statements" in OEA's Annual Report on Form 10-K for the year ended July 31, 1999 and Form 8-K filed on June 4, 1998 for a description of various factors that might cause OEA's actual results to differ materially from those contemplated by such forward-looking statements. A summary of the principal items included in the consolidated statements of earnings, on a percent of sales basis, is shown below:
Comparison of ------------- Three Months Ended ------------------ October 31, 1999 October 30, 1998 ---------------- ---------------- Dollars Dollars (in thousands) % of Sales (in thousands) % of Sales --------------------- ----------------- --------------------- ----------------- Net Sales $59,974 100.0% $56,793 100.0% Cost of Sales 57,578 96.0% 55,284 97.3% --------------------- ----------------- --------------------- ----------------- Gross Margin 2,397 4.0% 1,509 2.7% General and 4,288 7.2% 2,725 4.8% Administrative Expenses Research and 1,452 2.4% 1,005 1.8% Development Expenses --------------------- ----------------- --------------------- ----------------- Operating Profit (Loss) (3,343) (5.6%) (2,221) (3.9%) Other Expense, Net (1,035) (1.7%) (1,769) (3.1%) --------------------- ----------------- --------------------- ----------------- Earnings (Loss) Before Tax (4,378) (7.3%) (3,990) (7.0%) Income Tax Benefit (1,623) (2.7%) (1,274) (2.2%) --------------------- ----------------- --------------------- ----------------- Net Earnings (Loss) $(2,754) (4.6%) $(2,716) (4.8%) ===================== ================= ===================== =================
9 NET SALES - --------- Net sales increased 5.6% to $60.0 million for the first quarter ended October 31, 1999, as compared to prior-year first quarter sales of $56.8 million. Automotive segment sales increased 10.1% ($4.7 million) to $51.1 million in the first quarter as compared to the prior-year period, driven by increased inflator sales. Inflator unit shipments increased 35.9% to over 2.2 million units in the first quarter of fiscal 2000 as compared to 1.6 million units in the prior-year period. This was driven by significantly increased demand for our side-impact inflators, partially offset by a material reduction in our passenger inflator sales to Asian customers. The reduction was due to the current economic situation in Asia and is expected to partially rebound in subsequent quarters. A 3.2% weighted average reduction in inflator sales price and the shift in product mix toward lower priced side-impact inflators resulted in an increase in the dollar value of inflator sales of 21.2% ($6.9 million) in the current year quarter as compared to the prior-year period. This increase in inflator demand reflects continued strong customer acceptance of our products. Initiator unit shipments to outside customers decreased 10.9% to 5.3 million units and net sales decreased 16.2% to $11.4 million compared to the prior year period. Management believes the decrease in third party initiator sales was due to inventory balancing by a major customer. Aerospace segment sales were $8.9 million in the first quarter of fiscal 2000, a decline of 15.1% ($1.6 million) from the first quarter of fiscal 1999. The decline in revenue primarily resulted from timing of sales orders for propellant actuated devices related to the Delta program. COST OF SALES - ------------- Cost of sales for the quarter ended October 31, 1999 were $57.6 million, as compared to $55.3 million for the same period last year. Automotive segment cost of sales for the first quarter of fiscal 2000 increased 8.6% ($2.3 million) to $50.1 million as compared to the prior year period, due primarily to increased inflator shipments. As a percentage of sales, cost of sales decreased from 99.4% in fiscal 1999 first quarter to 98.0% in the current period. This reflects productivity gains made as a result of our cost reduction initiatives, partially offset by current year price reductions and a shift in product mix to lower margin side inflators. Customer demand for our side-impact inflators increased sharply in the first quarter, significantly exceeding the designed capacity of the production line. Considerable additional resources and costs were required to meet the customer demand in the quarter and are expected to be partially carried forward in subsequent quarters. Our new inflator production facility represents 10 million of our 15 million unit annual inflator capacity. In fiscal 1999, this facility was operating significantly below capacity, averaging 29% utilization for the year. In the first quarter of fiscal 2000, we made significant progress by improving utilization to over 51%. We expect continued improvement throughout fiscal 2000. Aerospace segment cost of sales decreased 20.5% to $7.3 million in the first quarter of fiscal 2000, as compared to the prior-year period. This decrease was primarily due to reduced sales and a non-recurring performance issue experienced last year on our TLX (Thin Layered Extrusion) product. 10 GROSS MARGIN - ------------ Gross margin for the quarter ended October 31, 1999 was $2.4 million (4.0% of net sales), as compared to $1.5 million (2.6% of net sales) for the comparable period last year. Automotive segment gross margin for quarter was $1.0 million (2% of net automotive sales), as compared to $0.3 million (0.6% of net automotive sales) for the prior-year period. This increase in gross margin is primarily due to our cost reduction initiatives partially offset by current year price reductions and less favorable product mix as discussed above. Aerospace segment gross margin was $1.6 million (17.4% of net aerospace sales) for the first quarter of fiscal 2000, as compared to $1.3 million (11.9% of net aerospace sales) for the prior-year period. The current year increase in gross margin is primarily the result of cost related margin improvement on the TLX product line. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- Selling, general and administrative expenses for the quarter ended October 31, 1999 were $4.3 million (7.2% of net sales), as compared to $2.7 million (4.8% of net sales) for the prior-year period. The current year increase was primarily due to premium freight costs incurred to meet customer delivery schedules as a result of significantly higher than expected demand for products manufactured in our new inflator production facility. We expect to continue incurring premium freight costs into the second quarter until production can be ramped up to meet demand. RESEARCH AND DEVELOPMENT EXPENSES - --------------------------------- Research and development expenses for the quarter ended October 31, 1999 were $1.5 million (2.4% of net sales), as compared to $1.0 million (1.8% of net sales) for the comparable period last year. This increased R&D effort reflects continued work on our "smart" (dual-stage) inflators, curtain inflators, micro- gas generators for seat belt pretensioning systems, and other new products in various stages of development. We believe our leading technology has been an important part of our success over the years and plan on continuing to invest in research and development to maintain our technological leadership. OPERATING PROFIT (LOSS) - ----------------------- We recorded an operating loss for the first quarter of fiscal 1999 of $3.3 million (-5.6% of net sales), as compared to a loss of $2.2 million (-3.9% of net sales) for the prior-year period. Operating profit was impacted by the increased SG&A and R&D expenses as discussed above. 11 OTHER INCOME (EXPENSE) - ---------------------- Other expenses for the first quarter of fiscal 2000 were $1.0 million (1.7% of net sales), as compared to other expenses of $1.8 million (3.1% of net sales) for the prior-year period. The reduction in other expenses was primarily due to $0.8 million of fixed and variable royalty income recognition in the first quarter of fiscal 2000. Royalty income from our Asian licensee, Daicel Chemical Industries, is earned throughout the year, with payment received annually in the fiscal fourth quarter. We began accruing this income on a quarterly basis in the second quarter of fiscal 1999 to reflect quarterly earned income and improve comparisons between quarters. Interest expense was $1.9 million for the first quarters of both the current and prior fiscal year due to the effect of our lower debt level in fiscal 2000 being offset by a higher effective interest rate. NET EARNINGS - ------------ We recorded a net loss for the first quarter of fiscal 2000 of $2.8 million (- 4.6% of net sales), as compared to a net loss of $2.7 million (-4.8% of net sales) for the prior-year period. Basic loss per share was $0.13 for the first quarter of both fiscal 1999 and 2000. Net earnings were significantly impacted by the increased SG&A and R&D expenses as discussed above. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Our working capital improved during the quarter to $60.8 million from $61.7 million at July 31, 1999. During the three months ended October 31, 1999, we made capital expenditures totaling approximately $5.0 million, which were funded from cash flows from operations and bank borrowings. On April 10, 1998, we entered into a four-year, $180 million Amended and Restated Revolving Credit Agreement with a group of seven banks. This agreement was amended on June 11, 1998 and December 10, 1998 and is secured by substantially all of our assets. At our request, this agreement was again amended effective December 9, 1999 to reduce the amount of the facility to $125 million, effective immediately, with a further reduction to $115 million effective January 31, 2000, and to waive compliance with the debt to EBITDA covenant for the first quarter of fiscal 2000. Our principal bank is acting as agent for the banks under this agreement. At October 31, 1999, the applicable interest rate was 7.54%. This credit facility expires on December 18, 2000, and we are currently assessing our alternatives with respect to refinancing this indebtedness. At October 31, 1999, we had $91.0 million of long-term debt outstanding under this credit facility. Anticipated working capital requirements, capital expenditures, and facility expansions are expected to be met through borrowings under the credit facility and from internally generated funds. 12 IMPACT OF THE YEAR 2000 ISSUE - ----------------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The problem is complicated and, in fact, consists of three different problems. Firstly, it has been common practice in computer programming to identify calendar dates only by the last two digits of the year and to assume that the first two digits are "19". As a result, automated systems may interpret "00" as 1900 instead of 2000, and do one of two things: shut down or make mistakes. Secondly, problems will arise from the fact that the year 2000 is an irregular leap year. If equipment is not programmed appropriately and the date February 29, 2000 does not exist in the software, software applications may malfunction. Finally, the codes "99" or "00", and "999" or "9999" could mean other things, like "error" or "miscellaneous". It can be concluded that computer problems may arise not only on January 1, 2000, but also before the turn of the century and afterwards. These problems could result in miscalculations or failures causing disruptions of operations, including, among other things, a temporary inability to maintain traceability, process transactions, send invoices, or engage in similar normal business activities. We recognize that the Year 2000 problem is a serious issue for businesses, and we are committed to making the transition to Year 2000 compliant systems. We have had a formal program in place to address and resolve potential issues associated with the Year 2000 problem since October 1997. We have devoted significant resources to the identification, remediation, and or replacement of systems that could be effected by the Year 2000 problem. Our goal is to prevent the impairment of our critical business operations and computer processes that we share with our customers and suppliers. Our Year 2000 Project has focused on the following four areas: 1) Products manufactured and distributed by us. 2) Information Systems such as computer hardware/software systems and business application software. 3) Non-Information Systems, such as manufacturing equipment and the mechanical systems in our facilities (including HVAC, security and safety systems). 4) Third party suppliers and customers. 13 OEA Products Because our products do not contain any embedded microchips or date sensitive electronic components, we do not believe that our products will require remediation to address the Year 2000 problem. Information Systems We have conducted an inventory of our critical computer systems and have determined that approximately 99% of such systems now operate with hardware, operating software and basic business applications software that have been certified by third party vendors as Year 2000 compliant. Our largest Year 2000 undertaking has been the replacement of our existing ERP system (Accounting, Inventory Control, and Manufacturing) with Year 2000 certified software. We have successfully implemented and tested the new system in our Denver and Utah operations. In addition, we have upgraded our Human Resources, Payroll, and Fixed-asset tracking software to the latest versions, each of which have been certified by the third-party vendor as Year 2000 compliant. We have also implemented network client management software that will allow us to audit our PC hardware and software and to allow for the rapid deployment of software updates and service packs that address any ancillary Year 2000 issues. Our fiscal Year 2000 began August 1, 1999. We also began booking calendar Year 2000 production orders in our MRP system in October 1999. All of our operations continued after these milestones without any Year 2000 related problems. Non-Information Systems We have completed an exhaustive inventory, remediation, and certification of all manufacturing equipment, including factory automation devices. More than 98% of our manufacturing equipment has been tested and is Y2K ready. All telecommunications and environmental controls technology systems have been Year 2000 certified by third party vendors. Third Party Suppliers and Customers Our Year 2000 program also includes assessment of the business impact on us of the failure of third party suppliers and customers to provide needed products, services, information and payments. We have assessed the Year 2000 readiness of each of our suppliers who is deemed critical to our operations, as well as the Year 2000 status of our major customers. Our transportation providers and local utilities also have been included in our supplier surveys. 14 We and many of our customers use EDI (Electronic Data Interchange) to effect business communications, including orders and shipping information. Our EDI software has been upgraded and certified by third party vendors as Year 2000 compliant. Our EDI VANs (Value Added Networks) have been polled and are Year 2000 ready. In addition to addressing the Year 2000 problem in these four areas, we expect to validate our remediation efforts with additional post-installation testing. We also expect to respond to and initiate requests to test with various external agents, including key suppliers and customers. Given our current state of readiness, if no further remediation effort was made, the most reasonably likely worst case scenario would be only minor disruptions in internal operations. However, external disruptions of our supplier base and the economy in general could have a materially adverse impact on the Company. The magnitude of potential worst case impact cannot be reasonably estimated at this time. Our current contingency planning efforts are focused on working to identify additional sources of supply for critical materials. We are planning on increasing raw material and finished goods inventories to ensure that our customers are not adversely effected by any unforeseen disruption in the supply chain. During these last few weeks of 1999, we will be assessing other potential business disruption risks and fine tuning contingency plans to mitigate such risks. Our rollover plan includes technical staffing for systems monitoring and testing during a plant wide production shutdown, which will occur December 31, 1999 through January 2, 2000. Costs to Address Year 2000 Issues The total cost of our Year 2000 remediation project is currently expected to be approximately $1.6 million. To date we have spent approximately $1.5 million. Our cost projections do not include post installation testing and contingency planning. Additionally, it does not include any costs of business disruptions from supplier or customer non-performance, which cannot be quantified at this time. Independent Validation and Verification On February 9, 1999, BBK, Ltd., at the request of General Motors, performed a Year 2000 Readiness Assessment of OEA. The risk assessment score is based on a statistical model that uses several variables (acceptance testing, remediation, risk evaluation, planned completion of inventories, etc.). The assessor then gives a subjective score that results in a green (low risk), yellow (medium risk), or red (high-risk) rating. Based on this assessment, we received a green (low risk of Y2K failure) rating from BBK. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement 27.1 Financial Data Schedule (b) Reports on Form 8-K Form 8-K filed on August 23, 1999 reporting under items 5 and 7 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OEA, INC. ---------------------------------------- (Registrant) December 15, 1999 ----------------------------- ---------------------------------------- Date J. Thompson McConathy Vice President Finance (Principal Financial and Accounting Officer) December 15, 1999 - ------------------------------ ---------------------------------------- Date Charles B. Kafadar Chief Executive Officer (Principal Executive Officer) 18 EX-10.1 2 RESTATED REVOLVING CREDIT AGREEMENT EXHIBIT 10.1 THIRD AMENDMENT AND WAIVER TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT --------------------------------------- THIRD AMENDMENT AND WAIVER TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of December 9, 1999 (this "Amendment") among OEA, INC., a --------- Delaware corporation (the "Company"), each of the banks named under the caption ------- "Banks" on the signature pages hereof (individually, a "Bank" and, collectively, ---- the "Banks"), BANQUE NATIONALE DE PARIS, U.S. BANK NATIONAL ASSOCIATION and ----- UNION BANK OF CALIFORNIA, N.A., as Co-Agents and THE NORTHERN TRUST COMPANY, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). ----- WHEREAS, the Company, the Agent, the Co-Agents and the Banks have entered into an Amended and Restated Revolving Credit Agreement dated as of April 10, 1998, as amended by a First Amendment thereto dated as of June 11, 1998 and a Second Amendment thereto dated December 10, 1998 (as amended the "Existing -------- Agreement"), pursuant to which the Banks agreed to make Loans (as defined in the - --------- Existing Agreement) to the Company in an aggregate principal amount not to exceed $150,000,000 at any time outstanding, on and subject to the terms and conditions thereof; WHEREAS, the Company has given the Agent notice of its desire to reduce the amount of the Commitments to $125,000,000; and WHEREAS, the parties wish to amend the Existing Agreement to (a) reduce the amount of the Commitments, (b) modify certain covenants, (c) increase pricing; and (d) waive certain Events of Default. NOW, THEREFORE, the parties agree as follows: Section 1. Definitions. Terms defined in the introductory paragraphs ----------- hereof shall have their respective defined meanings when used in this Amendment and, except as otherwise expressly provided herein, terms defined in the Existing Agreement shall have their respective defined meanings when used in this Amendment. In addition, the following terms shall have the following meanings (terms defined in the introductory paragraphs or this Section 1 in the --------- singular to have correlative meanings when used in the plural and vice versa): ---------- "Effective Date" shall mean as of December 9, 1999, which will be -------------- deemed to occur upon the first date, if any, which occurs before the termination of this Amendment pursuant to Section 6 hereof and on which the --------- conditions precedent in Section 4 shall have been satisfied. --------- Section 2. Amendments to Existing Agreement. The following amendments are -------------------------------- hereby made to the Existing Agreement with effect from and after the Effective Date: (a) Definitions. Section 1.1 of the Existing Agreement is amended ----------- ----------- by (i) deleting the definition of "Level" in its entirety and (ii) amending and restating in its entirety the definition of "Applicable Margin" as follows: "Applicable Margin" shall mean, for the period and for the type of ----------------- Loan or fee indicated below, the number of basis points per annum set forth below:
Time Period On or before After January 31, 2000 January 31, 2000 ------------------------------------------------------------------------ Facility Fee 25.0 25.0 ------------------------------------------------------------------------ Fed Funds Rate 250 350 ------------------------------------------------------------------------ LIBOR Rate 250 350 ------------------------------------------------------------------------
(b) Section 2.5 of the Existing Agreement Section 2.5 of the ------------------------------------- ----------- Existing Agreement is hereby amended by relettering clause (c) thereof as ---------- clause (d) and inserting a new clause (c) thereto as follows: - ---------- ---------- "(c) In the event the Commitments of the Banks are not terminated in their entirety and the Loans repaid in full on or before January 31, 2000, then effective on January 31, 2000, the Commitments shall be automatically reduced to an aggregate amount of $115,000,000, and the Company agrees to prepay immediately the principal amount of the Loans outstanding in excess of the reduced amount of the Commitments, without any further notice or action by the Agent or the Banks." (c) Section 2.11(c) of the Existing Agreement. Section 2.11(c) of the ----------------------------------------- -------------- Existing Agreement is hereby amended by deleting the dollar amount "$150,000,000" appearing therein and substituting the dollar amount "$125,000,000" therefor. (d) Section 3.3(c) of the Existing Agreement. Section 3.3(c) of the ---------------------------------------- -------------- Existing Agreement is hereby amended and restated in its entirety as follows: "(c) Accrued interest shall be payable monthly in arrears, on the first day of each month for the immediately preceding month, and upon the payment or prepayment of any Loan or the Conversion of such Loan to a loan of another type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post- Default Rate shall be payable from time to time on demand and interest on any Eurodollar Loan that is converted into an Alternate -2- Base Rate Loan or Fed Funds Loan pursuant to Section 5.4 hereof shall ----------- be payable on the date of Conversion (but only to the extent so Converted)." (e) Section 8.1 of the Existing Agreement. Section 8.1 of the ------------------------------------- ----------- Existing Agreement is hereby amended by (i) deleting the "and" at the end of clause (g), (ii) relettering clause (h) thereof as clause (i), (iii) deleting in - ---------- ---------- ---------- the final paragraph thereof the reference to "subsection (a) and (b)" and -------------- --- substituting a reference to "subsections (a), (b) and (h)" therefor, and (iv) --------------- --- --- inserting a new clause (h) thereto as follows: ---------- "(h) Within fifteen (15) Business Days after the end of each month of each fiscal year of the Company (except when such month corresponds to a fiscal quarter end of the Company, then within twenty (20) Business Days of the end of such month), consolidated statements of income and cash flows of the Company and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets as at the end of such period, setting forth in respect of such statements in comparative form the corresponding consolidated figures for the corresponding period in the preceding fiscal year and setting forth in respect of such balance sheets the corresponding consolidated figures for the end of the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Company which shall state that said financial statements fairly present in all material respects the consolidated financial position and results of operations of the Company and its Subsidiaries in accordance with GAAP for such period; and" (f) Section 8 of the Existing Agreement. Section 8 of the Existing ----------------------------------- --------- Agreement is hereby amended as of the date hereof by adding a new Section 8.18 ------------ thereto as follows: "8.18 Big Five Accounting Firm. In the event the Commitments of the ------------------------ Banks and the outstanding Loans are not repaid in full on or before January 31, 2000, the Company agrees to promptly, and in any event on or before February 15, 2000, hire, for its own account and expense, any one of the "Big Five" accounting firms in the United States, to determine, among other things, the enterprise value of the Company and its Subsidiaries, the on going value of the Collateral and the on- going value of the Company's and its Subsidiaries' business systems; to prepare a written report of its findings addressed to the Company with a copy to the Agent and the Banks; and to cooperate with the Agent and the Banks with respect to such matters as the Agent or any Bank may reasonably request." (g) Schedule 1 to the Existing Agreement. Schedule 1 to the Existing ------------------------------------ ---------- Agreement is hereby amended to be in the form of Schedule 1 hereto. ---------- Section 3. Waiver. The Company has advised the Agent and the Banks that ------ it is not or has not been in compliance with Section 8.11 (Indebtedness to ------------ EBITDA) of the Existing Agreement for its fiscal quarter ended October 31, 1999. On the Effective Date, as of and through October 31, 1999, the Agent and the Majority Banks waive compliance by the Company -3- with Section 8.11. The Agent's and Majority Banks' waiver of non-compliance with ------------- Section 8.11 of the Existing Agreement is limited to the specific instance of - ------------ the failure to comply which is described above and shall not be deemed a waiver of or consent to any other failure to comply with the terms of Section 8.11 of ------------ the Existing Agreement or any other provisions of the Existing Agreement. Such waiver shall not prejudice any right or remedies which the Agent or Banks may have or be entitled to with respect to any other breach of Section 8.11 or any ------------ other provisions of the Existing Agreement. Section 4. Conditions to Effective Date. The occurrence of the ---------------------------- Effective Date shall be subject to the satisfaction, on and as of the Effective Date, of the following conditions precedent : (a) Amendment. The Company, the Agent and the Majority Banks shall --------- have executed and delivered this Amendment. (b) No Default. After giving effect to the waiver in Section 3 ---------- --------- hereof, no Default or Event of Default shall have occurred and be continuing under the Existing Agreement and the representations and warranties of the Company in Section 7 of the Existing Agreement, as amended hereby, and in --------- Section 8 hereof shall be true and correct on and as of the Effective Date - --------- (except to the extent such representations and warranties state that they relate solely to a specified date, then as of such specified date) and the Company shall have provided to the Agent a certificate of a senior officer of the Company to that effect. (c) Certificate of Incorporation. The Company shall have delivered to ---------------------------- the Agent, in form and substance satisfactory to the Agent, a certificate of the secretary or assistant secretary of the Company (i) confirming that the certificate of incorporation and by-laws of the Company have not been amended since December 10, 1998 or (ii) setting forth a true and correct copy of any amendment to the certificate of incorporation or by-laws of the Company adopted on or after December 10, 1998. (d) Company Resolutions. The Company shall have delivered to the Agent ------------------- a copy, duly certified by the secretary or an assistant secretary of the Company, of (i) resolutions of the Company's Board of Directors authorizing or ratifying the execution and delivery of this Amendment, the Pledge Amendment (hereinafter defined) and authorizing the borrowings under the Existing Agreement, as amended hereby, (ii) all documents evidencing other necessary corporate action, and (iii) all approvals or consents, if any, with respect to this Amendment and the Pledge Amendment. (e) Company Incumbency Certificate. The Company shall have delivered ------------------------------ to the Agent a certificate of the secretary or an assistant secretary of the Company certifying the names of the Company's officers authorized to sign this Amendment, the Pledge Amendment and all other documents or certificates to be delivered hereunder and thereunder, together with the true signatures of such officers. -4- (f) Amendment to Pledge Amendment. The Company shall have delivered to --------- ---------------- the Agent a First Amendment to the OEA Pledge Amendment ("Pledge Amendment") ---------------- substantially in the form of Exhibit A hereto. --------- (g) Legal Opinion. The Company shall have delivered to the Agent an ------------- opinion of the Company's counsel, in the form and substance satisfactory to the Agent. (h) Amendment Fee. The Company shall have paid to the Agent, for the ------------- account of the Banks who have approved in writing the transactions contemplated by this Amendment on or before the close of business, Chicago time, on December 9, 1999, a fee equal to the product of 25 basis points times the Commitment of such approving Bank to be in effect on the Effective Date. Such fee shall be non-refundable after December 13, 1999 unless the Majority Banks fail to sign this Amendment. (i) Other. The Company shall have delivered such other documents ----- as the Agent may reasonably request. Section 5. Effective Date Notice. Promptly following the occurrence of --------------------- the Effective Date, the Agent shall give notice to the parties hereto of the occurrence of the Effective Date, which notice shall be conclusive, and all parties may rely thereon; provided, that such notice shall not waive or otherwise limit any right or remedy of the Agent or any Bank arising out of any failure of any condition precedent set forth in Section 4 to be satisfied. --------- Section 6. Termination. If the Effective Date shall not have occurred ----------- on or before December 13, 1999, the Agent on instructions of the Majority Banks may terminate this Amendment by notice in writing to the Company at any time before the occurrence of the Effective Date; provided, that the obligations of the Company under Section 13 shall survive such termination. ---------- Section 7. Ratification. The parties agree that the Existing ------------ Agreement, as amended hereby, the OEA Pledge Agreement, as amended by the Pledge Amendment, the other Security Documents and the Notes have not lapsed or terminated, are in full force and effect, and are and from and after the Effective Date shall remain binding in accordance with their terms, as amended hereby. Section 8. Representations and Warranties. The Company represents and ------------------------------ warrants to the Agent and the Banks that: (a) No Breach. The execution, delivery and performance by the Company --------- of this Amendment, the Existing Agreement, as amended hereby, and the OEA Pledge Agreement, as amended by the Pledge Amendment, do not and will not conflict with or result in a breach of, or cause the creation of a Lien (other than as contemplated by the Security Documents) or require any consent under, the certificate of incorporation or by-laws of the Company, or any applicable law or regulation, or any order, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them is bound. -5- (b) Incorporation, Corporate Power and Action, Binding Effect. The --------------------------------------------------------- Company has been duly incorporated and is validly existing in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to execute, deliver and perform its obligations under this Amendment, the Existing Agreement, as amended hereby, the OEA Pledge Agreement, as amended by the Pledge Amendment, the execution, delivery and performance by the Company of this Amendment, the Existing Agreement, as amended hereby, and the OEA Pledge Agreement, as amended by the Pledge Amendment, have been duly authorized by all necessary corporate action on its part; and this Amendment and the Pledge Amendment have been duly and validly executed and delivered by the Company and constitute legal, valid and binding obligations, enforceable in accordance with their terms . (c) Approvals. No authorizations, approvals or consents of, and no --------- filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Company of this Amendment, the Existing Agreement as amended hereby, the OEA Pledge Agreement, as amended by the Pledge Amendment, or for the validity or enforceability thereof. Section 9. Certain Usages. From and after the Effective Date, each -------------- reference to the Existing Agreement or OEA Pledge Agreement in the Existing Agreement or in any other agreements, documents or instruments referred to or provided for in or delivered under the Existing Agreement or OEA Pledge agreement shall be deemed to refer to the Existing Agreement, as amended hereby, and the OEA Pledge Agreement, as amended by the Pledge Amendment, as applicable. Section 10. Successors and Assigns. This Amendment and the Pledge ---------------------- Amendment shall be binding upon and inure to the benefit of the Company, the Agent, the Banks and their respective successors and assigns, except that the Company may not transfer or assign any of its rights or interest hereunder or thereunder. Section 11. Governing Law. This Amendment shall be governed by, and ------------- construed and interpreted in accordance with, the internal laws of the State of Illinois. Section 12. Counterparts. This Amendment may be executed in any number ------------ of counterparts and any party hereto may execute any one or more of such counterparts, all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be as effective as delivery of a manually executed counterpart of this Amendment. Section 13. Expenses. Whether or not the Effective Date shall occur, -------- without limiting the obligations of the Company under the Existing Agreement, the Company agrees to pay, or to reimburse on demand, all reasonable costs and expenses incurred by (i) the Agent in connection with the negotiation, preparation, execution, delivery, modification, amendment or enforcement of this Amendment, the Pledge Amendment and the other agreements, documents and instruments referred to herein or therein, including the reasonable fees and expenses of Gardner, Carton & Douglas and Soulier & Associates, each special counsel to the Agent, and (ii) any Bank -6- in connection with enforcement of this Amendment, the Existing Agreement as amended hereby, the Pledge Amendment and the agreements, documents and instruments referred to herein or therein, including the reasonable fees and expenses of counsel to such Bank. [Remainder of Page Intentionally Left Blank.] -7- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first above written. OEA, INC. By:______________________________________ Name: Title: THE NORTHERN TRUST COMPANY, as Agent By:_______________________________________ Name: Title: THE NORTHERN TRUST COMPANY, as Issuing Lender By:_______________________________________ Name: Title: BANKS: THE NORTHERN TRUST COMPANY, individually By:_______________________________________ Name: Title: BANQUE NATIONALE DE PARIS, individually and as Co- Agent By:_______________________________________ Name: Title: By: ______________________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION, individually and as Co-Agent By:_______________________________________ Name: Title: UNION BANK OF CALIFORNIA, N.A., individually and as Co-Agent By:_______________________________________ Name: Title: CREDIT AGRICOLE INDOSUEZ, individually By:_______________________________________ Name: Title: By:_______________________________________ Name: Title: LASALLE NATIONAL BANK, individually By:_______________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, individually By:---------------------------------------- Name: Title: SCHEDULE 1 COMMITMENTS AND INFORMATION CONCERNING BANKS
Name of Bank and Applicable Authorized Notice of Address Commitment Lending Offices Officer ----------------- ---------- --------------- ---------- The Northern Trust Company $24,305,555.56 Alternate Base Rate Jim Monhart - -------------------------- and Fed Funds Loans: 50 South LaSalle Street Chicago, Illinois 60675 Address: Eurodollar Loans: 50 South LaSalle Street 50 South LaSalle Street Chicago, Illinois 60675 Chicago, Illinois 60675 Telecopy No: (312)630-6516 Banque Nationale de Paris $20,833,333.33 Alternate Base Rate Mitchell M. Ozawa - ------------------------- and Fed Funds Loans: 725 South Figueroa Street Suite 2090 Los Angeles, California 90017 Address: Eurodollar Loans: 725 South Figueroa Street 725 South Figueroa Street Suite 2090 Suite 2090 Los Angeles, CA 90017 Los Angeles, California 90017 Telecopy No: (213) 488-9602 Telephone No: (213) 488-9120 U.S. Bank National Association $20,833,333.33 Alternate Base Rate Hassan Salem - ------------------------------ and Fed Funds Loans: 918 17th Street Denver, Colorado 80202 Address: Eurodollar Loans: 918 17th Street 918 17th Street Denver, Colorado 80202 Denver, Colorado 80202 Telecopy No: (303) 585-4135 Union Bank of California, N.A. $20,833,333.33 Alternate Base Rate Bette J. McCole - ----------------------------- and Fed Funds Loans: 445 South Figueroa Street 4th Floor Los Angeles, California 90071
-10-
Name of Bank and Applicable Authorized Notice of Address Commitment Lending Offices Officer - ----------------- ---------- --------------- ---------- Address: Eurodollar Loans: 445 South Figueroa Street 445 South Figueroa Street 4th Floor 4th Floor Los Angeles, California 90071 Los Angeles, California 90071 Telecopy No: (213) 236-6476 Telephone No: (213) 236-5242 Credit Agricole Indosuez $13,888,888.89 Alternate Base Rate, Fed Funds Ray Falkenberg - ------------------------ and Eurodollar Loans: 55 East Monroe 47th Floor Chicago, Illinois 60603 Address: 55 East Monroe 47th Floor Chicago, Illinois 60603 Telecopy No: (312) 372-9329 Telephone No: ___________ LaSalle National Bank $12,152,777.78 Alternate Base Rate, Fed Funds Michael Bryan - --------------------- and Eurodollar Loans: 135 South LaSalle Street Chicago, Illinois 60603 Address: 135 South LaSalle Street Chicago, Illinois 60603 Telecopy No: (312) 904-6242 Telephone No: (312) 904-8740 General Electric Capital $12,152,777.78 Alternate Base Rate, Fed Funds Andrew Santacroce - ------------------------ and Eurodollar Loans: Corporation 201 High Ridge Road - ----------- Stamford, Connecticut 06927 Telecopy No: (203) 316-7816 Telephone No: (203) 316-7500 Notice Address: 201 High Ridge Road Stamford, Connecticut 06927 Telecopy No: (203) 316-7816 Telephone No: (203) 316-7500 Total Commitments $125,000,000
-2- EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS JUL-31-2000 AUG-01-1999 OCT-31-1999 881,000 0 34,041,000 0 44,122,000 97,492,000 292,047,000 97,624,000 297,677,000 36,684,000 0 0 0 2,202,000 151,199,000 297,677,000 59,974,000 59,974,000 57,578,000 63,318,000 1,035,000 0 1,882,000 (4,378,000) (1,623,000) (2,754,000) 0 0 0 (2,754,000) (.13) (.13)
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