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., Pyrospace S.A. (45% ownership) and Pyroindustrie S.A. (80% direct ownership, 9% indirect ownership). OEA Automotive Safety Products consists of the Automotive Initiator Division - Denver, Automotive Initiator Division - Utah, Hybrid Gas Generator Division, and 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. The Aerospace Systems Group from the Parent Company (Denver Operations) was merged into the subsidiary effective October 1, 1994.
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. 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 1995, except as mentioned above.
Financial Information about Industry Segments
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 Company designs, tests, develops, and manufactures propellant and other pyrotechnic devices for use in automotive safety products. Major products currently in production include electric initiators, hybrid gas generators and linear cord, all for use in inflators. These products are sold to automotive inflator manufacturers for assembly into air bag modules for delivery to the auto companies.
The Company is currently completing the prototype phase for smokeless hybrid inflators for passenger, driver and side-impact inflators. These products are environmentally friendly and produce no toxic materials. In addition, these inflators are smaller, lighter, and less expensive than current designs in production. High-volume production of the new smokeless hybrid inflators is scheduled to begin in April 1996. The inflators are sold to module manufacturers for delivery to the auto companies.
The Company's principal officers and engineers represent its sales force. A significant investment in plant and equipment will be required by the Company to provide the previously announced projected sales of inflators of more than 2.5 million units for model year 1997. 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.
The automotive segment accounted for approximately 70%, 62%, and 49% of the Company's net sales for fiscal years 1995, 1994, and 1993, respectively.
Initiators are produced in three plants owned by the Company with highly automated equipment: Denver, Colorado; Tremonton, Utah; and Les Mureaux, France. Hybrid gas generators are produced in Denver with highly automated equipment. The initial production of hybrid inflators will be performed in Denver.
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.
The initiator business is not dependent upon patented items, trademarks, franchises, concessions, or licenses thereunder. The Company does not pay any substantial royalties or similar payments in connection with any patents or license agreements. The gas generator and smokeless hybrid inflator business is covered by several patents. Some of the patents have been issued and others are pending.
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. 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, 1995, was Morton International, 57%. 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 may decrease both as a percentage of total sales and in amount.
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, 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.
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 orders from Takata Corporation, Daicel Chemical Industries and Delphi Interior & Lighting, a division of General Motors, to supply in excess of 2.5 million passenger side inflators for model year 1997.
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 us 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 air bag initiator manufacturers in the United States: Imperial Chemical Industries, Inc., Special Devices, Inc., and the Company. Additionally, there are four major air bag initiator manufacturers in Europe: Davey Bickford Smith, Nouvelle Cartoucherie de Survilliers, Patvag and Pyroindustrie (89% owned directly/indirectly by OEA, Inc.). The Company is currently the world's leading producer of initiators for automotive air bags.
Daicel Chemical Industries is expected to begin manufacturing automotive air bag initiators under the previously mentioned technology transfer and manufacturing agreement in 1997. 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 two major hybrid gas generator manufacturers in the world, a joint venture between Atlantic Research Corporation and Allied Signal, and the Company. The Company is currently the world's second leading producer of hybrid gas generators 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:
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 consolidated subsidiaries and divisions, employs approximately 700 people in its automotive segment.
Nonautomotive Products
The nonautomotive segment of the business is primarily aerospace (Defense 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 and mild detonating cord 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 engineers represent its sales force. The nonautomotive segment accounted for approximately 30%, 38% and 51% of the Company's net sales for fiscal years 1995, 1994, and 1993, 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 Registrant'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 Registrant 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 Registrant is not dependent upon any one source for purchased materials because alternate sources of supply are generally available in the marketplace.
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.
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 for the fiscal year ended July 31, 1995. 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, 1995, was $40,000,000. The Company estimates that $7,000,000 of its current backlog will not be recorded as a sale within its fiscal year ending July 31, 1996.
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 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:
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 375 people in its nonautomotive segment.
Financial Information about Foreign and Domestic Operations and Export Sales
Notes:
(1) Sales amounts differ from those previously reported for 1993 as a result of reclassifications of domestic and foreign sales.
(2) There were no sales or transfers between the geographic areas reported above.
(3) It is not possible, under the existing accounting systems, to isolate profits and identifiable assets by geographic areas.
ITEM 2
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 640 acres of land which the Registrant owns. In fiscal year 1995, automotive and nonautomotive operations were conducted in various one-story brick and steel buildings containing 213,000 square feet of floor space in the aggregate. Effective October 1, 1994, only automotive operations are conducted in these facilities. The facilities vacated by the aerospace division's transfer to Fairfield, California, will be used for 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., a joint venture (80% OEA, Inc., 20% Pyrospace S.A.) with Pyrospace. This facility 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.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS None
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
PART II
ITEM 5
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:
(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 16, 1995, was 1330.
(c) It is anticipated that the Company will pay a dividend during fiscal year 1996.
The Board of Directors has declared dividends during the last three fiscal years as follows:
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Summary of Operations
Balance Sheet Data at July 31,
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1995 vs. 1994
Net sales and operating profits for the fiscal year ended July 31, 1995, were a record $129,210,800 and $34,926,700, respectively, compared to prior-year 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 prior-year 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, current-year 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 again the primary contributor to the sales and operating profit increases over the prior year. 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 the prior year. 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.
Automotive segment sales for fiscal year 1996 are expected to increase significantly due to the increased demand for driver and passenger side air bags, including initial production deliveries of hybrid inflators in the fourth quarter.
Potential effects of changes in defense spending are not expected to have a material impact upon the operations of the nonautomotive segment. While it is impossible to accurately predict what the defense procurement budget will be, the Registrant anticipates that nonautomotive segment sales during fiscal year 1996 will increase due to deliveries on a number of programs currently in the backlog and programs expected to book soon.
The Registrant's contract pricing methods have offset the effect of inflation.
Fiscal Year 1994 vs. 1993
Net sales and operating profits for the fiscal year ended July 31, 1994, were $109,892,700 and $30,071,500, respectively, compared to fiscal year 1993 net sales of $94,184,200 and operating profits of $23,632,800. Net earnings and earnings per share for fiscal year 1994 were $17,952,500 and $0.88, respectively, compared to fiscal year 1993 net earnings of $14,571,100 and earnings per share of $0.72. Fiscal year 1994 net earnings include $148,900 and $0.01 per share related to a technology transfer agreement for the Japanese FSX aircraft program. Fiscal year 1993 net earnings included $397,800, or $0.02 per share, related to that same technology transfer agreement. Eliminating the effect of the above agreement, fiscal year 1993 net earnings from operations would have been $14,173,300 and earnings per share would have been $0.70, and fiscal year 1994 net earnings from operations would have been $17,803,600 and earnings per share would have been $0.87.
The Automotive Safety Products division was the primary contributor to the sales and operating profit increases over fiscal year 1993. Automotive sales increased 46% and the operating profit increased 64% due primarily to the increased volume and a significant reduction in research and development cost. Nonautomotive sales decreased 12% with an operating profit decrease of 16%. Total operating profit as a percentage of sales increased to 27% in 1994 as compared to 25% for 1993. This increase was achieved primarily because of a reduced expenditure of funds for Company funded research and development ($1,814,800 in 1994 vs. $3,729,600 in 1993).
Liquidity and Capital Resources
The Company's working capital at July 31, 1995, increased to $62,711,100, from the $53,506,800 at July 31, 1994, due to increased earnings from operations resulting in increased cash and cash equivalents of $14,495,300, offset by reductions in accounts receivable and inventories.
During fiscal year 1995, the Company made capital expenditures totaling $19,912,300 as compared to $16,823,900 and $19,593,100 in fiscal years 1994 and 1993, respectively. These capital expenditures were funded principally from operations. Currently the Company has capital expenditure commitments totaling approximately $20,000,000 for fiscal year 1996.
In January 1995 the Company renewed an $8,000,000 Revolving Credit Agreement with its principal bank and at July 31, 1995, had no 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, when necessary, borrowings from the agreement mentioned above, which can be increased when required.
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
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
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10
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 1996 annual shareholders meeting to be filed with the Securities and Exchange Commission prior to November 29, 1995.
ITEM 11
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 1996 annual shareholders meeting to be filed with the Securities and Exchange Commission prior to November 29, 1995.
ITEM 12
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 1996 annual shareholders meeting to be filed with the Securities and Exchange Commission prior to November 29, 1995.
ITEM 13
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 1996 annual shareholders meeting to be filed with the Securities and Exchange Commission prior to November 29, 1995.
PART IV
ITEM 14
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, 1995 and
Consolidated Statements of Earnings Years ended July 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity Years ended July 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows Years ended July 31, 1995, 1994, and 1993
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).
Exhibit 22 - During fiscal year 1995, 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
Foreign Corporate Percentage of Joint Venture Ownership ----------------- ------------- Pyrospace S.A. 45% a corporation in France
Pyroindustrie S.A. 80% 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, 1995.
None
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 23, 1995
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
John E. Banko, Director George S. Ansell, Director
J. Robert Burnett, Director Philip E. Johnson, Director
Paul J. Martin, Vice President/ John E. Banko IV, Controller Treasurer and Principal Financial Officer
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, 1995
OEA, Inc. and Subsidiaries
Denver, Colorado
21A
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, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1995, in conformity with generally accepted accounting principles.
September 29, 1995
OEA, Inc. and Subsidiaries Consolidated Balance Sheets
OEA, Inc. and Subsidiaries Consolidated Statements of Earnings
OEA, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
OEA, Inc. and Subsidiaries Consolidated Statements of Cash Flows
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements July 31, 1995
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 foreign joint venture in which the Company has more than 50% equity ownership. 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.
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.
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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 $7,454,851, $5,485,673 and $4,651,073 in 1995, 1994, and 1993, respectively. Repairs and maintenance charged to costs and expenses was $5,027,645, $4,090,642 and $2,950,358 in 1995, 1994, and 1993, respectively.
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, 1995, 1994, and 1993 would be insignificant.
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.
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
2. Stock Options On January 13, 1995, the shareholders approved an Employees' Stock Option Plan (the "Employees' Plan") and Nonemployee Directors' Stock Option Plan (the "Directors' Plan"). 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. As of July 31, 1995, no options have been granted under either plan.
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 624,153 shares, net of forfeitures, were granted at an average option price of $7.50, and options for 175,695 shares remain outstanding as of July 31, 1995. During 1995, options for 10,336 shares were forfeited. During 1995 and 1994, options for 21,083 and 63,832 shares, respectively, were exercised at an average price of $7.59 and $7.77, respectively.
3. Line of Credit At July 31, 1995, the Company has an $8,000,000 unsecured revolving credit line with a financial institution with an interest rate at the lower of the institution's prime interest rate or 1% per annum above the federal funds rate. In addition, at the request of the borrower, the Bank, in its sole discretion, may make loans to the borrower at an interest rate equal to "LIBOR" plus 1%. 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, 1995. The Company has no debt outstanding relating to the line of credit as of July 31, 1995.
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
4. Inventories Inventories are summarized as follows:
5. 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 and Pyrospace for the establishment of a company (Pyroindustrie S.A.) in France. Pyroindustrie is engaged in the manufacture of initiators for the European air bag market. The Company is an 80% owner of Pyroindustrie.
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, 1995, 1994, and 1993 were $1,501,958, $1,430,984 and $1,232,671, 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.
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
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, 1995 and 1994 are as follows:
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued) Components of income tax expense (benefit) are as follows:
Actual tax expense for 1995, 1994, and 1993 differs from "expected" tax expense for those years (computed by applying the U.S. federal corporate tax rate of 35% for 1995, 35% for 1994 and 34.5% for 1993 to earnings before income taxes) as follows:
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
8. 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:
The automotive segment includes the manufacturing and sales of automotive safety products for both domestic and foreign automobile manufacturers. 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
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
8. Segment Information and Major Customers (continued) foreign governments, and also includes the manufacture and sale of similar explosiveactuated 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 1995, 1994, and 1993 are as follows:
Accounts receivable are summarized as follows:
9. 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 $2,070,000 and has accrued $180,000, respectively, as of July 31, 1995.
OEA, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies (continued) 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, 1995 and 1994.
The Company has commitments to purchase approximately $20,000,000 of property, plant, and equipment.
10. Quarterly Results of Operations for 1995 and 1994 (Unaudited)