<PAGE>
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1994
COMMISSION FILE NO. 1-4474
--------------------------
OAK INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-1569000
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
BAY COLONY CORPORATE CENTER
1000 WINTER STREET
WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices)
(617) 890-0400
(Registrant's telephone number)
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 number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of September 30, 1994, the Company had outstanding 17,335,508 shares of
Common Stock, $0.01 par value per share.
=============================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
(Unaudited)
--------------------- ---------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 36,691 $ 27,367
Receivables, less reserves...................... 31,842 27,753
Inventories:
Raw materials................................. $ 9,783 $ 8,736
Work in process............................... 16,576 15,419
Finished goods................................ 8,146 34,505 7,170 31,325
-------- ---------
Other current assets............................ 10,286 10,013
-------- --------
Total current assets......................... 113,324 96,458
Plant & Equipment, at cost........................ 100,604 91,373
Less - Accumulated depreciation................... (62,659) 37,945 (57,944) 33,429
-------- ---------
Deferred Income Taxes............................. 22,400 22,400
Goodwill and Other Intangible Assets, less
accumulated amortization of $7,655 and $5,839... 77,165 70,999
Other Assets...................................... 16,270 14,441
-------- --------
Total Assets................................. $267,104 $237,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............... $ 12,639 $ 1,546
Accounts payable................................ 10,286 8,567
Accrued liabilities............................. 21,645 16,770
-------- --------
Total current liabilities.................... 44,570 26,883
Other Liabilities................................. 5,697 7,535
Long-term Debt.................................... 42,748 61,549
Minority Interest................................. 21,207 14,841
Stockholders' Equity:
Common stock.................................... $ 173 $ 172
Additional paid-in capital...................... 281,532 280,467
Accumulated deficit............................. (126,806) (151,850)
Other........................................... (2,017) 152,882 (1,870) 126,919
--------- -------- --------- --------
Total Liabilities and Stockholders' Equity... $267,104 $237,727
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................ $ 58,400 $ 51,578 $185,866 $169,024
-------- -------- -------- --------
Costs, expenses and other income (expense):
Cost of sales...................................... (36,597) (33,183) (116,489) (111,706)
Selling, general and administrative expenses....... (10,602) (9,217) (32,105) (29,165)
Interest expense................................... (1,441) (1,828) (4,922) (5,784)
Interest income.................................... 406 160 908 508
Equity in net income of affiliated companies....... 611 362 1,646 1,191
Other income (expense)............................. (733) (3,626) (1,328) (4,548)
-------- -------- -------- --------
Total costs, expenses and other income (expense). (48,356) (47,332) (152,290) (149,504)
-------- -------- -------- --------
Income from continuing operations before income
taxes and minority interest......................... 10,044 4,246 33,576 19,520
Income tax (provision) benefit....................... (945) 3,723 (2,166) 2,503
Minority interest in net income of subsidiaries...... (1,733) (1,519) (6,366) (4,993)
-------- -------- -------- --------
Net income........................................... $ 7,366 $ 6,450 $ 25,044 $ 17,030
======== ======== ======== ========
Income per common share:
Primary............................................ $ .40 $ .35 $ 1.36 $ .94
======== ======== ======== ========
Fully diluted...................................... $ .40 $ .35 $ 1.36 $ .94
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1994 1993
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
OPERATING ACTIVITIES:
Income from continuing operations........................... $ 25,044 $ 17,030
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization........................... 7,661 7,862
Change in minority interest............................. 6,366 4,993
Change in assets and liabilities, net of effects
from acquisition of businesses........................ (153) (2,161)
Other................................................... (3,626) (3,313)
-------- --------
Net cash provided by continuing operations.................... 35,292 24,411
-------- --------
INVESTING ACTIVITIES:
Capital expenditures........................................ (4,751) (5,613)
Acquisition of businesses and investments in
unconsolidated companies.................................. (8,309) (1,594)
Other....................................................... 326 315
-------- --------
Net cash used in investing activities......................... (12,734) (6,892)
-------- --------
FINANCING ACTIVITIES:
Principal repayments on long-term borrowings................ (13,892) (18,776)
Reduction in cash restricted for letter of credit........... -- 6,000
Other....................................................... 238 537
-------- --------
Net cash used in financing activities......................... (13,654) (12,239)
-------- --------
Effect of exchange rates...................................... 420 (513)
-------- --------
CASH AND CASH EQUIVALENTS:
Net change during the period................................ 9,324 4,767
Balance, beginning of period................................ 27,367 18,937
-------- --------
Balance, end of period...................................... $ 36,691 $ 23,704
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements have been prepared by Oak
Industries Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Company believes that
the disclosures made in this report are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K. In the
opinion of the Company, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of Oak
Industries Inc. and subsidiaries as of September 30, 1994 and December 31,
1993, the results of their operations for the three and nine month periods
ending September 30, 1994 and 1993 and cash flows for the nine month periods
ending September 30, 1994 and 1993, have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
2. Primary and fully diluted per share amounts are based on the weighted
average number of shares of common stock and common stock equivalents
outstanding as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary 18,435,640 18,246,215 18,348,183 18,129,345
Fully diluted 18,435,640 18,246,836 18,411,408 18,138,242
</TABLE>
3. Interest paid on debt for the three months ending September 30, 1994 and
1993 was $1,180,000 and $1,310,000, respectively, and for the nine months
ending September 30, 1994 and 1993 was $3,925,000 and $4,703,000,
respectively. Income taxes paid during the three months ended September 30,
1994 and 1993 were $485,000 and $2,463,000, respectively, and during the nine
months ending September 30, 1994 and 1993 were $1,218,000 and $4,636,000,
respectively. 1993 taxes paid excludes the effect of the $3,878,000 tax
refund discussed below.
4. On June 10, 1994, the Company's subsidiary, Gilbert Engineering Co., Inc.
("Gilbert"), acquired all of the outstanding common stock of Cabel-Con A/S
("Cabel-Con"), a Danish manufacturer of connectors for the worldwide cable
television markets, for $9,250,000. Cabel-Con had cash of $941,000 at the
time of the acquisition. The acquisition was financed by borrowing on
Gilbert's revolving credit facility. Concurrent with the acquisition, Gilbert
paid off $2,625,250 of Cabel-Con's bank borrowings. The acquisition was
accounted for as a purchase and, accordingly, operating results of this
business subsequent to the date of acquisition were included in the Company's
consolidated statement of operations. Substantially all of the goodwill
resulting from this acquisition is being amortized over 40 years.
5. As a result of a new state income tax law enacted during the second
quarter of 1994, the Company's income tax liability has been reduced and a
benefit of $900,000 was recorded on the income taxes line in the Consolidated
Statement of Operations.
6. The Company has signed a letter indicating its intent, subject to due
diligence, board approval, and other conditions, to purchase AT&T's Frequency
Control Products ("FCP") unit located in North Andover, Massachusetts. AT&T's
FCP unit has sales of approximately $50 million per year and is profitable. A
purchase, if consummated, would involve the expenditure of cash. However,
there can be no assurance that a definitive agreement will be reached, or that
if an agreement were reached, the necessary legal and regulatory approvals
could be obtained.
7. In the third quarter of 1993, the Company recorded a gain of $3,878,000
resulting from a refund from the Internal Revenue Service relating to the
settlement of a tax dispute. This gain is recorded on the income taxes line
in the Consolidated Statement of Operations. Also in the third quarter of
1993, the Company recorded a $2,900,000 restructuring charge to cover the
costs associated with reorganizing its Mexican manufacturing operations,
consolidating certain U.S. operations, and certain other overhead reductions.
This charge is recorded on the "Other income (expense)" line in the
Consolidated Statement of Operations.
8. As a result of the increase in federal income tax rates in the third
quarter of 1993, the Company revalued its deferred income tax assets using the
newly-enacted tax rates. As a result, the Company recorded a benefit of
$465,000 on the income taxes line in the Consolidated Statement of Operations.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report has been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included in
annual reports has been condensed or omitted pursuant to such rules and
regulations. It is suggested that this report be read in conjunction with the
Company's latest annual report on Form 10-K, a copy of which may be obtained
by writing to Oak Industries Inc., Bay Colony Corporate Center, 1000 Winter
Street, Waltham, MA 02154.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash increased by $9.3 million during the first nine months
of 1994 to $36.7 million at September 30, 1994. Operations generated $35.3
million of cash during the nine months ending September 30, 1994 compared to
$24.4 million for the same period in the prior year. The Company spent $4.8
million for capital equipment and $8.3 million of net cash to acquire Cabel-
Con A/S, a Danish manufacturer of connectors for the worldwide cable
television markets. Cash of $13.9 million was used to repay long-term
borrowings.
Effective June 10, 1994, the credit agreement between Gilbert and General
Electric Capital Corporation (GECC) was amended. Interest rates on all
borrowings were reduced by 0.25% per annum, and if Gilbert meets certain
performance criteria during 1994, the rates will be reduced by an additional
0.25% per annum effective January 1, 1995. Additionally, the amount of
borrowings available under the revolving credit facility of $18.25 million
will now be reduced by approximately $2.1 million per quarter for the first
three quarters of 1997 with the facility expiring on December 23, 1997.
At September 30, 1994, cash and unused lines of credit totaled $84.8
million of which $21.9 million was available only to Gilbert and $62.9 million
was available to the Company for general corporate purposes, including
acquisitions. The Company believes its current financial resources are
sufficient to meet its continuing operating requirements, service its long-
term debt, make expected capital expenditures, fund the potential acquisition,
described below, and provide for future growth.
The Company has signed a letter indicating its intent, subject to due
diligence, board approval and other conditions, to purchase AT&T's Frequency
Control Products ("FCP") unit located in North Andover, Massachusetts. AT&T's
FCP unit has sales of approximately $50 million per year and is profitable. A
purchase, if consummated, would involve the expenditure of cash. However,
there can be no assurance that a definitive agreement will be reached, or that
if an agreement were reached, the necessary legal and regulatory approvals
could be obtained.
Although the Company operates internally with several businesses
functioning as profit centers, these businesses are also managed as a group.
That is, if a given business is performing strongly, corporate management may
use this opportunity to invest additional funds in product development and
marketing in another business. Certain agreements applicable to Gilbert limit
Gilbert's ability to make distributions or advances to the Company.
RESULTS OF OPERATIONS
The Company's operations are conducted in two industry segments, the
Components Segment and the Other Segment. The Company's Components Segment
manufactures connectors for CATV systems and other precision applications,
frequency control devices, controls for gas and electric appliances,
electromechanical switches and other products which generally have the common
function of controlling or regulating the flow of energy. The Other Segment
is composed of the Company's railway maintenance equipment and emergency
lighting divisions.
Third Quarter Results
Consolidated sales for the third quarter of 1994 were $58.4 million, a $6.8
million or 13.2% increase over the third quarter of 1993. Components Segment
sales increased $6.5 million, or 13.5%, and Other Segment sales increased $0.3
million, or 9.0% (see discussion under "Segment Data").
Consolidated net income for the three months ending September 30, 1994 was
$7.4 million compared to net income of $6.5 million for the third quarter of
1993. However, 1993 includes nonrecurring items detailed in the table below.
Excluding the nonrecurring items, income increased by $1.9 million, or 34.6%,
over 1993.
<PAGE>
<TABLE>
<CAPTION>
INCOME ($ millions) Third Quarter
--------------
1994 1993
----- -----
<S> <C> <C>
Income from continuing operations before
nonrecurring items........................... $7.4 $5.5
Add nonrecurring income:
Gain on resolution of income tax issue (1)... -- 3.9
Subtract nonrecurring expenses:
Restructuring charge (2)..................... -- (2.9)
---- ----
Net income..................................... $7.4 $6.5
==== ====
<FN>
(1) In the third quarter of 1993, the Company recorded a gain of $3.9 million
resulting from an Internal Revenue Service refund related to the settlement of
a tax dispute.
(2) In the third quarter of 1993, the Company recorded a $2.9 million
restructuring charge to cover the costs associated with reorganizing its
Mexican manufacturing operations, consolidating certain U.S. operations, and
certain other overhead reductions.
</TABLE>
This $1.9 million increase in profitability before nonrecurring items arises
from a $1.5 million increase in segment operating profitability (see
discussion under "Segment Data"). Interest expense decreased $0.4 million due
to lower debt balances. Interest income increased $0.2 million due to higher
invested balances and higher interest rates. Equity in net income of
affiliates increased $0.3 million. Income tax expense, net of the 1993
nonrecurring gain of $3.9 million, increased $0.8 million due to higher state
and foreign taxes and due to a tax benefit of $0.5 million recorded in 1993
which did not occur in 1994.
<TABLE>
<CAPTION>
Segment Data ($ millions) Sales Operating Income
-------------- ----------------
1994 1993 1994 1993
----- ----- ----- -----
<S> <C> <C> <C> <C>
Components.............. $54.6 $48.1 $11.5 $ 9.7
Other................... 3.8 3.5 0.3 0.6
----- ----- ----- -----
Subtotal............. $58.4 $51.6 11.8 10.3
Restructuring charge.... ===== ===== -- (2.9)
----- -----
Total................ $11.8 $ 7.4
===== =====
</TABLE>
Sales of the Components Segment increased $6.5 million, or 13.5%, in the
third quarter of 1994 compared to the third quarter of 1993. Sales of
communications products increased $5.3 million or 20.0%, due primarily to
strong sales of connector products. Sales of controls products increased $1.2
million, or 5.6%, due to increased sales of appliance controls partially
offset by a decrease in sales of electro-mechanical devices. Components
Segment order backlog was $46.5 million at September 30, 1994, up $5.8 million
from September 30, 1993.
Excluding the effect of the $2.9 million restructuring charge discussed
above, operating income of the Components Segment increased $1.8 million in
the third quarter of 1994 compared to the third quarter of 1993. This
improvement was due primarily to additional profits resulting from the sales
increase discussed above.
Other Segment sales increased $0.3 million, or 9.0%, compared to the third
quarter of 1993 due to increased volume from the Company's railway maintenance
equipment division. However, operating income was $0.3 million lower than
the third quarter of 1993, due to higher sales of lower margin products.
Order backlog for the segment was $2.0 million at September 30, 1994, up $1.8
million from September 30, 1993.
Consolidated gross profit for the third quarter increased as a percentage
of sales from 35.7% in 1993 to 37.3% in 1994 due to higher sales volumes of
higher margin products, cost reduction programs, and productivity
enhancements.
Nine Month Results
Consolidated sales for the first nine months of 1994 were $185.9 million, a
$16.9 million, or 10.0%, increase over the same period of 1993. Components
Segment sales increased $15.3 million, or 9.9%, and Other Segment sales
increased $1.6 million, or 10.7%.
Consolidated net income during the first nine months of 1994 was $25.0
million compared to $17.0 million in the same period of 1993. Each period,
however, includes certain nonrecurring items shown in the table below.
Exclusive of these items, income in the 1994 period increased by $8.1 million,
or 50.6%, over the 1993 period.
<TABLE>
<CAPTION>
INCOME ($ millions) First Nine Months
-----------------
1994 1993
----- -----
<S> <C> <C>
Income from continuing operations before
nonrecurring items........................... $24.1 $16.0
Add nonrecurring income:
Gain on resolution of income tax issue (1)... -- 3.9
Gain on state tax law change (2)............. 0.9 --
Subtract nonrecurring expenses:
Restructuring charge (3)..................... -- (2.9)
----- -----
Net income..................................... $25.0 $17.0
===== =====
<FN>
(1) In the third quarter of 1993, the Company recorded a gain of $3.9 million
resulting from an Internal Revenue Service refund relating to the settlement
of a tax dispute.
(2) In the second quarter of 1994, the Company recorded a gain of $0.9
million resulting from a state income tax law change.
(3) In the third quarter of 1993, the Company recorded a $2.9 million
restructuring charge to cover the costs associated with reorganizing its
Mexican manufacturing operations, consolidating certain U.S. operations, and
certain other overhead reductions.
</TABLE>
The $8.1 million improvement in income from continuing operations before
nonrecurring items for the first nine months of 1994 resulted primarily from a
$9.1 million increase in segment operating profitability (see discussion under
"Segment Data"). Minority interest expense increased $1.4 million due to
higher earnings at Gilbert. Interest income increased $0.4 million due to
higher invested balances and higher interest rates. Equity in net income of
subsidiaries increased $0.5 million. Interest expense decreased $0.9 due to
lower debt balances. Income tax expense, net of nonrecurring gains of $0.9
million and $3.9 million in 1994 and 1993, respectively, increased $1.7
million due to higher state and foreign taxes.
<TABLE>
<CAPTION>
Segment Data ($ millions) Sales Operating Income
-------------- ----------------
1994 1993 1994 1993
----- ----- ----- -----
<S> <C> <C> <C> <C>
Components.............. $170.0 $154.7 $38.4 $29.4
Other................... 15.9 14.3 1.9 1.8
------ ------ ----- -----
Subtotal............. $185.9 $169.0 40.3 31.2
Restructuring charge.... ====== ====== -- (2.9)
----- -----
Total................ $40.3 $28.3
===== =====
</TABLE>
Sales of the Components Segment increased $15.3 million, or 10.0%, in the
first nine months of 1994 compared to the first nine months of 1993. Sales of
communications products increased $12.4 million, or 14.1%, due to strong sales
of connector products. Sales of controls products increased $2.9 million, or
4.4%, due to increased sales of appliance products partially offset by a
decrease in sales of electro-mechanical devices.
Excluding the effect of the nonrecurring charges discussed above, operating
income of the Components Segment increased $9.0 million in the first nine
months of 1994 as compared to the first nine months of 1993 due to increased
sales discussed above and continuing productivity improvements and cost
reduction programs.
Other Segment sales increased $1.6 million, or 10.7%, compared to the first
nine months of 1993 due to increased volume from the Company's railway
maintenance equipment division. Operating income increased $0.1 million, or
6.1%.
Consolidated gross profit increased as a percentage of sales in the first
nine months of 1993 to 37.3% from 33.9% in the comparable 1993 period due to
higher sales volumes of higher margin products, cost reduction programs, and
productivity enhancements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 and to the Company's Quarterly Report on Form 10-Q for
the quarters ended March 31, 1994 and June 30, 1994.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
27. Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter ended
September 30, 1994.
<PAGE>
OAK INDUSTRIES INC.
SIGNATURES
Pursuant to the requirement 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.
OAK INDUSTRIES INC.
Date: October 28, 1994 /S/ WILLIAM C. WEAVER
William C. Weaver
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Sep-30-1994
<CASH> 36,691
<SECURITIES> 0
<RECEIVABLES> 31,842
<ALLOWANCES> 0
<INVENTORY> 34,505
<CURRENT-ASSETS> 113,324
<PP&E> 100,604
<DEPRECIATION> (62,659)
<TOTAL-ASSETS> 267,104
<CURRENT-LIABILITIES> 44,570
<BONDS> 0
<COMMON> 173
0
0
<OTHER-SE> 152,709
<TOTAL-LIABILITY-AND-EQUITY> 267,104
<SALES> 185,866
<TOTAL-REVENUES> 185,866
<CGS> 116,489
<TOTAL-COSTS> 116,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,922
<INCOME-PRETAX> 33,576
<INCOME-TAX> 2,166
<INCOME-CONTINUING> 25,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,044
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
