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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996
COMMISSION FILE NO. 1-4474
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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)
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 March 31, 1996, the Company had outstanding 17,825,988 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)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(Unaudited)
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 14,285 $ 16,942
Receivables, less reserve...................... 52,366 40,631
Inventories:
Raw materials............................... $ 12,399 $ 12,308
Work in process............................. 28,053 30,451
Finished goods.............................. 12,661 53,113 9,569 52,328
--------- ---------
Deferred income taxes.......................... 21,150 19,900
Other current assets........................... 4,215 3,815
--------- --------
Total current assets..................... 145,129 133,616
Plant and Equipment, at cost...................... 130,219 124,810
Less - Accumulated depreciation................... (73,356) 56,863 (71,242) 53,568
--------- ---------
Deferred Income Taxes............................. 7,350 17,242
Goodwill and Other Intangible Assets, less
accumulated amortization of
$10,111 and $10,945............................ 78,698 79,829
Investments in Affiliates......................... 9,075 20,940
Other Assets...................................... 7,337 7,533
--------- ---------
Total Assets............................. $ 304,452 $ 312,728
========= =========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............... $ 9,034 $ 14,691
Accounts payable................................ 16,019 15,822
Accrued liabilities............................. 26,268 23,161
--------- ---------
Total current liabilities................. 51,321 53,674
Other Liabilities.................................. 10,122 11,628
Long-term Debt..................................... 63,486 91,570
Minority Interest.................................. 38,793 36,643
Stockholders' Equity:
Common stock............................... 178 177
Additional paid-in capital................. 285,128 282,179
Accumulated deficit........................ (143,107) (161,528)
Other...................................... (1,469) 140,730 (1,615) 119,213
--------- --------- --------- ---------
Total Liabilities and
Stockholders' Equity.............. $ 304,452 $ 312,728
========= =========
</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
Ended March 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales........................................ $ 84,627 $ 71,600
Cost of sales.................................... (51,166) (43,085)
-------- --------
Gross profit..................................... 33,461 28,515
Selling, general and administrative expenses..... (18,170) (12,850)
-------- --------
Operating income................................. 15,291 15,665
Interest expense................................. (1,829) (1,510)
Interest income.................................. 142 461
Gain on sale of equity investment................ 20,550 -
Equity in net income (loss) of affiliated
companies................................. (975) 498
-------- --------
Income from operations before income taxes
and minority interest..................... 33,179 15,114
Income taxes..................................... (12,608) (1,473)
Minority interest in net income of subsidiaries.. (2,150) (2,826)
-------- --------
Net income...................................... $ 18,421 $ 10,815
======== ========
Income per common share......................... $ 1.00 $ .58
======== ========
Weighted average shares ........................ 18,409 18,512
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Net income........................................... $ 18,421 $ 10,815
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization.................. 3,178 2,939
Change in minority interest.................... 2,150 2,826
Gain on sale of equity investment.............. (20,550) -
Change in assets and liabilities............... (623) (10,017)
Other.......................................... 1,552 (485)
-------- --------
Net cash provided by operations......................... 4,128 6,078
-------- --------
Investing Activities:
Capital expenditures................................. (5,697) (2,756)
Proceeds from the sale of equity investment.......... 29,400 -
Other................................................ 160 (22)
-------- --------
Net cash provided by (used in) investing activities..... 23,863 (2,778)
-------- --------
Financing Activities:
Repayment of borrowings.............................. (33,741) (6,693)
Other................................................ 3,005 226
-------- --------
Net cash used in financing activities................... (30,736) (6,467)
-------- --------
Effect of exchange rates................................ 88 656
-------- --------
Cash and Cash Equivalents:
Net change during the period......................... (2,657) (2,511)
Balance, beginning of period......................... 16,942 37,648
-------- --------
Balance, end of period............................... $ 14,285 $ 35,137
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
OAK INDUSTRIES INC.
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 March 31, 1996 and December 31, 1995, and the
results of their operations and cash flows for the three month periods
ending March 31, 1996 and 1995 have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
2. Interest paid on debt for the three months ending March 31, 1996 and
1995 was $2,026,000 and $1,343,000, respectively. Income taxes paid during
the three months ended March 31, 1996 and 1995 were $595,000 and $330,000,
respectively.
3. During the first quarter of 1996, the Company sold its 49% interest in
Video 44 (WSNS-TV Channel 44), a Hispanic television station located in
Chicago, and received net proceeds of $29,400,000. The Company recorded a
pre-tax gain of $20,550,000 from the sale. Proceeds of $29,000,000 were
used to reduce debt.
4. During the first quarter of 1996, the Company recorded a pre-tax
charge of $1,900,000 associated with the write down of certain assets and a
reserve for potential legal and environmental costs.
5. The Company previously reported that it entered into a definitive
agreement to sell its 45% interest in O/E/N India Ltd. During the first
quarter of 1996, the potential buyer notified the Company that it was
unable to obtain financing for this transaction. As a result, the Company
wrote down the book value of its investment in O/E/N India Ltd. from
$1,218,000 to $468,000. This pre-tax $750,000 charge is included in the
$1,900,000 discussed in Note 4 above. The Company is uncertain as to
whether the sale of O/E/N India Ltd. will be consummated in 1996.
6. Certain items in the 1995 Consolidated Statement of Operations have
been reclassified to conform with 1996 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First Quarter Results
Sales for the first quarter of 1996 reached $84.6 million, an increase
of 18.2% over the $71.6 million in 1995. The 1996 Components Segment sales
increased 20.0% over the prior year to $78.7 million primarily due to
incremental sales of Lasertron, purchased in September of 1995, and due to
continued growth in Communications Components businesses. The Other
Segment sales approximated those of the prior year.
<TABLE>
<CAPTION>
Q1 Q1
1996 1995 % Change
---- ---- --------
<S> <C> <C> <C>
Net Sales ($ millions):
Components....................... $ 78.7 $ 65.6 20.0%
Other............................ 5.9 6.0 (2.0)%
------ ------
Total......................... $ 84.6 $ 71.6 18.2%
====== ======
</TABLE>
The Company reported net income of $18.4 million in 1996 compared to
$10.8 million in 1995. Net income for the first quarter of 1996 includes a
net gain of $12.7 million ($20.5 million less $7.8 million income tax
expense) from the sale of the Company's 49% interest in Video 44, a joint
venture owning (WSNS-TV Channel 44). The first quarter of 1996 also
includes the write down of certain assets and a reserve to cover certain
legal and environmental contingencies of $1.2 million ($1.9 million less $0.7
million tax benefit). Of this $1.9 million pre-tax charge, $0.2 million is
included in cost of sales, $0.8 million is included in selling, general and
administrative expenses and $0.9 million is included in equity in net
income (loss) of affiliated companies.
The Company's results of operations for the first quarters of 1996 and
1995 can be summarized as follows (in millions):
<TABLE>
<CAPTION>
Q1 Q1
1996 1995
---- ----
<S> <C> <C>
Pre-tax income excluding unusual items................ $ 14.5 $ 15.1
Income taxes.......................................... (5.5) (1.5)
Minority interest..................................... (2.1) (2.8)
------ ------
Net income excluding unusual items.................... 6.9 10.8
Unusual items:
Gain on the sale of equity investment............. 20.5 -
Asset valuation adjustments and other reserves.... (1.9) -
Tax impact of unusual items....................... (7.1) -
------ ------
Net income as reported................................ $ 18.4 $ 10.8
====== ======
</TABLE>
The first quarter 1996 provision for income taxes excluding the impact
of unusual items increased $4.0 million over the same quarter of 1995
principally due to an increase in the effective tax rate for financial
reporting purposes. The annual effective income tax rate for financial
reporting purposes increased to 38.0% in the first quarter of 1996 from
9.7% in the corresponding period of the prior year reflecting the provision
of a full statutory rate beginning in the third quarter of 1995. The
Company had approximately $45.0 million of unused net operating loss
carryforwards for tax return purposes at March 31, 1996 and will,
therefore, pay minimal federal income taxes until these carryforwards are
utilized.
Minority interest decreased $0.7 million due to lower earnings at
Gilbert Engineering resulting from a higher income tax provision as Gilbert
fully utilized its net operating loss carryforward for financial reporting
purposes.
Pre-tax income before minority interest and unusual items decreased $0.6
million to $14.5 million in the first quarter of 1996 from $15.1 million
recorded in the first quarter of 1995. An increase in operating income of
$0.6 million was offset by increased interest expense ($0.3 million),
decreased interest income ($0.3 million) and decreased equity income ($0.6
million).
Communications Components
Communications Components revenues increased 32.3% for the first three
months of 1996 compared to the same three months of 1995. Excluding the
impact of the Lasertron, Inc. acquisition in September 1995, net sales
increased 12.5% over the 1995 period. Communications Components includes
the sales of Gilbert Engineering, a manufacturer of CATV cable connectors,
Lasertron, Inc., a manufacturer of fiber optic components, and Oak
Frequency Control Group, a manufacturer of quartz-based crystals and
oscillators. The Company's sales growth in 1996, excluding the impact of
Lasertron, is attributable to increased construction of cable television
networks in international markets, upgrades of domestic cable systems, and
expanding applications for products in cellular, paging and personal
communications systems.
Controls Components
The sales of Controls Components in the first quarter of 1996
approximated those of the first quarter of 1995, which was a record
quarter. However, compared to the fourth quarter of 1995, sales of
Controls Components increased 21%, due primarily to improved appliance
controls sales. Controls Components consist primarily of flow and
temperature control devices for gas appliances and switches and encoders
for equipment used in consumer, commercial, medical and military
applications.
Gross Profit
The gross profit margin excluding unusual items was 39.8% of sales for
both the first quarter of 1996 and the first quarter of 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses excluding unusual items as
a percentage of sales increased to 20.6% in the first quarter of 1996 from
17.9% in the first quarter of 1995. Research and development spending
increased $1.8 million in the first quarter of 1996, accounting for a
portion of the increase. Most of this increase was attributable to
Lasertron which was acquired in September 1995.
Interest
Interest expense increased from $1.5 million in 1995 to $1.8 million in
the first quarter of 1996. The increase reflects interest associated with
increased borrowings in connection with the September 1995 acquisition of
Lasertron.
Interest income decreased from $0.4 million in the first quarter of 1995
to $0.1 million in the 1996 period as average cash balances decreased. In
September 1995, the Company used approximately $20.0 million of cash in
conjunction with the Lasertron acquisition.
Equity Income
During the first quarter of 1996, the Company sold its 49% interest in
Video 44 (WSNS-TV Channel 44), a Hispanic television station located in
Chicago, and received net proceeds of $29.4 million. The Company recorded
a pre-tax gain of $20,550,000 from the sale. As a result of its
acquisition of Lasertron, the Company has included in equity income its
proportionate share of the earnings (losses) of its 50% owned Wuhan
Telecommunications Devices Company ("WTD"), located in the Peoples'
Republic of China.
Liquidity and Capital Resources
Cash flow from operations of $4.1 million in 1996 decreased $2.0 million
from the $6.1 million generated in the first quarter of 1995 reflecting an
increased investment in working capital to support new product
introductions and higher sales volumes. The Company also accelerated its
rate of capital spending to $5.7 million in the first quarter of 1996 from
the $2.8 million invested in 1995. The increase in capital expenditures is
attributable to automation of production processes to reduce both cost and
manufacturing cycle times, expanded use of CAD/CAM capability and new
prototyping equipment to reduce development cycle times, expansion of
existing production capacity to meet increased volume requirements and
addition of new capabilities generally related to new products.
Debt net of cash decreased to $58.2 million at March 31, 1996 from $89.3
million at December 31, 1995 primarily as a result of repayment of
borrowings of $33.7 million in the first quarter of 1996. As a result of
its sale of its 49% interest in Video 44 (WSNS-TV Channel 44), a Hispanic
television station located in Chicago, the Company received net proceeds of
$29.4 million. The proceeds were used to reduce $29.0 million of debt.
The Company's credit agreement provides for a $40.0 million revolving
credit facility, a $60.0 million term loan used in conjunction with the
Lasertron, Inc. acquisition and a $60.0 million term loan restricted to the
funding of the Company's purchase of a minority partner's interest in
Connector Holding Company. In conjunction with the Company's credit
agreement, the Company completed a financing on behalf of Gilbert Engineering
for an $18.0 million revolving credit facility and a $22.0 million term loan.
In addition to the $60.0 million term loan which is only available for
purchase of the Connector minority interest, cash, cash equivalents and
unused lines of credit at March 31, 1996 totaled $46.8 million of which
$24.4 million was available only to Gilbert and $22.4 million was available
to the Company for general corporate purposes, including acquisitions.
The Company believes that funds generated by operations, existing cash
balances and its available credit facility will be sufficient to fund the
Company's ongoing operations over the next year.
Risks and Uncertainties
Revenues from telecommunications components will account for a majority
of the Company's future revenues. Although demand for these products has
grown in recent years with the build out of telecommunications networks in
domestic and international markets, a decrease in the rate of
infrastructure construction or upgrade programs could have an adverse
impact on the Company's results of operations.
The telecommunications industry is very competitive and is characterized
by rapid technological change, new product development, product
obsolescence and evolving product specifications. Additionally, price
competition in this market is intense with significant price erosion over
the life cycle of a product. The ability of the Company to compete
successfully depends on the continued introduction of new products and
ongoing manufacturing cost reduction.
Sales of the Company's Controls Components are in large part dependent
on the production level of a few North American appliance manufacturers,
which in turn is sensitive to the strength of the economy, including
housing starts, consumer disposable income and interest rates. Adverse
changes in the economy would have a negative impact on the Company's
financial results.
The Company currently buys a number of raw materials from single
sources. In most cases there are readily available and qualified
alternative sources of supply. Although the Company does not at this time
have a qualified second source for one critical component used in the
production of fiber optic modules, management believes there are other
suppliers that could provide a like quality product on comparable terms. A
change in suppliers for this product could cause a delay in manufacturing
and adversely impact operating results.
The Company must comply with governmental regulations relating to the
environment. The cost of compliance with environmental regulations in 1995
was immaterial and is not expected to have a material effect on capital
expenditures or operating results in 1996.
Various pending or threatened legal proceedings by or against the
Company or one or more of its subsidiaries involve alleged breaches of
contract, torts and miscellaneous other causes of action arising in the
course of business. The Company's management, based upon advice of legal
counsel representing the Company with respect to each of these proceedings,
does not believe any of these proceedings will have a significant impact on
the Company's consolidated financial position.
The Company's international operations and its results could be affected
by changes in policies of foreign governments and in social and economic
conditions outside the U.S. including civil unrest, changing inflation and
foreign exchange rates, and trade restrictions or prohibitions.
Any of the foregoing could have an adverse effect on future results.
<PAGE>
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, 1995.
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 (Submitted only to the Securities
and Exchange Commission in electronic format for its
information only).
(b) Reports on Form 8-K:
On March 6, 1996, the Company filed a report on Form 8-K regarding
the sale of its 49% interest in Video 44.
<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: April 30, 1996 /s/ Francis J. Lunger
Francis J. Lunger
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 14,285
<SECURITIES> 0
<RECEIVABLES> 52,366
<ALLOWANCES> 0
<INVENTORY> 53,113
<CURRENT-ASSETS> 145,129
<PP&E> 130,219
<DEPRECIATION> 73,356
<TOTAL-ASSETS> 304,452
<CURRENT-LIABILITIES> 51,321
<BONDS> 0
<COMMON> 178
0
0
<OTHER-SE> 140,552
<TOTAL-LIABILITY-AND-EQUITY> 304,452
<SALES> 84,627
<TOTAL-REVENUES> 84,627
<CGS> 51,166
<TOTAL-COSTS> 51,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,829
<INCOME-PRETAX> 33,179
<INCOME-TAX> 12,608
<INCOME-CONTINUING> 18,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,421
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
