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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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For Quarter Ended September 30, 1997
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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)
1000 WINTER STREET
WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices)
(781) 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 / / No /X/
Indicate number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of October 31, 1997, the Company had outstanding 17,857,094 shares of
Common Stock, $0.01 par value per share.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(Unaudited)
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 6,557 $ 6,116
Receivables, less reserve.................. 52,311 40,202
Inventories:
Raw materials........................... 15,441 13,134
Work in process......................... 30,464 28,182
Finished goods.......................... 8,356 54,261 12,039 53,355
-------- --------
Deferred income taxes...................... 11,678 22,210
Other current assets....................... 2,955 2,641
--------- ---------
Total current assets................. 127,762 124,524
Plant and Equipment, at cost.................. 156,081 143,400
Less - accumulated depreciation............... (87,080) 69,001 (78,374) 65,026
-------- --------
Deferred income taxes......................... 5,687 4,348
Goodwill and other intangible assets, less
accumulated amortization of
$15,713 and $11,451....................... 176,011 166,498
Investments in affiliates.................... 8,368 8,315
Other assets................................. 4,147 5,574
--------- ---------
Total Assets........................ $ 390,976 $ 374,285
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 443 $ 290
Accounts payable.......................... 15,006 16,162
Accrued liabilities....................... 29,036 29,053
--------- ---------
Total current liabilities........... 44,485 45,505
Other liabilities............................ 7,644 7,973
Long-term debt............................... 155,600 138,161
Minority interest............................ 10,222 10,923
Stockholders' Equity:
Common stock.............................. 188 184
Additional paid-in capital................ 302,830 296,185
Accumulated deficit....................... (104,480) (119,692)
Unearned compensation -
restricted stock....................... (1,768) (2,945)
Treasury stock............................ (22,028) (1,369)
Other..................................... (1,717) 173,025 (640) 171,723
-------- --------- -------- ---------
Total Liabilities and
Stockholders' Equity............ $ 390,976 $ 374,285
========= =========
</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,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $ 76,975 $ 74,086 $ 230,323 $ 233,413
Cost of sales................................... (48,373) (45,416) (145,852) (142,479)
-------- -------- --------- ---------
Gross profit.................................... 28,602 28,670 84,471 90,934
Selling, general and administrative expenses (16,492) (14,504) (51,118) (48,129)
-------- -------- --------- ---------
Operating income................................ 12,110 14,166 33,353 42,805
Interest expense................................ (2,718) (990) (7,966) (4,100)
Interest income................................. 93 108 232 374
Gain on sales of equity investments............. -- 952 -- 21,502
Equity in net income (loss) of
affiliated companies......................... 17 (159) 61 (1,065)
-------- -------- --------- ---------
Income from continuing operations before
income taxes and minority interest........... 9,502 14,077 25,680 59,516
Income taxes.................................... (3,382) (4,884) (9,624) (22,215)
Minority interest in net income of subsidiaries. (296) (1,786) (844) (6,611)
-------- -------- --------- ---------
Income from continuing operations............... 5,824 7,407 15,212 30,690
Income from discontinued operations,
net of taxes................................. -- 358 -- 1,442
-------- -------- --------- ---------
Net income...................................... $ 5,824 $ 7,765 $ 15,212 $ 32,132
======== ======== ========= =========
Income per common share:
Continuing operations..................... $ .32 $ .39 $ .84 $ 1.65
Discontinued operations................... -- .02 -- .08
-------- -------- --------- ---------
Net Income................................ $ .32 $ .41 $ .84 $ 1.73
======== ======== ========= =========
Weighted average shares......................... 18,149 18,827 18,193 18,612
======== ======== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Income from continuing operations.............................. $ 15,212 $ 30,690
Adjustments to reconcile income from continuing operations
to net cash provided by operations:
Depreciation............................................. 9,278 7,260
Amortization............................................. 4,981 2,494
Change in minority interest.............................. 844 6,611
Gain on the sale of properties........................... (253) --
Gain on the sales of equity investments.................. -- (21,502)
Changes in working capital............................... (1,475) 10,177
-------- ---------
Net Cash Provided by Operations................................... 28,587 35,730
-------- ---------
Investing Activities:
Capital expenditures........................................... (11,138) (18,798)
Acquisition of businesses...................................... (21,118) --
Proceeds from the sale of properties........................... 1,924 --
Proceeds from the sales of equity investments.................. -- 30,871
Other.......................................................... 4 337
-------- ----------
Net Cash Provided by (Used in) Investing Activities............... (30,328) 12,410
-------- ----------
Financing Activities:
Borrowings..................................................... 17,592 --
Repayment of borrowings........................................ -- (62,747)
Treasury stock repurchase...................................... (20,813) --
Exercise of stock options...................................... 7,243 7,352
Dividends paid to minority stockholders........................ (1,545) --
Other.......................................................... 154 285
-------- ----------
Net Cash (Used in) Provided by Financing Activities............... 2,631 (55,110)
-------- ----------
Effect of Exchange Rates.......................................... (449) (402)
-------- ----------
Net Cash Used by Discontinued Operations.......................... -- 1,153
-------- ----------
Cash and Cash Equivalents:
Net change during the period................................... 441 (6,219)
Balance, beginning of period................................... 6,116 16,842
-------- ----------
Balance, end of period......................................... $ 6,557 $ 10,623
======== ==========
</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 September 30, 1997 and December 31, 1996, and the
results of their operations for the three-month period and nine-month
periods ending September 30, 1997 and 1996 and cash flows for the nine-
month periods ending September 30, 1997 and 1996 have been included. The
results of operations for such interim periods are not necessarily
indicative of the results for the full year.
2. On September 30, 1997, the Company acquired all of the outstanding
capital stock of Piezo Crystal Company, ("Piezo"), a Carlisle, Pennsylvania
manufacturer of frequency control products for the satellite and wireless
communications industries. The Company paid approximately $20.2 million in
cash, including transaction expenses. In addition, Piezo's shareholders
may receive additional consideration of up to a maximum of $5.9 million,
depending upon Piezo's operating results for the balance of 1997 and 1998.
The purchase price was financed with borrowings from the Company's existing
credit facility. The acquisition was accounted for as a purchase of assets
pursuant to an election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended. The Company's consolidated balance sheet and
consolidated statement of cash flows include Piezo. Piezo's results are
not included in the consolidated statement of operations. The Company
recorded $13.5 million of goodwill which will be amortized over 40 years.
The Company expects to charge to cost of goods sold, in the fourth quarter
of 1997, amounts related to the write-up of Piezo's inventory required by
purchase accounting.
3. During the Company's 1997 first quarter, the Company received
authorization from its Board of Directors and its banks to expend up to
$50.0 million to repurchase shares of its common stock. The Company will
use the repurchased stock for its stock plans and for other corporate
purposes. As of September 30, 1997, the Company had repurchased 1,069,300
shares at a total cost of $20.8 million.
4. In February 1997, the Company purchased certain assets associated with
the gas regulator product line of Leemco, Inc. for approximately $1.0
million, including consolidation and transaction expenses. As a result of
the transaction, the Company will amortize total goodwill in the amount of
$0.4 million over the next 20 years.
5. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
The Company is not required to adopt SFAS No. 128 until the last quarter of
1997. The following table displays the impact that the adoption of SFAS
No. 128 would have had on the Company's income per share:
<TABLE>
<CAPTION>
Income Per Share Income Per Share
As Reported Pro Forma SFAS No. 128
Q3 1997 Nine Months Q3 1997 Nine Months
--------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Primary................ $.32 $.84 Basic........... $.33 $.85
Fully-Diluted.......... $.32 $.84 Diluted......... $.32 $.84
</TABLE>
6. In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS 130), and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). The Company
will implement SFAS 130 and SFAS 131 as required in fiscal 1998, which
require the Company to report and display certain information related to
comprehensive income and operating segments, respectively. Adoption of
SFAS 130 and SFAS 131 will not have an impact on the Company's financial
position or results of operations.
7. The Company paid interest on debt for the three months ended September
30, 1997 and 1996 in the amounts of $2.7 million and $0.8 million,
respectively, and for the nine months ended September 30, 1997 and 1996 in
the amounts of $7.7 million and $4.1 million, respectively. Income taxes
paid during the three months ended September 30, 1997 and 1996 were $0.9
million and $0.8 million, respectively, and during the nine months ended
September 30, 1997 and 1996 were $2.3 million and $5.4 million,
respectively.
8. Certain items in the 1996 financial statements have been reclassified
to conform with 1997 presentation.
9. Subsequent event:
On October 31, 1997, the Company purchased equity interests totalling
3.75% of Gilbert Engineering Co., Inc. ("Gilbert") held by certain former
and present members of the management of Gilbert. The Company paid
approximately $8.8 million in cash. The purchase price was financed with
borrowings from the Company's existing credit facility. This acquisition
will be accounted for as a purchase and the Company will record $4.0
million of goodwill which will be amortized over 35 years. The Company now
owns 96.25% of Gilbert.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER RESULTS
SUMMARY
Net sales increased 3.9% to $77.0 million in the third quarter of 1997
from $74.1 million in the third quarter of 1996. Net income decreased to
$5.8 million in the third quarter of 1997 from $7.8 million in the third
quarter of 1996, in large part because of lower operating income from the
communications components business.
SALES
The Company's communications components sales in the third quarter of
1997 remained level with sales in the comparable prior period. The largest
customer of Gilbert announced a moratorium on purchases in October 1996.
This customer made purchases from Gilbert during the third quarter of 1997
that were significantly lower than purchases made in the comparable prior
period. The Company cannot predict the level of its future sales to this
customer. The decline in Gilbert's sales in the third quarter of 1997 was
offset by an increase in sales at Lasertron Inc. ("Lasertron") and Oak
Frequency Control Group ("OFCG").
The sales of the Company's controls components in the third quarter of
1997 increased significantly over sales in the same period in 1996. This
growth resulted primarily from sales of new products and higher
international sales.
GROSS PROFIT
The gross profit margin for the third quarter of 1997 was 37.2% compared
to 38.7% for the third quarter of 1996. The decrease reflects the adverse
impact of lower production volumes at Gilbert. The decrease at Gilbert was
partially offset by gross margin improvements in the Company's other
businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of sales
increased to 21.4% in the third quarter of 1997 from 19.6% in the third
quarter of 1996. Amortization of intangible assets increased as a result
of the Company's purchase of additional equity interests in Gilbert in late
1996. During the third quarter of 1997, the Company continued to increase
its investment in research and development expenditures for new product
development.
INTEREST EXPENSE
Interest expense increased to $2.7 million in the third quarter of 1997
from $1.0 million in the third quarter of 1996. The increase reflects the
Company's additional borrowings to finance the purchase of equity interests
totalling 24.5% of Gilbert in late 1996 and stock repurchases under the
Company's stock repurchase program.
INTEREST INCOME
Interest income decreased to $0.09 million in the third quarter of 1997
from $0.1 million in the third quarter of 1996 as a result of a decrease in
the Company's average cash balances.
GAIN ON SALE OF EQUITY INVESTMENTS
During the third quarter of 1996, the Company completed the sale of its
45% equity interest in O/E/N India Ltd. and recorded a pre-tax gain of $1.0
million.
INCOME TAXES
Income taxes for the third quarter of 1996 were reduced by $0.4 million
as a result of the resolution of several state tax matters. During the
third quarter of 1997 the resolution of a federal tax matter reduced income
taxes by $0.3 million.
The effective tax rate for the third quarter of 1997 increased to 36%
compared to 34% for the third quarter of 1996 because of higher
amortization expense associated with the purchase of additional interests
in Gilbert, which is not deductible for tax purposes.
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries in the third quarter of
1997 decreased $1.5 million from the third quarter of 1996 as a result of
the Company's purchase of equity interests totalling 24.5% of Gilbert in
late 1996, and a decrease in Gilbert's net income.
NINE MONTH RESULTS
SUMMARY
Net sales decreased 1.3% to $230.3 million in the first nine months of
1997 from $233.4 million in the first nine months of 1996. The decrease in
net sales resulted primarily from lower sales by the Company's
communications components business. Net income decreased to $15.2 million
in the first nine months of 1997 from $32.1 million in the first nine
months of 1996, in large part because net income in the first nine months
of 1996 included a nonrecurring net gain of $11.5 million. This
nonrecurring net gain reflected gains of $20.5 million and $1.0 million
from the sale of the Company's equity investments in Video 44 and O/E/N
India Ltd., respectively, less certain nonrecurring asset write downs and
other charges of $3.0 million and a tax impact of these unusual items
totaling $7.0 million. Of the $3.0 million pre-tax charge, $1.1 million
was taken against cost of sales, $1.0 million was taken against selling,
general, and administrative expenses, and $0.9 million was taken against
equity in net income (loss) of affiliated companies. Excluding the
foregoing nonrecurring items and income from discontinued operations of
$1.4 million, the Company's net income for the first nine months of 1996
was $19.2 million.
The Company's results of operations for the first nine months of 1997
and 1996 are summarized as follows (in millions):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1997 1996
-------- --------
<S> <C> <C>
Net income as reported..................... $ 15.2 $ 32.1
Gain on sales of equity investments........ -- (21.5)
Asset write downs and other charges........ -- 3.0
Tax impact of unusual items................ -- 7.0
Income from discontinued operations........ -- (1.4)
------- ------
Net income excluding unusual items......... $ 15.2 $ 19.2
======= =======
</TABLE>
SALES
The Company's communications components sales decreased 4.6% in the
first nine months of 1997 from revenues in the comparable prior period.
Gilbert's largest customer announced a moratorium on purchases in October
1996. This customer made purchases from Gilbert during the first nine
months of 1997 that were significantly lower than purchases made in the
comparable prior period. The Company cannot predict the levels of its
future sales to this customer. The decline in Gilbert's sales in the first
nine months of 1997 was offset by an increase in sales at Lasertron and
OFCG.
The sales of the Company's controls components increased 6.5% in the
first nine months of 1997 over sales in the same period in 1996. This
growth resulted primarily from increased sales of new products and higher
international sales.
GROSS PROFIT
The gross profit margin for the first nine months of 1997 was 36.7%
compared to 39.4% (excluding the unusual items described above) for the
first nine months of 1996. The decrease reflects the unfavorable impact of
lower production volumes at Gilbert. This decrease at Gilbert was
partially offset by gross margin improvements in the Company's other
businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of sales
increased to 22.2% in the first nine months of 1997 from 20.2% (excluding
the unusual items described above) in the first nine months of 1996 due in
part to increased amortization of intangible assets resulting from the
Company's purchase of additional equity interests in Gilbert in late 1996.
The increase is also attributable to higher research and development
expenditures from investments in new product development.
INTEREST EXPENSE
Interest expense increased to $8.0 million in the first nine months of
1997 from $4.1 million in the first nine months of 1996. The increase
reflects the Company's additional borrowings to finance the purchase of
equity interests totalling 24.5% of Gilbert in late 1996 and stock
repurchases under the Company's stock repurchase program.
INTEREST INCOME
Interest income decreased to $0.2 million in the first nine months of
1997 from $0.4 million in the first nine months of 1996 as a result of a
decrease in the Company's average cash balances.
EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES
Equity in net income of affiliated companies in the first nine months of
1997 improved by $1.1 million from the first nine months of 1996, primarily
because equity in the net loss of affiliated companies in the first nine
months of 1996 included $0.9 million for the write-down of certain assets.
INCOME TAXES
The effective tax rate for financial reporting purposes for the first
nine months of 1997 was 37%. The tax rate for the comparable prior period
was also 37%.
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries in the first nine months
of 1997 decreased $5.8 million from the first nine months of 1996 as a
result of the Company's purchase of equity interests totalling 24.5% of
Gilbert in late 1996 and a decrease in Gilbert's net income.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations totaling $28.6 million in the first nine
months of 1997 represented a decrease of $7.1 million from cash flow
generated in the comparable prior period in 1996. The decrease resulted
primarily from lower income from continuing operations combined with an
increase in the amount of working capital used. The Company decreased its
capital spending to $11.1 million in the first nine months of 1997 from
$18.8 million in the first nine months of 1996. Capital expenditures in
the first nine months of 1996 included investments to increase capacity at
Gilbert and investments for a new manufacturing facility at Lasertron.
The Company has in place a $300.0 million unsecured revolving credit
facility (the "Facility"). Certain of the Company's subsidiaries have
guaranteed the obligations under the Facility. The Facility requires the
Company to meet certain periodic financial tests, and prohibits the Company
from paying dividends to the Company's stockholders. Borrowing capacity
under the Facility will be reduced by $50 million on each of November 1,
1999 and November 1, 2000. The Facility expires on December 31, 2001. As
of September 30, 1997 and after giving effect to the acquisition of Piezo,
the Company had borrowings of $153.0 million under the Facility.
On September 30, 1997, the Company acquired all of the outstanding
capital stock of Piezo. The Company paid approximately $20.2 in cash,
including transaction expenses. In addition, Piezo's shareholders may
receive additional consideration of up to a maximum of $5.9 million,
depending upon Piezo's operating results for the balance of 1997 and 1998.
The purchase price was financed with borrowings from the Company's
Facility.
As of September 30, 1997 the Company had spent $20.8 million to
repurchase 1,069,300 shares of its common stock. The Company is authorized
to expend up to $50.0 million to repurchase its common stock.
On October 31, 1997, the Company purchased equity interests totalling
3.75% of Gilbert. The Company paid approximately $8.8 million in cash.
The purchase price was financed with borrowings from the Company's existing
credit facility. The Company and Gilbert management now own 96.25% and
3.75%, respectively, of Gilbert. The Company will purchase the remainder
of Gilbert management's interest no later than October 30, 1998 at an
amount based on a multiple of Gilbert's earnings before interest, taxes,
and amortization expense for the twelve month period immediately preceding
the closing date of the purchase. The Company will finance the purchases
with cash generated by operations and borrowings under the Company's
Facility. Until such time as management no longer holds interests in
Gilbert, the Company will, pursuant to the provisions of an Amended and
Restated Management Stockholders Agreement, pay management a dividend equal
to management's proportionate share of Gilbert's excess cash flow.
The Company believes that funds generated by operations and from its
existing cash balances and its Facility will be sufficient to fund the
Company's ongoing operations for the foreseeable future.
RISKS AND UNCERTAINTIES
Statements contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not statements of
historical fact may include forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including, without
limitation, statements as to expectations, beliefs and strategies regarding
the future. It is important to note that actual results could differ
materially from such forward looking statements due to a number of factors,
including, among other things, the factors set forth below. The forward
looking statements should be considered in light of these factors.
A significant portion of the Company's revenues is attributable to sales
of components for building, maintaining and expanding the communications
infrastructure. These components are used primarily in cable, wireless and
wired telephony systems in the United States and internationally. The
amount of capital spending in these industries is affected by a variety of
factors, including general economic conditions, availability of financing,
government regulation, demand for the products and services offered by the
Company's customers and technological developments. A decrease in capital
spending for communications infrastructure could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The communications 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. The Company believes that it will continue to see varying
degrees of price pressure across all product lines. These price pressures,
if not offset by cost reductions, could result in lower average gross
margins.
Certain of the Company's business units sell products to a concentrated
group of customers. The loss of, or reduced demand for products from, any
of the Company's major customers could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's international operations are subject to a variety of
risks, including changes in policy by foreign governments, social
conditions such as civil unrest, and economic conditions including high
levels of inflation, fluctuation in the value of foreign currencies and
currency exchange rates and trade restrictions or prohibitions. Such
factors could adversely affect the Company's international operations and
have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's subsidiaries currently buy a number of raw materials from
single sources. Lasertron does not at this time have a qualified second
external source for one critical component used in the production of fiber-
optic modules, although Lasertron now produces this component internally in
addition to sourcing it from a single external vendor. The failure of the
subsidiaries to obtain sufficient raw materials or components as required,
or to develop alternative sources if and as required in the future, could
have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's operations are subject to a variety of laws, regulations
and licensing requirements, including governmental regulations relating to
the environment. In addition, 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 ordinary course of business. The Company does not
currently believe that compliance with applicable regulations or any
litigation against it will have a material adverse effect on the Company.
However, there can be no assurance that future compliance efforts or
litigation will not have a material adverse effect on the Company's
business, financial condition and results of operations.
<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, 1996.
ITEM 2. CHANGES IN SECURITIES
On January 13, 1997 and June 27, 1997, the Company issued 1,658 and
3,273 shares of its common stock, respectively, to departing employees of
the Company from its Supplemental Retirement Income Plan (the "SRIP").
These shares represented vested matching contributions made by the Company
to the former employees' SRIP accounts, which contributions were payable to
the employees upon their departures.
On each of March 1, 1996 and January 1, 1997, the Company issued 3,500
shares to non-employee members of its Board of Directors. The shares were
issued to such directors in consideration for past service to the Company.
On September 26, 1996, the Company issued 500 shares to a director in
consideration of such director's agreement to serve on the Company's Board
of Directors.
All of the above transactions were effected pursuant to exceptions from
registration under Section 4(2) of the Securities Act of 1933, as amended
and the rules and regulations thereunder.
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
(10) Second amendment dated as of October 6, 1997 to the Credit
Agreement dated as of November 1, 1996 among Oak Industries
Inc. and the lenders from time to time party thereto and
The Chase Manhattan Bank, as administrative agent and
issuing bank filed herewith.
(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:
No reports on Form 8-K were filed during the third quarter ended
September 30, 1997.
<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: November 12, 1997 /s/ Coleman S. Hicks
Coleman S. Hicks
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 6,557
<SECURITIES> 0
<RECEIVABLES> 52,311
<ALLOWANCES> 0
<INVENTORY> 54,261
<CURRENT-ASSETS> 127,762
<PP&E> 156,081
<DEPRECIATION> 87,080
<TOTAL-ASSETS> 390,976
<CURRENT-LIABILITIES> 44,485
<BONDS> 0
<COMMON> 188
0
0
<OTHER-SE> 172,837
<TOTAL-LIABILITY-AND-EQUITY> 390,976
<SALES> 230,323
<TOTAL-REVENUES> 230,323
<CGS> 145,852
<TOTAL-COSTS> 145,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,966
<INCOME-PRETAX> 25,680
<INCOME-TAX> 9,624
<INCOME-CONTINUING> 15,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,212
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
SECOND AMENDMENT dated as of October 6, 1997 (this "Second Amendment"),
to the Credit Agreement referred to below among OAK INDUSTRIES INC., a
Delaware corporation (the "Borrower"), the lenders party hereto and THE
CHASE MANHATTAN BANK, a New York banking corporation, as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
A. The parties hereto have entered into a Credit Agreement dated as of
November 1, 1996 (as amended, the "Credit Agreement").
B. The Borrower has requested that certain terms of the Credit
Agreement be amended to the extent necessary to allow the Borrower to issue
up to $110 million in aggregate principal amount of subordinated notes, and
the Required Lenders are willing, on the terms and subject to the
conditions set forth below, to agree to amend the Credit Agreement as
provided herein.
C. Capitalized terms used and not otherwise defined herein shall have
the meanings assigned to them in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms
and subject to the conditions set forth herein, as follows:
SECTION 1. Amendment of Article I.
(a) Article I of the Credit Agreement is hereby amended by inserting
therein the following definitions in the proper alphabetical order:
"Second Amendment Effective Date" shall mean the date on which all
conditions to effectiveness in Section 7 of the Second Amendment dated as
of October 6, 1997 to the Credit Agreement have been satisfied.
"Subordinated Notes" shall mean up to $110 million in aggregate
principal amount of subordinated notes issued by the Borrower and
subordinated in right of payment to the Obligations and other Senior Debt
pursuant to documentation containing interest rates, payment terms,
maturities, amortization schedules, covenants, defaults, remedies,
subordination provisions, overallocation provisions and other material
terms in form and substance satisfactory to the Required Lenders and the
Administrative Agent.
"Senior Debt" shall mean all Indebtedness other than the Subordinated
Notes.
"Senior Debt Leverage Ratio" shall mean, with respect to the Borrower
and Subsidiaries on a consolidated basis, on any date, the ratio of (a)
Senior Debt as of such date minus Indebtedness of the type referred to in
clause (i) of the definition of the term "Indebtedness" or Indebtedness of
the type referred to in clauses (f) and (g) of such definition to the
extent that the Indebtedness of the other person referred to in such
clauses (f) and (g) is Indebtedness of the type referred to in clause (i)
of the Borrower and the Subsidiaries at such time, to (b) EBITDA for the
four fiscal quarters most recently ended on such date (including, to the
extent necessary, fiscal quarters that shall have ended prior to the Second
Amendment Effective Date). For purposes of computing the Senior Debt
Leverage Ratio on any date, if the Borrower shall have acquired any person
or business during the period of four fiscal quarters most recently ended
as of such date, EBITDA shall be determined on a pro forma basis as if such
acquisition had occurred on the first day of such period.
(b) The definition of "Applicable Percentage" in Article I of the
Credit Agreement is hereby restated in its entirety as follows:
"Applicable Percentage" shall mean, for any day, with respect to any
Eurodollar Loan, or with respect to the Commitment Fees, as the case may
be, the applicable percentage set forth below under the caption "Eurodollar
Spread" or "Commitment Fee Percentage", as the case may be, based upon the
Leverage Ratio and Interest Coverage Ratio for the Borrower and the
Subsidiaries as of the relevant Determination Date:
<TABLE>
<CAPTION>
Eurodollar Commitment Fee
Spread Percentage
----------- ---------------
<S> <C> <C>
CATEGORY 1
Leverage Ratio less than or equal to
1.25 to 1.00 AND Interest Coverage
Ratio greater than or equal to 5.0 to 1.0........... 0.500% 0.175%
CATEGORY 2
Leverage Ratio less than or equal to
1.75 to 1.0 AND Interest Coverage Ratio
greater than or equal to 4.5 to 1.0................. 0.625% 0.200%
CATEGORY 3
Leverage Ratio less than or equal to
2.25 to 1.00 AND Interest Coverage Ratio
greater than or equal to 4.0 to 1.0................. 0.750% 0.250%
CATEGORY 4
Leverage Ratio greater than 2.25 to 1.00 OR
Interest Coverage Ratio less than 4.0 to 1.0........ 1.000% 0.300%
</TABLE>
; provided that, notwithstanding the foregoing, if on any day the Leverage
Ratio shall exceed 3.75 to 1.00, (a) the Eurodollar Spread for the
applicable Category then in effect shall be 1.250%, and (b) the Commitment
Fee Percentage for the applicable Category then in effect shall be 0.350%.
The applicable Category shall be the one with the lowest spreads for
which both the Leverage Ratio and the Interest Coverage Ratio requirements
are satisfied. Each change in the Applicable Percentage resulting from a
change in the Leverage Ratio or Interest Coverage Ratio shall be effective
with respect to all Revolving Loans, Commitments and Letters of Credit
outstanding on and after the date on which the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c) are
delivered to the Administrative Agent indicating such change until the date
immediately preceding the next due date for the delivery of such financial
statements and certificates. Notwithstanding the foregoing, at any time
during which the Borrower has failed to deliver the financial statements
and certificates required by Section 5.04(a) or 5.04(b) and Section
5.04(c), the Leverage Ratio and Interest Coverage Ratio shall be deemed to
be in Category 4 for purposes of determining the Applicable Percentage.
SECTION 2. Amendment to Section 6.01.
Section 6.01 of the Credit Agreement is hereby amended by (a) deleting the
word "and" at the end of clause (i) thereof, (b) deleting the period at the
end of clause (k) thereof and substituting "; and" therefor and (c)
inserting after clause (k) thereof the following:
"(l) the Subordinated Notes."
SECTION 3. Amendment to Section 6.10.
Section 6.10 of the Credit Agreement is hereby amended and restated in its
entirety as follows:
SECTION 6.10. Leverage Ratio.
Permit the Leverage Ratio as of the last day of any fiscal quarter, which
last day occurs in any period set forth below, to be greater than the ratio
set forth below for such period:
<TABLE>
<CAPTION>
From and Including To and Including Leverage Ratio
------------------ ---------------- --------------
<S> <C> <C>
The earlier of January 1, 1998
and the date of the issuance of
the Subordinated Notes............. December 30, 1998 5.00 to 1.0
December 31, 1998.................... December 30, 1999 4.75 to 1.0
December 31, 1999.................... December 30, 2000 4.50 to 1.0
December 31, 2000.................... Thereafter 4.25 to 1.0
</TABLE>
SECTION 4. Amendment to Section 6.11.
Section 6.11 is hereby amended and restated in its entirety as follows:
SECTION 6.11. Interest Coverage Ratio.
Permit the Interest Coverage Ratio of the Borrower and the Subsidiaries as
of the last day of each fiscal quarter, which last day occurs in any period
set forth below, to be less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
From and Including To and Including Interest Coverage
Ratio
------------------ ---------------- -----------------
<S> <C> <C>
Second Amendment Effective
Date................................. December 30, 1998 2.25 to 1.00
December 31, 1998....................... December 30, 1999 2.25 to 1.00
December 31, 1999....................... December 30, 2000 2.50 to 1.00
December 31, 2000....................... Thereafter 2.75 to 1.00
</TABLE>
SECTION 5. Amendment of Article VI.
Article VI is hereby amended by inserting at the end thereof the following
new Section 6.13:
SECTION 6.13 Senior Debt Leverage Ratio.
Permit the Senior Debt Leverage Ratio on or at any time after the earlier
of January 1, 1998 and the date of the issuance of the Subordinated Notes
to be greater than 3.50 to 1.00.
SECTION 6. Representations and Warranties.
The Borrower represents and warrants to each of the Lenders and the
Administrative Agent that:
(i) Before and after giving effect to this Second Amendment, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects with the same
effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(ii) Before and after giving effect to this Second Amendment, no
Event of Default or Default has occurred and is continuing.
SECTION 7. Conditions to Effectiveness.
This Second Amendment shall become effective upon the Second Amendment
Effective Date when the Administrative Agent shall have received
counterparts of this Second Amendment that, when taken together, bear the
signatures of the Borrower, the Guarantors and the Required Lenders.
SECTION 8. Credit Agreement.
Except as specifically stated herein, the provisions of the Credit
Agreement are and shall remain in full force and effect.
SECTION 9. Applicable Law.
THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 10. Counterparts.
This Second Amendment may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together
shall constitute but one contract.
SECTION 11. Expenses.
The Borrower agrees to reimburse the Administrative Agent for its out-of-
pocket expenses in connection with this Second Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine and Moore,
counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed by their respective authorized officers as of the day
and year first written above.
OAK INDUSTRIES INC.,
by
/s/ Pamela F. Lenehan
Name: Pamela F. Lenehan
Title: Senior Vice President,
Corporate Development and Treasurer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
/s/ Ann B. Kerns
Name: Ann B. Kerns
Title: Vice President
ABN AMRO BANK N.V., Boston Branch,
by: ABN AMRO North America, Inc.,
as Agent
by
/s/ Carol A. Levine
Name: Carol A. Levine
Title: Senior Vice President
by
/s/ James E. Davis
Name: James E. Davis
Title: Group Vice President
NATIONSBANK OF TEXAS, N.A.,
by
/s/ Sharon M. Ellis
Name: Sharon M. Ellis
Title: Vice President
LTCB TRUST CO.,
by
/s/ Hiroshi Kitada
Name: Hiroshi Kitada
Title: Senior Vice President
THE ROYAL BANK OF SCOTLAND PLC -
NEW YORK BRANCH,
by
/s/ Russel M. Gibson
Name: Russel M. Gibson
Title: Vice President and
Deputy Mananger
THE FIRST NATIONAL BANK OF BOSTON,
by
/s/ Harvey H. Thayer
Name: Harvey H. Thayer
Title: Director
BHF-BANK AG,
by
/s/ Linda Pace
Name: Linda Pace
Title: Vice President
by
/s/ John Sykes
Name: John Sykes
Title: Assistant Vice President
MELLON BANK, N.A.,
by
/s/ Steven J. Wagner
Name: Steven J. Wagner
Title: AVP
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
by
/s/ Mark M. Harden
Name: Mark M. Harden
Title: Vice President
FLEET NATIONAL BANK,
by
/s/ Roger C. Boucher
Name: Roger C. Boucher
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH,
by
Name:
Title:
