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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
------------------
Amendment No. 1 to Form 10-Q
For Quarter Ended June 30, 1996
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)
(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 June 30, 1996, the Company had outstanding 18,103,044 shares of
Common Stock, $0.01 par value per share.
The undersigned registrant hereby amends the following items, financial
statements, and other portions of its quarterly report on Form 10-Q for
quarter ended June 30, 1996 as set forth on the pages attached hereto.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENT
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(As restated)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
(Unaudited)
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 14,931 $ 16,842
Receivables, less reserve...................... 44,422 38,314
Inventories:
Raw materials............................... $ 13,151 $ 12,308
Work in process............................. 29,728 29,679
Finished goods.............................. 8,504 51,383 6,527 48,514
--------- ----------
Deferred income taxes.......................... 17,532 19,900
Other current assets........................... 3,589 3,088
--------- ---------
Total current assets..................... 131,857 126,658
Plant and Equipment, at cost...................... 133,994 123,083
Less - Accumulated depreciation................... (73,954) 60,040 (70,009) 53,074
--------- ----------
Deferred Income Taxes............................. 8,348 17,242
Goodwill and Other Intangible Assets, less
accumulated amortization of
$9,462 and $9,518 ............................. 76,731 79,094
Investments in Affiliates......................... 8,998 20,940
Net assets of discontinued operations............. 10,611 8,438
Other Assets...................................... 7,307 7,098
--------- ---------
Total Assets............................. $ 303,892 $ 312,544
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............. $ 6,729 $ 14,691
Accounts payable............................... 19,028 15,103
Accrued liabilities............................ 28,658 23,696
--------- ---------
Total current liabilities 54,415 53,490
Other Liabilities................................. 8,520 11,628
Long-term Debt.................................... 50,018 91,570
Minority Interest................................. 41,468 36,643
Stockholders' Equity:
Common stock................................... 181 177
Additional paid-in capital..................... 288,234 282,179
Accumulated deficit............................ (137,161) (161,528)
Other.......................................... (1,783) 149,471 (1,615) 119,213
--------- --------- ---------- ---------
Total Liabilities and Stockholders'
Equity................................ $ 303,892 $ 312,544
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
(As restated)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 80,590 $ 60,860 $ 159,327 $ 126,452
Cost of sales...................................... (48,477) (36,201) (97,063) (75,355)
-------- -------- --------- ---------
Gross profit....................................... 32,113 24,659 62,264 51,097
Selling, general and administrative expenses....... (16,197) (11,211) (33,625) (22,863)
-------- -------- --------- ---------
Operating income................................... 15,916 13,448 28,639 28,234
Interest expense................................... (1,281) (1,089) (3,110) (2,599)
Interest income.................................... 124 514 266 975
Gain on sale of equity investment.................. # # 20,550 #
Equity in net income (loss) of
affiliated companies............................ 69 437 (906) 935
-------- -------- --------- ---------
Income from operations before
income taxes and minority interest.............. 14,828 13,310 45,439 27,545
Income taxes....................................... (5,699) (1,078) (17,331) (2,465)
Minority interest in net income of subsidiaries.... (2,675) (2,512) (4,825) (5,338)
-------- -------- ---------- ----------
Income from continuing operations.................. 6,454 9,720 23,283 19,742
Income from discontinued operations,
net of income taxes............................ 654 1,003 1,084 1,796
-------- -------- ---------- ----------
Net income......................................... $ 7,108 $ 10,723 $ 24,367 $ 21,538
======== ======== ========== ==========
Income per common share:
Continuing operations.......................... $ .34 $ .53 $ 1.26 $ 1.07
Discontinued operations........................ .04 .05 .06 .09
-------- -------- ---------- ----------
Net Income..................................... $ .38 $ .58 $ 1.32 $ 1.16
======== ======== ========== ==========
Weighted average shares............................ 18,622 18,558 18,480 18,533
======== ======== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
(As restated)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Income from continuing operations.................... $ 23,283 $ 19,742
Adjustments to reconcile income from continuing
operations to net cash provided by
operations:
Depreciation and amortization.................. 6,451 5,540
Change in minority interest.................... 4,825 5,338
Gain on sale of equity investment.............. (20,550) #
Change in assets and liabilities............... 10,678 (8,686)
Other.......................................... 460 (901)
-------- --------
Net cash provided by operations......................... 25,147 21,033
-------- --------
Investing Activities:
Capital expenditures................................ (12,113) (6,286)
Proceeds from the sale of equity investment......... 29,400 #
Other............................................... 367 61
-------- --------
Net cash provided by (used in) investing activities.... 17,654 (6,225)
-------- --------
Financing Activities:
Repayment of borrowings............................. (49,514) (14,162)
Other............................................... 6,414 163
-------- --------
Net cash used in financing activities.................. (43,100) (13,999)
-------- --------
Effect of exchange rates............................... (523) 864
-------- --------
Net cash provided by (used in) discontinued
operations........................................ (1,089) .97
Cash and Cash Equivalents:
Net change during the period........................ (1,911) 1,770
Balance, beginning of period........................ 16,842 37,548
-------- --------
Balance, end of period.............................. $ 14,931 $ 39,318
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
OAK INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
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 June 30, 1996 and December 31, 1995, and the results
of their operations for the three and six month periods ending June 30,
1996 and 1995 and cash flows for the six month periods ending June 30, 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. In early 1997, the Company discovered that the controller of one of
its divisions, in collusion with two of his assistants, capitalized certain
amounts which should have been expensed in the periods incurred. The
amounts involved, which totaled $3,518,000 ($2,181,000 after taxes), or
$.12 per share, relate to portions of fiscal years 1995 and 1996.
Because the irregularities which relate to 1995 were not material, the 1995
financial statements were not restated; the first, second, and third
quarters of 1996 have been restated, and the cumulative effect of the 1995
misstatements is reflected in the restated financial statements for the
three months ended March 31, 1996. All amounts in this Form 10-Q/A have
been adjusted, as appropriate, to reflect the foregoing. In response to
this employee misconduct, the Company conducted an investigation of this
matter involving outside legal counsel and the Company's independent
accountants, terminated the employment of the individuals involved, and
executed a review of the internal control system at the applicable
division. The impact of these adjustments on the Company's financial
results for the three and six months ended June 30, 1996 as originally
reported is summarized below (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended June 30, 1996 Ended June 30, 1996
---------------------- -----------------------
As As
Previously As Previously As
Reported* Restated Reported* Restated
---------------------- -----------------------
<S> <C> <C> <C> <C>
Sales......................................... $ 80,590 $ 80,590 $ 159,327 $ 159,327
Operating income.............................. 16,745 15,916 31,343 28,639
Income from continuing operations before
income taxes and minority interest........ 15,657 14,828 48,143 45,439
Income from continuing operations............. 6,968 6,454 24,959 23,283
Net income.................................... 7,622 7,108 26,043 24,367
Net income per common share................... $ .41 $ .38 $ 1.41 $ 1.32
<FN>
* As a result of the sale of the Company's Nordco Inc. ("Nordco")
subsidiary, the Company has also restated 1996 and 1995 consolidated
financial statement to reflect Nordco as a discontinued operation. See
Note 8.
</TABLE>
3. Interest paid on debt for the three months ending June 30, 1996 and
1995 was $1,229,000 and $931,000, respectively, and for the six months
ending June 30, 1996 and 1995 was $3,255,000 and $2,274,000 respectively.
Income taxes, consisting primarily of foreign and state, paid during the
three months ended June 30, 1996 and 1995 were $4,021,000 and $1,507,000,
respectively, and during the six months ended June 30, 1996 and 1995 were
$4,616,000 and $1,837,000, respectively.
4. 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.
5. 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.
6. The Company previously reported that it had 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 5 above. In June 1996, the potential buyer
received partial financing and remitted $858,000 to the Company.
Accordingly, because the Company has not received full payment for its
shares of O/E/N India Ltd., and retains its interest in such shares, the
Company has not recorded this transaction as a sale. The potential buyer
is attempting to arrange financing for the remainder of the purchase price.
7. In May 1996, the Company received formal notification from certain
affiliates of Bain Capital, Inc. (collectively, "Bain") of its exercise of
certain rights pursuant to the terms of a Stockholders Agreement dated as
of December 22, 1992 (the "Stockholders Agreement"), to sell Bain's 20%
interest in Connector Holding Company ("Connector"), the parent company of
Gilbert Engineering Co., Inc. ("Gilbert"), to the Company. Bain holds a
17% indirect interest in Gilbert by virtue of its Connector holdings. It
is anticipated that this transaction will be consummated by year end.
8. In October 1996, the Company sold its Nordco Inc. ("Nordco")
subsidiary to an affiliate of Banc One Venture Corporation and members of
Nordco management for net cash proceeds of approximately $19,381,000.
As a result of the sale of Nordco, the Company has restated its prior
year consolidated financial statements to reflect Nordco as a discontinued
operation. The results of the discontinued operations reflected in the
consolidated statements of operations are as follows ($000s):
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
-------------------- -------------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 6,131 $ 6,072 $ 12,021 $ 12,080
======= ======= ======== ========
Gross profit................................. $ 2,271 $ 2,312 $ 4,152 $ 4,389
======= ======= ======= ========
Earnings before income taxes................. $ 1,055 $ 1,091 $ 1,748 $ 1,970
Income taxes................................. (401) (88) (664) (174)
------- ------- ------- --------
Net earnings from discontinued operations.... $ 654 $ 1,003 $ 1,084 $ 1,796
======= ======= ======= ========
</TABLE>
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet at June 30, 1996 and December 31, 1995 were
as follows ($000s):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Inventories................................... $ 4,031 $ 3,814
Receivables, less reserve..................... 5,159 2,317
Other current assets.......................... 779 827
PP and E, net................................. 563 494
Intangibles, net.............................. 672 699
Other......................................... 712 1,742
Current liabilities........................... (1,305) (1,455)
-------- ------
Net assets of discontinued operations......... $ 10,611 $ 8,438
========= =======
</TABLE>
9. 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
The Company has restated its interim financial statements for the first
and second quarters of 1996 as described in Note 2 of Notes to Condensed
Consolidated Financial Statements. This restatement relates to the
reversal of certain capitalized amounts that should have been expensed in
the periods incurred.
In October 1996, the Company sold its Nordco Inc. ("Nordco") subsidiary
which was the only business included in the Other Segment. As a result of
the sale, the Company has restated prior year consolidated financial
statements to reflect Nordco as a discontinued operation. The Company now
operates entirely in one segment, the Components Segment.
Second Quarter Results
Sales for the second quarter of 1996 reached $80.6 million, an increase
of 32.4% over the $60.9 million in the same period of 1995 primarily due to
incremental sales of Lasertron Inc. ("Lasertron"), purchased in September
of 1995, and attributable to continued growth in the Communications
Components business.
The Company reported net income of $7.1 million in 1996 compared to
$10.7 million in 1995. The second quarter of 1996 provision for income
taxes increased $4.6 million over the second 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 38.4% in the second quarter of 1996 from 8.1% in the
corresponding period of the prior year reflecting the provision of a full
U.S. statutory rate beginning in the third quarter of 1995. The Company
had approximately $29.0 million of unused net operating loss carryforwards
for tax return purposes at June 30, 1996 and will, therefore, pay minimal
federal income taxes until these carryforwards are utilized.
Minority interest increased $0.2 million due to higher earnings at
Gilbert Engineering which were partially offset by a higher income tax
provision as Gilbert fully utilized its net operating loss carryforward for
financial reporting purposes.
Pre-tax income before minority interest increased 11.4% to $14.8 million
in the second quarter of 1996 from $13.3 million recorded in the second
quarter of 1995. Operating income increased $2.5 million from second
quarter 1995 results due primarily to incremental profits from higher sales
volume and it was partially offset by increased interest expense ($0.2
million), decreased interest income ($0.4 million) and decreased equity
income ($0.4 million).
Communications Components
Communications Components revenues increased 41.9% in the second quarter
of 1996 over the same period in 1995. Excluding the impact of Lasertron,
which was purchased in September 1995 and therefore not included in second
quarter 1995 results, Communication Components increased 20.5% over the
second quarter of 1995. Communications Components sales increased over the
prior year's quarter reflecting 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 increased 14.4% in the second quarter
of 1996 over the same period in 1995, principally as the result of
increased demand for sensing devices combined with modest sales growth of
gas appliance control products.
Gross Profit
The gross profit margin was 39.8% for the second quarter of 1996 as
compared to 40.5% in the second quarter of 1995.
Selling General and Administrative Expenses
Selling, general and administrative expenses increased as a percentage
of sales to 20.1% in the second quarter of 1996 from 18.4% in the second
quarter of 1995 due to an increase in research and development expenditures
related to the acceleration of product prototyping activity for wireless
communications and wired telephony applications. Most of this increase was
attributable to Lasertron, which was acquired in September 1995.
Interest
Interest expense increased to $1.3 million in the second quarter of 1996
from $1.1 million in 1995 due primarily to increased borrowings in
connection with the acquisition of Lasertron in September of 1995.
Interest income decreased to $0.1 million in 1996 from $0.5 in the second
quarter of 1995 as average cash balances decreased. The Company used
approximately $20.0 million of cash in conjunction with its acquisition of
Lasertron in September of 1995.
Equity Income
Equity income decreased from $0.4 million in the second quarter of 1995
to $0.1 million in the second quarter of 1996. The Company sold its 49%
interest in Video 44 (WSNS-TV Channel 44), a Hispanic television station
located in Chicago, in the first quarter of 1996 and as a result, the
Company's proportionate share of Video 44's earnings was not included in
the second quarter of 1996. In addition, 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 People's Republic of China in 1996
results.
Six Month Results
Sales for the first six months of 1996 were $159.3 million, and
increased 26.0% from $126.5 million in the first six months of 1995
primarily due to incremental sales of Lasertron, purchased in September of
1995, and also due to continued growth in the Communications Components
business.
The Company reported net income of $24.4 million for the first six
months of 1996 compared to $21.5 million in 1995. Net income for the first
six months 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 and 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 first six months of 1996 also
include certain amounts which should have been expensed in the periods
incurred. Since the irregularities which occurred in 1995 were not
material ($1.1 million) to the 1995 results, the 1995 financials were not
restated. The irregularities which occurred in 1995 are reflected as an
unusual item in the first six months of 1996.
The Company's results of operations for the first six months of 1996 and
1995 can be summarized as follows (in millions):
<TABLE>
<CAPTION>
Six Months Six Months
1996 1995
---------- ----------
<S> <C> <C>
Pre-tax income excluding unusual items.......... $ 27.9 $ 27.5
Income taxes.................................... (10.7) (2.5)
Minority interest............................... (4.8) (5.3)
------ -------
Net income excluding unusual items.............. 12.4 19.7
Unusual items:
Gain on the sale of equity investment........ 20.5 #
Asset write down and other reserves.......... (1.9) #
Improperly capitalized expenses.............. (1.1) -
Income from discontinued operations.......... 1.1 1.8
Tax impact of unusual items.................. (6.6) #
------ -------
Net income as reported.......................... $ 24.4 $ 21.5
====== =======
</TABLE>
The first six months of 1996 income tax provision, excluding the impact
of unusual items, increased $8.2 million over the same period in 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 38.4% in the first six months of 1996 from
9.1% in the corresponding period of the prior year reflecting the provision
of a full U.S. statutory rate beginning in the third quarter of 1995.
Minority interest decreased $0.5 million in the first six months of 1996
as compared to the same period in 1995, due to lower net income at Gilbert
resulting from a higher income tax provision as Gilbert fully utilized its
net operating loss carryforward for financial reporting purposed.
Pre-tax income before minority interest and unusual items increased by
$0.4 million to $27.9 million in the first six months of 1996 from $27.5
million recorded in 1995. Operating income before unusual items increased
$2.5 million from 1995 results due primarily to incremental profits from
higher sales volume and it was partially offset by increased interest
expense ($0.5 million), decreased interest income ($0.7 million), and
decreased equity income ($0.9 million).
Communications Components
Communications Components revenues increased 37.0% in the first six
months of 1996 over the same period in 1995. Excluding the impact of the
Lasertron, which was purchased in September 1995 and therefore not included
in 1995 results, Communication Components revenues increased 16.5% over the
first six months of 1995. Communications Components sales increased over
prior year's quarter due primarily 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
Sales of Controls Components increased 6.1% in the first six months of
1996 over the same period in 1995 principally as the result of increased
demand for sensing devices combined with modest sales growth of gas
appliance control products.
Gross Profit
Gross profit margin, excluding unusual items, was 39.8% for the first
six months of 1996 and 40.4% for the first six months of 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, excluding unusual items,
increased as a percentage of sales to 20.5% in the first six months of 1996
from 18.1% in the same period of 1995 due to an increase in research and
development expenditures related to the acceleration of product prototyping
activity for wireless communications and wired telephony applications.
Most of this increase was attributable to Lasertron which was acquired in
September 1995.
Interest Expense
Interest expense increased to $3.1 million in the first six months of
1996 from $2.6 million in 1995 due primarily to increased borrowings in
connection with the acquisition of Lasertron in September of 1995.
Interest income decreased to $0.3 million in the first six months of
1996 from $1.0 million in 1995 as average cash balances decreased. The
Company used approximately $20.0 million of cash in conjunction with the
Lasertron acquisition in September of 1995.
Equity Income
During the first six months 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 $20.5 million from the sale. Due to this transaction,
the Company's proportionate share of Video 44's earnings was included in
1995 results but not in the six months of 1996 results subsequent to the
sale. In addition, 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 People's Republic of China in 1996 results.
Liquidity and Capital Resources
Cash flow from operations increased to $25.1 million in the first six
months of 1996 from $21.0 million generated in the same period in 1995,
reflecting an increase in income from operations combined with a reduction
in working capital. The Company accelerated its rate of capital spending
to $12.1 in the first six months of 1996 million from $6.3 million in the
same period for 1995 due, in part, to new capacity brought on line to
support higher production volumes and new products and, in part, to
additional expenditures for automation of production processes to reduce
both cost and manufacturing cycle time, expanded use of CAD/CAM capability
and new prototyping equipment to reduce development cycle times.
Debt net of cash decreased to $41.8 million at June 30, 1996 from $89.4
million at December 31, 1995. The cash proceeds from the sale of the
Company's 49% interest in Video 44 (WSNS-TV Channel 44), a Hispanic
television station located in Chicago, were used to reduce $29.0 million of
debt. In addition, the Company paid $20.5 of debt in the first six months
of 1996.
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 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. In conjunction with the Company's credit agreement, the Company
completed a financing on behalf of Gilbert 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 June 30, 1996 totaled $51.0 million of which
$24.0 million was available only to Gilbert and $27.0 million was available
to the Company for general corporate purposes, including acquisitions.
In May 1996, the Company received formal notification from Bain of its
exercise of certain rights pursuant to the terms of the Stockholders
Agreement to sell Bain's 20% interest in Connector to the Company. Bain
holds a 17% indirect interest in Gilbert by virtue of its Connector
holdings. The Company is in the process of negotiating a new unsecured
$300 million credit facility, which will replace the current credit
facility. Proceeds from the new credit facility will be used to purchase
Bain's interest in Connector and consolidate the Company's ownership
interest in Gilbert, as well as for general corporate purposes, including
acquisitions. It is anticipated that this transaction will be consummated
by year end.
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 could 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.
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: February 10, 1997 /s/ Francis J. Lunger
Francis J. Lunger
Senior Vice President and
Chief Financial Officer
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