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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
COMMISSION FILE NO. 1-4474
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OAK INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-1569000
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1000 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(Address of principal executive offices) (Zip Code)
</TABLE>
(781) 890-0400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
Common Stock, $0.01 par value, together with New York Stock Exchange
Junior Preferred Stock Purchase Rights
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X].
The aggregate market value of Registrant's Common Stock held by
persons who are not affiliates of Registrant was $558,138,514 on March 17,
1999.
The Registrant had 17,753,909 shares of Common Stock, $0.01 par value,
issued and outstanding on March 17, 1999.
Documents Incorporated by Reference
Proxy Statement to be filed no later
than March 31, 1999 Part III, Items 10-13
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<PAGE>
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Oak Industries Inc. ("Oak" or the "Registrant") was incorporated under
the laws of the State of Delaware in 1960. The predecessor of Oak was
incorporated in 1932 under the laws of the State of Illinois. Oak adopted
its present corporate name in 1972. Oak's executive offices are located at
1000 Winter Street, Waltham, Massachusetts 02451, and its telephone number
is (781) 890-0400. References herein to the "Company" refer to Oak and its
consolidated subsidiaries.
The Company has four operating segments: the manufacture of coaxial
connector products used primarily in the CATV industry (the "Cable
Broadband Products Segment"); the manufacture of quartz-based crystals and
oscillators for wireless base stations and telecommunications applications
(the "Frequency Control Products Segment"); the manufacture of fiber-optic
components used primarily in wired telephony networks (the "Fiber-Optic
Products Segment"); and the manufacture of components for gas ranges and
switches and encoders used in a variety of applications (the "Controls
Products Segment").
On October 30, 1998 the Company purchased 100% of the outstanding
capital stock of Tele Quarz GmbH ("Tele Quarz"). Tele Quarz, located in
Neckarbischofsheim, Germany, is a manufacturer of frequency control
products. The total purchase price for the capital stock and certain real
estate, including debt assumed and transaction costs, was approximately
$63.5 million. (See Note 3 "Acquisitions" of the Notes to Consolidated
Financial Statements).
On October 30, 1998, the Company purchased the remaining 3.75% of
Gilbert Engineering Co., Inc. ("Gilbert") owned by current and former
members of Gilbert management for a purchase price of approximately $11.4
million. The Company has owned 100% of Gilbert since October 30, 1998.
(B) FINANCIAL INFORMATION ABOUT REPORTABLE SEGMENTS
For information regarding sales, income, assets and capital expenditures
of the Company's reportable segments, see Note 10 of the Notes to
Consolidated Financial Statements, which is incorporated herein by
reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
Overview
The Company is a leading manufacturer of highly-engineered components
that it designs and sells to manufacturers and service providers in
communications and other selected industries. The Company's communications
products consist primarily of connectors for the CATV industry ("Cable
Broadband Products"), frequency control devices used in wireless base
stations and telecommunications applications ("Frequency Control
Products"), and dense wavelength division multiplexing ("DWDM") fiber-optic
components for the wired telephony infrastructure ("Fiber-Optic Products").
The Company's controls products include components for gas ranges, and
switches and encoders, which are used in a wide range of applications
(collectively, "Controls Products").
Business Strategy
The Company's objective is to establish and maintain a leading position
in markets with strong underlying growth characteristics. The Company
attempts to achieve this position by providing a broad line of products
that meets the quality and price/performance targets of its customers. The
key elements of the Company's strategy include the following:
Maintain Technology Leadership. The Company believes that its strong
competitive position is attributable in large part to its engineering
capabilities. The Company believes that its investment in engineering
resources enables it to maintain technological leadership and will enable
it to increase its customer base by developing products that meet its
customers' specific technical requirements.
Develop New Products and Increase Market Share. The Company plans to
continue to increase sales by developing additional products that can be
sold to existing customers and by expanding its customer base. For
example, the Fiber-Optic Products Segment has introduced higher-power
versions of its pump lasers designed for new DWDM applications. In
addition, the Frequency Control Products Segment has introduced a voltage
controlled oscillator product line, expanding its customer base to include
manufacturers of switching and transmission equipment in addition to its
traditional customer base of manufacturers of wireless base stations and
military and satellite equipment. The Cable Broadband Products Segment
recently began supplying new premium drop connectors used on smaller-
diameter coaxial cables at a subscriber's house. The Controls Products
Segment recently introduced a new sealed system for gas ranges and a
modulating thermostat to broaden its product offerings.
Expand International Presence. The Company intends to continue to
increase its international presence. In October of 1998, the Company
purchased Tele Quarz, a leading manufacturer of frequency control devices
located in Germany. The Company currently has foreign manufacturing
facilities in Canada, China, Denmark, France, Germany and Mexico, and also
participates in a manufacturing joint venture in China. Sales made by the
Company to customers located outside the United States accounted for
approximately 31% of the Company's sales for the year ended December 31,
1998.
Reduce Manufacturing Costs. The Company aggressively pursues a strategy
of improving its manufacturing efficiencies to reduce the cost and increase
the quality of its products. The Company engineers its products for volume
manufacturing and continues to evaluate and redesign its products in order
to reduce manufacturing costs. The Company has also invested significantly
in the automation of its manufacturing facilities. The Company intends to
continue to invest in enhancing its manufacturing capabilities with the
objective of meeting the quality and price/performance targets of customers
while maintaining strong operating margins. For example, in 1998 the
Company opened a facility in Tennessee closer to a number of its key
Controls Products Segment customers. As a result, it has been able to
provide completed subassemblies to meet these customers' daily production
schedules in an efficient and cost-effective manner.
Grow Through Strategic Acquisitions. The Company's sales have increased
in part through acquisitions, including Gilbert in 1992, Cabel-Con A/S in
1994, Lasertron, Inc. in 1995, Piezo Crystal Company ("Piezo") in 1997 and
Tele Quarz in 1998. The Company also has divested non-strategic businesses
in order to make more effective use of available capital. The Company
plans to continue pursuing strategic acquisitions that complement its
existing businesses. The Company believes that the benefits of such
acquisitions include expanding the product lines of the Company and
increasing its customer base.
Cable Broadband Products Segment
The Cable Broadband Products Segment is a leading worldwide manufacturer
of coaxial connectors for the CATV industry. The Company manufactures
connectors for the trunk and feeder portion of the broadband distribution
network. These connectors are used whenever a coaxial cable is cut or
spliced, such as at connection points for amplifiers, power supplies, and
other active and passive devices. The Company also manufactures drop
connectors that connect the subscriber's television to the cable network.
Many of the Company's customers have different specifications for their
connectors. The Company offers over 1,700 different types of connectors.
Connectors are complex components; for example, trunk and feeder connectors
may have as many as 20 parts, many of which are individually machined prior
to assembly of the connector.
A cable system consists of three principal segments. The first is the
headend, where the cable system operator receives television signals via
satellite, terrestrial, microwave and other sources. The headend
organizes, processes and retransmits those signals through the second
segment, the distribution network, to the subscriber. The distribution
network typically consists of coaxial and fiber-optic cables and associated
equipment that takes the signals from the headend and then transmits them
throughout the cable system. The third segment is the subscriber drop,
which extends from the distribution network to the subscriber's home, and
connects either directly to the subscriber's television set or to a
converter box. Connectors are used throughout the system where coaxial
cable connects to electronic equipment such as amplifiers and at various
distribution and termination points.
Cable operators continue to upgrade the technological capabilities of
their systems in order to provide subscribers with improved signal quality
and increased channel capacity that allows a broader range of digital
services, Internet access through cable modems, and telephony. Cable
networks are also being upgraded in response to competitive multichannel
services such as direct broadcast satellite and wireless cable. Industry
data indicate that a large portion of domestic cable systems have not yet
been upgraded to the quality required by CATV operators for the delivery of
digital services and to provide for a return path for two-way services such
as Internet access and telephony. The Company also anticipates continued
growth in the cable industry internationally, where cable penetration rates
typically are still low, although international sales were affected during
the last year by financial constraints in certain markets. The Company
believes that opportunities for increased revenues for its Cable Broadband
Products will arise in connection with the anticipated upgrading of
domestic cable systems and expansion of the cable industry internationally,
and from recently developed new products.
The Cable Broadband Products Segment regularly introduces new products
to expand its presence in existing markets. It has expanded its line of
drop connectors and has redesigned its two-piece trunk and feeder connector
product line. In addition to CATV connectors, the Company manufactures a
line of microwave connectors that are used primarily in high reliability
applications in satellites and telecommunications systems, and also
produces a line of connectors used to connect tower-based antennas to
wireless base stations.
The Cable Broadband Products Segment sells directly to major multiple
system operators and leading distributors of CATV components. The Cable
Broadband Products Segment manufactures products in Glendale and Phoenix,
Arizona; Vordingborg, Denmark; and Amboise, France.
The market for Cable Broadband Products is highly competitive with
respect to price, quality and delivery; however, the Company believes it
competes favorably with respect to each of these factors. Cable Broadband
Products are engineered to meet stringent customer reliability
requirements. Certain parties are attempting to develop technologies that
could compete with those currently employed by the customers for Cable
Broadband Products. If successful, these developments could have a
negative impact on the business of the Cable Broadband Products Segment.
The primary raw materials used in the manufacture of Cable Broadband
Products are aluminum and brass. The Company currently receives its
aluminum requirements from two different manufacturing facilities of a
single supplier. Although the Company believes several alternative sources
of supply of aluminum are available, a sudden disruption of its supply from
this vendor could have a temporary adverse effect on the manufacture and
sale of Cable Broadband Products. The Company is not dependent on any
single supplier for its other significant raw material requirements for
Cable Broadband Products. The Company believes it will be able to obtain
the raw materials necessary to manufacture its Cable Broadband Products.
The Cable Broadband Products Segment has several major customers. The
loss of, or reduced demand for products from, any major customer of this
segment could have a material adverse effect on the segment.
The Company owns a number of patents with respect to its Cable Broadband
Products but the Company does not consider any one patent or group of
patents material to the conduct of the Cable Broadband Products Segment's
business.
Frequency Control Products Segment
The Frequency Control Products Segment is a leading supplier of quartz-
based crystals and oscillators for use in wireless, wired telephony,
military, satellite, and other communications applications as well as for
automotive applications. Crystals and oscillators are highly-engineered
components that provide critical timing or frequency references for
wireless communications networks, wired telephony systems, satellite
communications and other electronic applications requiring a high degree of
signal precision. The Frequency Control Products Segment also manufactures
glass-to-metal hermetically sealed packages used primarily in the frequency
control industry.
The Frequency Control Products Segment includes divisions that
manufacture oscillators, quartz crystals that are the key components in
oscillators, and bases for crystals and oscillators.
There are four primary classes of crystal oscillators: (i)
uncompensated crystal oscillators or "XOs", (ii) temperature compensated
crystal oscillators or "TCXOs", (iii) voltage controlled crystal
oscillators ("VCXOs"), and (iv) oven controlled crystal oscillators
("OCXOs"). The type used depends on the performance characteristics
required and the environment to which the oscillator will be exposed. The
Company has designed products that can be used with all major analog and
digital technologies used by cellular telephone and Personal Communications
Systems, or "PCS" service providers, including Code Division Multiple
Access, or "CDMA," Time Division Multiple Access, or "TDMA," and Global
Systems for Mobile Communications, or "GSM."
The Company's development efforts are focused on addressing market
demands for Frequency Control Products with higher stability, smaller size
and lower power consumption. It has also invested in highly automated
production and test systems to increase capacity. Growth in the Frequency
Controls Products Segment's sales has been driven primarily by the growth
of wireless infrastructure spending. The Company expects continued growth
in wireless infrastructure spending in the United States and
internationally to support the substantial increase in the number of
wireless subscribers. In emerging markets abroad, wireless is viewed as a
viable substitute for wired telephony.
The Company sells its Frequency Control Products using a direct sales
force and manufacturers' representatives. The Company supplies oscillators
and crystals to leading manufacturers of wireless base stations and
telecommunications equipment, as well as manufacturers of test,
instrumentation and other equipment and automotive systems. The Company
also sells to a large number of smaller communications companies. The
market for frequency control devices is highly competitive in terms of
price, quality and delivery. The Company believes it competes favorably
with respect to each of these factors.
The Frequency Control Products Segment's manufacturing facilities are
located in Mt. Holly Springs, Carlisle, and Mercersburg, Pennsylvania;
Kansas City, Kansas; Whitby, Ontario, Canada; Shanghai, China; and
Neckarbischofsheim, Germany.
There are many domestic and foreign suppliers of frequency control
devices. In order to compete effectively in this market, the Company
places a strong emphasis on high quality. A large percentage of the
Company's Frequency Control Products are manufactured to exacting customer
specifications, and the Company relies to a great extent on its engineering
staff to design and provide post-production support to meet customer needs.
The Company believes the raw materials required for the production of
its Frequency Control Products are readily available. There are multiple
suppliers of such raw materials, and the Company utilizes many suppliers.
The Frequency Control Products Segment has several major customers. The
loss of, or reduced demand for products from, any major customer of this
segment could have a material adverse effect on the segment.
The Company owns a number of patents with respect to its Frequency
Control Products but the Company does not consider any one patent or group
of patents material to the conduct of the Frequency Control Products
Segment's business.
Fiber-Optic Products Segment
The Fiber-Optic Products Segment designs, manufactures and sells active
DWDM fiber-optic components used in long distance and metropolitan wired
telephony networks and semiconductor lasers for telecommunications
applications.
The Company's Fiber-Optic Products include pump lasers that are critical
components of optical amplifiers and increase the power of light signals.
Optical amplifiers are placed at intervals in the network or at the source
of the light signal. The Company's pump lasers are deployed in the major
domestic long distance networks and in rings connecting headends in the
CATV market. The Company also designs and manufactures transmission
components that are used to generate or detect optical signals carried on
fiber-optic links. The Fiber-Optic Products Segment has developed a line
of advanced transmission products, known as distributed feedback lasers
("DFBs"), for applications in long distance and other networks. These
advanced transmission products generate fiber-optic signals at the rate of
2.5 gigabits per second. The Fiber-Optic Products Segment also
manufactures standard transmission products for the local loop, such as
laser sources and detectors, which operate at lower speeds.
Telecommunication service providers are experiencing a significant
increase in data traffic. Data transmissions now account for a substantial
portion of traffic on many networks and the volume of data being
transmitted is growing very rapidly. The increase in data traffic results
primarily from the growing number of Internet users, home offices, and
additional telephone lines, and the increased use of electronic mail and
wireless calls that terminate on the wired network. The Company believes
that service providers will continue to upgrade existing networks to
increase capacity.
The Company owns a 50% interest in Wuhan Telecommunication Devices Co.
("WTD") located in Wuhan, China. WTD is a manufacturer of fiber-optic,
semiconductor laser components for the communications industry. A research
division of the Chinese Ministry of Information Industry, Wuhan Optical
Communication Technology Company, owns the other 50% interest of WTD.
The Company's Fiber-Optic Products are sold both directly and through
distributors to domestic and export customers, which are primarily
manufacturers of fiber-optic communications and CATV communications
equipment.
The Fiber-Optic Products Segment's manufacturing facilities are located
in Bedford, MA and Wuhan, China.
Although the market for the Company's Fiber-Optic Products is highly
competitive with respect to quality, price and delivery, the Company
believes that the Fiber-Optic Products Segment competes favorably with
respect to each of these factors. The Company believes that the Fiber-
Optic Products Segment is very competitive in the area of high-power pump
lasers, for which there is currently high demand. While several of the
Company's customers have captive operations that make products for their
own use and for sale to others that compete with those of the Company,
these customers have historically relied on the Company to supply a portion
of their product needs.
The Company's Fiber-Optic Products incorporate semiconductor diode laser
and detector "chips" that are coupled to an optical fiber and supplied as
compact fiber-optic modules. One high volume chip is purchased from a sole
supplier, although the Fiber-Optic Product Segment now also produces this
chip internally. Internal production of this chip currently requires
purchasing wafer raw material from a limited number of external suppliers,
although the Fiber-Optic Product Segment is developing the capability to
produce this raw material internally in addition to sourcing it externally.
An inability to obtain these chips or wafers externally in sufficient
quantities to meet projected needs could have a material adverse effect on
the Fiber-Optic Products Segment's business.
The Fiber-Optic Products Segment sells products to a concentrated group
of customers. The loss of, or reduced demand for products from, any major
customer of this segment could have a material adverse effect on the
segment.
The Fiber-Optic Products Segment licenses a number of patents from third
parties and the Company considers several licenses to be material to the
conduct of its business.
Controls Products Segment
The Controls Products Segment is a leading supplier of components to the
original equipment manufacturers of gas range appliances and also supplies
components for outdoor gas grills. The Controls Products Segment also
includes the manufacture of optical, rotary and appliance switches and
encoders for applications in the test and measurement, communications,
medical, military and other markets.
The Controls Products Segment offers a broad line of components and
replacement parts for gas ranges for sale to original equipment
manufacturers. These components control the flow of gas to, and the
ignition and temperature of, burners and ovens. The Controls Products
Segment supplies components to the major domestic gas range manufacturers,
as well as gas range manufacturers in Canada, Mexico, and Latin America.
The Controls Products Segment also supplies service parts for gas ranges
and sells gas grills for outdoor cooking.
The Controls Product Segment also manufactures optical, rotary and
appliance switches and encoders for applications in the appliance, test and
measurement, communications, medical, military and other markets. These
products include low-power open frame switches, enclosed and encoded rotary
switches, as well as solenoids, lighted push-button switches and appliance
switches. To keep pace with the transition of its customer base from
traditional analog switch technology to digital controls, the Controls
Product Segment has also developed sensors and controls that eliminate many
of the mechanical aspects of rotary switches. These products translate an
input, such as motion, into electronic output.
The Company has made significant investments in engineering resources
and computer-aided design capabilities to shorten its new product
development cycle. New products include ignition systems, a sealed supply
system, and subassemblies that range manufacturers incorporate directly
into their ranges in their production lines. The Company plans to continue
to develop new products for its existing customers.
The Company recently opened a satellite manufacturing facility in
Tennessee. This facility is located near several major customers of
Controls Products and allows the Company to provide just-in-time delivery
of components and subassemblies to these customers.
The Company sells its Controls Products primarily through a direct sales
force and through manufacturers' representatives. The Controls Products
Segment has highly automated manufacturing facilities for gas range
components in Princeton, Illinois, Ooltewah, Tennessee, and Juarez, Mexico.
The Controls Products Segment's principal manufacturing operations for
switch and encoder components take place in Juarez, Mexico.
The Controls Products market is highly competitive in terms of price,
quality and delivery. The Company believes it competes favorably with
respect to each of these factors. The Controls Products Segment is a
leading supplier to the domestic market for gas range components. Its
domestic gas range components must conform to Underwriters' Laboratories
and American Gas Association specifications. All such approvals for
existing products have been obtained and the Controls Products Segment's
quality assurance team maintains compliance with these specifications.
The Controls Products Segment is not dependent upon any single supplier
for raw materials.
The Controls Products Segment has several major customers. The loss of,
or reduced demand for products from, any major customer of this segment
could have a material adverse effect on the segment.
The Company owns a number of patents relating to its Controls Products
but the Company does not consider any one patent or group of patents
material to the conduct of the Controls Products Segment's business.
Employees
At December 31, 1998, the Company had 3,875 employees, 2,046 of whom
worked at locations in the United States and 1,829 at locations outside the
United States. Of these employees, 187 are subject to collective
bargaining agreements. The Company believes that its relationships with
its employees are good.
(D) FOREIGN AND DOMESTIC SALES AND LONG-LIVED ASSETS
For information regarding foreign and domestic sales and long-lived
assets, see Note 10 of the Notes to Consolidated Financial Statements,
which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age, position and offices of all
executive officers of the Registrant. The term of office of all executive
officers will expire upon the holding of the first meeting of the Board of
Directors following the Registrant's 1999 Annual Meeting of Stockholders.
<PAGE>
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Name Age Position
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William S. Antle III...... 54 Chairman of the Board since May 1996.
President and Chief Executive Officer
since December 1989. From 1980 to
1989, Mr. Antle was at Bain and
Company, Inc., an international
strategy consulting firm, most
recently as Executive Vice President.
From 1973 to 1980, Mr. Antle was an
executive at Cummins Engine Company,
a manufacturer of diesel engines,
where from 1976 to 1980, he served as
General Manager of several
manufacturing facilities in the
United Kingdom.
Coleman S. Hicks....... 55 Senior Vice President and Chief
Financial Officer since June 1997 and
Senior Vice President, General
Counsel and Secretary from September
1995 until June 1997. Mr. Hicks also
served as President, Oak Frequency
Control Group from September 1995
until October 1997. Prior to joining
the Company, Mr. Hicks was a partner
at Covington and Burling, a
Washington, D.C. law firm that he
joined in 1972. From February 1979
until 1981, Mr. Hicks served as
General Counsel of the Department of
the Navy.
Pamela F. Lenehan...... 46 Senior Vice President, Corporate
Development and Treasurer since
February 1995. From 1981 until
December 1994, Ms. Lenehan was at CS
First Boston, an investment banking
firm, most recently as Managing
Director-Investment Banking. From
1974 to 1981, Ms. Lenehan was a
lending officer at the Chase
Manhattan Bank where she was a Vice
President in the Corporate Banking
Department.
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
The Company believes that its facilities are suitable and adequate for
its business. They are well maintained, in sound operating condition, and
in regular use. The table below sets forth the location and general
character of important properties of the Company. Properties without
reference to leases are owned by the Company.
<TABLE>
<CAPTION>
Floor Space
(Approximate
Location Square Feet)
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CABLE BROADBAND PRODUCTS SEGMENT
Amboise, France {B,C}......................................... 35,000 (2 buildings)
Glendale, Arizona (leases expire 12/31/01, 12/31/02,
and 8/31/10) {B,C}.......................................... 205,700 (6 buildings)
Phoenix, Arizona (lease expires 8/31/06) {B,C}................ 40,400
Vordingborg, Denmark {B,C}.................................... 44,650
FREQUENCY CONTROL PRODUCTS SEGMENT
Carlisle, Pennsylvania {B,C}.................................. 32,000
Kansas City, Kansas {B,C} (lease expires 9/30/02)............. 19,000
Mercersburg, Pennsylvania {B,C}............................... 24,000
Mt. Holly Springs, Pennsylvania {B,C}......................... 79,000 (2 buildings)
Neckarbischofsheim, Germany {B,C}............................. 92,000 (2 buildings)
Shanghai, China (lease expires 6/30/07) {B,C}................. 13,600
Whitby, Ontario, Canada {B,C}................................. 25,000
FIBER-OPTIC PRODUCTS SEGMENT
Bedford, Massachusetts (lease expires 4/30/06) {B,C}.......... 80,000 (2 buildings)
CONTROLS PRODUCTS SEGMENT
Aurora, Illinois (lease expires 11/30/01) {B}................. 18,000
Juarez, Mexico (lease expires 5/16/02) {B,C}.................. 51,000
Ooltewah, Tennessee (lease expires 6/30/03) {C}............... 20,000
Princeton, Illinois {B,C}..................................... 235,000 (2 buildings)
Sugar Grove, Illinois (lease expires 12/14/01) {B}............ 45,000
Zaragosa, Mexico (lease expires 6/30/02) {C}.................. 97,000
CORPORATE
Waltham, Massachusetts (lease expires 7/31/00) {A,B}.......... 15,000
<FN>
{A} Corporate Headquarters.
{B} Office Space.
{C} Manufacturing Facilities.
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Various pending or threatened legal proceedings by or against the
Registrant or one or more of its subsidiaries involve alleged breaches of
contract, torts and miscellaneous other causes of action. The Company does
not consider any of such proceedings to be material to the Company's
financial position, results of operations, or liquidity. (See Note 13
"Commitments and Contingencies" of the Notes to Consolidated Financial
Statements.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matters were submitted to a vote
of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The common stock of the Registrant is traded on the New York Stock
Exchange ("NYSE") under the trading symbol "OAK". As of March 17, 1999,
there were 4,401 stockholders of record of common stock of the Registrant.
Information regarding the trading price of the Registrant's common stock
as reported on the NYSE for each quarterly period during the last two
fiscal years is set forth below. No dividends on the Registrant's common
stock were paid during 1997 or 1998. (See description of dividend
restrictions in the Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations
and Note 5 "Indebtedness" of the Notes to Consolidated Financial
Statements.)
<TABLE>
<CAPTION>
Price of Common Stock
------------------------------------
1997 1998
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter............ $22 7/8 $16 1/4 $35 $27
Second Quarter........... 29 18 1/8 37 7/16 29 11/16
Third Quarter............ 32 1/4 25 3/4 41 1/4 26
Fourth Quarter........... 29 3/4 24 1/4 35 21 13/16
</TABLE>
On each of January 1, 1998 and 1999, the Registrant issued 3,500 shares
of its common stock to non-employee members of its Board of Directors.
These shares were issued to such directors in consideration for past
services to the Registrant. On December 7, 1998, the Registrant issued 344
shares of its common stock to a departing employee from its Supplemental
Retirement Income Plan (the "SRIP"). These shares represented vested
matching contributions made by the Registrant to the former employee's SRIP
account. All of the above referenced 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 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Net sales.......................... $ 230,894 $ 255,364 $ 303,536 $ 314,388 $ 347,866
Purchased in-process research and
development expense............. -- 80,872 -- -- --
Operating income (loss)............ 44,113 (27,897) 46,987 47,232 51,133
Interest expense................... 5,906 6,273 5,767 10,973 10,146
Income (loss) from continuing
operations before income taxes,
minority interest and
extraordinary charge............ 41,840 (30,926) 62,012 36,685 44,730
Income (loss) from continuing
operations...................... 41,041 (52,983) 31,976 21,736 27,339
Net income (loss).................. 42,446 (52,124) 41,836 21,736 27,339
Earnings per share - basic
Income (loss) from continuing
operations................... 2.37 (3.02) 1.77 1.22 1.54
Net income (loss)............... 2.46 (2.98) 2.32 1.22 1.54
Earnings per share - diluted
Income (loss) from continuing
operations................... 2.23 (3.02) 1.71 1.20 1.46
Net income (loss)............... 2.31 (2.98) 2.24 1.20 1.46
Cash dividends per share........... -- -- -- -- --
FINANCIAL POSITION
Working capital.................... $ 67,544 $ 73,168 $ 79,019 $ 84,818 $ 112,132
Plant and equipment, net........... 36,253 53,074 65,026 69,425 98,970
Total assets....................... 279,800 312,544 374,285 387,790 482,437
4 7/8% Convertible Subordinated
Notes........................... -- -- -- -- 100,000
Long-term debt, net of current
portion......................... 34,403 91,570 138,161 151,465 119,555
Total stockholders' equity......... 167,150 119,213 171,723 182,154 200,975
GENERAL STATISTICS
Capital expenditures............... $ 6,723 $ 16,942 $ 23,205 $ 14,697 $ 16,834
Depreciation....................... $ 6,569 $ 7,694 $ 10,028 $ 12,287 $ 14,358
Amortization of intangible assets.. $ 2,372 $ 2,760 $ 3,609 $ 5,835 $ 6,357
Weighted average shares
outstanding (000s):
Basic......................... 17,282 17,520 18,043 17,837 17,771
Diluted....................... 18,371 17,520 18,684 18,108 20,597
Number of holders of record
(at year-end)................... 8,346 7,144 6,312 5,717 4,511
Number of employees (at year-end).. 2,776 2,931 2,944 3,373 3,875
Salaries and wages................. $ 60,054 $ 65,543 $ 79,433 $ 85,681 $ 101,294
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain unusual transactions affected the Company's results during 1996,
1997, and 1998. These unusual transactions are listed in the following
table (dollars in millions):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Income before interest, income taxes,
minority interest and unusual
transactions........................... $ 55.7 $ 47.9 $ 57.9
Net interest.............................. (5.2) (10.6) (9.2)
Income taxes.............................. (18.4) (14.1) (18.2)
Minority interest......................... (7.3) (1.1) (0.7)
------- ------- -------
Net income excluding unusual transactions. 24.8 22.1 29.8
------- ------- -------
Gain on sale of equity investments........ 21.5 -- --
Reorganization and severance charges...... (3.8) -- (0.7)
Asset write-downs and other reserves...... (4.2) -- (2.3)
Purchase accounting adjustments........... (0.9) (0.6) (1.0)
Improperly capitalized expenses........... (1.1) -- --
Tax impact of unusual transactions above.. (4.4) 0.2 1.5
Net income from discontinued operations... 1.4 -- --
Extraordinary charge, early
extinguishment of debt,
net of tax............................. (0.9) -- --
Gain on sale of discontinued operation,
net of tax............................. 9.4 -- --
------- ------- -------
Subtotal of unusual transactions.......... 17.0 (0.4) (2.5)
------- ------- -------
Net income (loss) as reported............. $ 41.8 $ 21.7 $ 27.3
======= ======= =======
</TABLE>
Description of certain unusual transactions
1998
Results include unusual charges of $2.5 million related to the
reorganization of certain operations within the Frequency Control Products
Segment and $0.5 million related to the planned discontinuation of certain
product lines within the Controls Products Segment. These unusual charges
included severance of $0.5 million and other reorganization charges of $0.2
million reported as selling, general and administrative expenses, and
amounts charged to cost of goods sold for inventory write-downs of $1.4
million, and plant and equipment write-downs of $0.9 million.
Results also include a $1.0 million charge to cost of goods sold related
to the purchase accounting for inventory at Tele Quarz.
1997
Results include a $0.6 million charge to cost of goods sold related to
the purchase accounting for inventory at Piezo.
1996
Unusual transactions include a gain of $21.5 million from the sale of
equity investments, reorganization and severance charges of $3.8 million, a
$4.2 million charge associated with the write-down of certain assets and a
reserve for potential legal and environmental matters, a $0.9 million
charge to cost of goods sold related to purchase accounting for inventory,
an extraordinary charge of $0.9 million net of tax related to the early
extinguishment of debt, and a gain of $9.4 million net of tax on the sale
of a subsidiary.
In early 1997, the Company discovered that the controller of one of its
divisions capitalized certain costs that should have been expensed during
1995 and 1996 in the periods incurred. Because the 1995 errors were not
material to the 1995 results ($1.1 million before tax, $0.7 million after
tax), the 1995 financial statements were not restated and the correction of
improperly capitalized expenses of $1.1 million was reported as an unusual
item in 1996.
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
Net Sales. The Company's net sales for 1998 were $347.9 million, an
increase of 11% over 1997. The increase in net sales resulted mainly from
growth in sales in the Cable Broadband Products Segment and Frequency
Control Products Segment. Sales by the Frequency Control Products Segment
for 1998 increased 33% over 1997 levels as the result of strong demand from
customers in the wireless communications infrastructure industry and as the
result of the addition of sales by Tele Quarz and Piezo. The Cable
Broadband Products Segment's sales for 1998 increased by 16% over 1997
sales levels as a result of strong demand from domestic CATV customers and
as a result of the successful introduction of several new products. These
increased sales by the Cable Broadband Products Segment to domestic
customers offset a decline in sales to international customers during 1998.
Sales by the Fiber-Optic Products Segment for 1998 declined slightly from
sales in 1997. The Fiber-Optic Products Segment's sales results for 1997
included significant sales to one European customer for a program that was
not active in 1998. There was a significant increase in sales to customers
other than this one European customer during 1998. The Controls Products
Segment's sales increased slightly from 1997 to 1998. Within this segment,
sales of gas range components increased as the result of market share gains
and the introduction of several new products and switch and encoder sales
declined as the result of a reduction in sales of a product used in a
United States government postal sorting system.
Gross Profit. The Company's gross profit margin, excluding unusual
transactions, decreased to 37.0% in 1998 compared to 37.2% in 1997. Gross
profit margin increased slightly in 1998 compared to 1997 in the Cable
Broadband Products and Controls Products Segments, while gross profit
margins decreased somewhat in 1998 compared to 1997 in the Frequency
Control Products and Fiber-Optic Products Segments. In general, prices of
the Company's products declined during the year, while material costs
remained relatively stable, wages increased moderately, and productivity
improved.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, before unusual transactions, increased $4.4
million, or 6%, in 1998 over those expenses in the prior year. The
increase was primarily the result of increased expenses in the Frequency
Control Products Segment due to the full-year impact of the Piezo
acquisition and the acquisition of Tele Quarz during the fourth quarter of
1998. Research and development and selling expenses increased in 1998
compared to the level of those expenses in 1997. Amortization expense
relating to intangible assets increased to $6.4 million in 1998, versus
$5.8 million in 1997. This increase was mainly the result of increased
goodwill amortization related to the Piezo and Tele Quarz acquisitions.
Royalty income (reported as an offset against selling, general and
administrative expenses) was $0.6 million during 1998. The Company
reported royalty income of $1.0 million during 1997.
Interest Expense. Interest expense decreased from $11.0 million in 1997
to $10.1 million in 1998. The decrease resulted primarily because the
interest rate on the 4 7/8% Convertible Subordinated Notes (the "Notes")
that were issued by Oak in February 1998 is significantly lower than the
interest rate on the Company's revolving credit facility balances.
Interest Income. Interest income increased from $0.4 million in 1997 to
$1.0 million in 1998 primarily as a result of a $0.4 million gain on the
sale of securities.
Equity in Net Income of Affiliated Companies. The Company reported
equity in net income of affiliated companies of $0.03 million in 1997 and
$2.0 million during 1998. The increase is primarily the result of
increased income at WTD due to increased sales. The Company also reported
a gain of $0.3 million as the result of resolving outstanding issues with
its WTD joint-venture partner that had been reserved for during 1996.
During 1998, the Company also recorded a gain of $0.8 million from the sale
to its partner of the Company's 50% interest in a joint venture that
manufactured quartz crystal blanks in Venezuela.
Income Taxes. The effective income tax rate excluding unusual
transactions decreased from 37.8% in 1997 to 37.4% in 1998. The effective
tax rate for 1998 included a benefit of $0.3 million resulting from the
favorable resolution of a state income tax matter.
Minority Interest in Net Income of Subsidiaries. Minority interest
expense decreased to $0.7 million in 1998 from $1.1 million in 1997. The
decrease resulted from purchases of additional equity interests in Gilbert
in October 1997 and October 1998.
Net Income. Net income excluding unusual transactions was $29.8 million
in 1998 compared to $22.1 million in 1997. The increase was the net result
of the factors described above.
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Net Sales. The Company's net sales for 1997 were $314.4 million, an
increase of 4% over sales in 1996. During 1997, sales by the Fiber-Optic
and Frequency Control Products Segments grew 37% and 28%, respectively, and
more than offset a decline in sales by the Cable Broadband Products
Segment. Demand for Fiber-Optic Products and Frequency Control Products
was driven by increased infrastructure investments for long distance fiber-
optic networks and for cellular and personal communications systems. Sales
by the Frequency Control Products Segment in 1997 include sales by Piezo,
which was acquired at the end of the third quarter of 1997. In October
1996, the Company's then-largest customer of Cable Broadband Products
announced a moratorium on purchases. This CATV customer purchased
significantly less from the Company in 1997 than it did in 1996. Sales
volume by the Cable Broadband Products Segment declined from 1996 to 1997
as a result of lower sales to this customer, as well as lower sales to
customers in certain international markets. Sales by the Cable Broadband
Products Segment to other CATV customers and sales to microwave products
customers increased significantly from 1996 to 1997. The Controls Products
Segment's sales increased 5% in 1997, principally as the result of growth
of sales of gas range components.
Gross Profit. The Company's gross profit margin excluding unusual
transactions decreased to 37.2% in 1997 from 39.1% in 1996 primarily as a
result of the adverse impact of lower production volumes in the Cable
Broadband Products Segment and increased sales of lower margin Controls
Products. These gross margin reductions were partially offset by
significant margin improvements in the Fiber-Optic Products and Frequency
Control Products Segments. In general, prices of the Company's products
declined during the year, while material costs remained relatively stable,
wages increased moderately, and productivity improved.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses excluding unusual transactions increased $6.2
million, or 9.8%, in 1997 over those expenses in the prior year, including
an increase in research and development and sales and marketing expenses
over 1996 levels. Amortization expense relating to intangible assets
increased in 1997 to $5.8 million, versus $3.6 million in 1996. This
increase was the result primarily of increased amortization expense related
to the November 1996 and October 1997 purchases of additional equity
interests in Gilbert. Royalty income (reported as an offset against
selling, general and administrative expenses) was $1.0 million during 1997,
and included $0.6 million for royalties related to 1996 that had previously
been disputed by the licensee of certain technology. The Company reported
no royalty income for 1996.
Interest Expense. Interest expense increased from $5.8 million in 1996
to $11.0 million in 1997. The increase reflected the Company's additional
borrowings to finance the purchase of additional equity interests in
Gilbert, the repurchase of shares of the Company's common stock under the
Company's stock repurchase program, and the acquisition of Piezo.
Interest Income. Interest income decreased from $0.5 million in 1996 to
$0.4 million in 1997 as a result of lower average cash balances.
Equity in Net Income (Loss) of Affiliated Companies. The Company
reported equity in net income (loss) of affiliated companies excluding
unusual transactions of a loss of $0.01 million in 1996 and income of $0.03
million during 1997.
Income Taxes. The effective income tax rate excluding unusual
transactions increased from 36.4% in 1996 to 37.8% in 1997 primarily
because non-tax deductible amortization expense increased as a result of
the acquisition of additional equity interests in Gilbert in November 1996
and October 1997.
Minority Interest in Net Income of Subsidiaries. Minority interest
expense decreased to $1.1 million in 1997 from $7.3 million in 1996. The
decrease resulted primarily from purchases of additional equity interests
in Gilbert in November 1996 and October 1997.
Net Income. Net income excluding unusual transactions was $22.1 million
in 1997 compared to $24.8 million in 1996. The decrease was the net result
of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was $39.2 million for 1998, representing a
decrease of $8.4 million from cash flow generated during 1997. During
1998, inventory and accounts receivable balances increased by $26.0 million
and $12.9 million, respectively, compared to balances in 1997 in order to
support increased sales volume and as a result of the acquisition of Tele
Quarz. Capital expenditures during 1998 increased to $16.8 million versus
$14.7 million during 1997. Capital expenditures during 1998 included
investments to increase capacity, introduce new products and improve
information systems.
The Company has in place a $300 million unsecured revolving credit
facility (the "Facility"). Borrowings under the Facility bear interest, at
the option of the Company, either (i) at the prime rate (or, if higher, at
0.5% above the federal funds rate) or (ii) at a spread ranging from 0.5% to
1.25% over the reserve-adjusted 1, 2, 3 or 6 month LIBOR. 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 its stockholders.
Borrowing capacity under the Facility will be reduced by $50.0 million on
each of November 1, 1999 and November 1, 2000. The Facility expires on
December 31, 2001. As of December 31, 1998, the Company had outstanding
loans of $109 million under the Facility.
On February 25, 1998, the Company issued the Notes. The Notes are
convertible into common stock of the Company at a conversion price of
$38.66 per share. Interest on the Notes is payable semi-annually in
arrears on each March 1 and September 1, and the first interest payment was
made on September 1, 1998. The net proceeds from the sale of the Notes
were used to reduce borrowings under the Facility.
In December 1996, the Company was authorized to expend up to $50.0
million to repurchase shares of its stock on the open market. In October
1998, this program was amended to allow stock repurchases not to exceed
$75.0 million in the aggregate. As of December 31, 1998, the Company had
spent $35.1 million to repurchase 1,602,200 shares of its common stock.
The Company intends to finance future repurchases of its stock, if any,
with cash generated by operations and borrowings under the Facility.
In April 1998, the Company paid $1.0 million to the former shareholders
of Piezo under the earnout provisions of the 1997 acquisition agreement for
Piezo.
On October 30, 1998 the Company purchased 100% of the outstanding
capital stock of Tele Quarz. Tele Quarz, located in Neckarbischofsheim,
Germany, is a manufacturer of frequency control products. The total
purchase price for the capital stock and certain real estate, including
debt assumed and transaction costs, was approximately $63.5 million. (See
Note 3 of the Notes to Consolidated Financial Statements).
On October 30, 1998, the Company purchased the remaining 3.75% of
Gilbert owned by current and former members of Gilbert management for a
purchase price of approximately $11.4 million. The Company has owned 100%
of Gilbert since October 30, 1998.
The Company believes that funds generated by operations and from its
existing cash balances and the Facility will be sufficient to fund the
Company's ongoing operations for the foreseeable future.
IMPACT OF THE EURO CURRENCY
On January 1, 1999, the members of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies")
and one common currency, the "Euro". As a result, the Euro now trades on
currency exchanges and may be used for business transactions utilizing
electronic fund transfer. Conversion to the Euro has the effect of
eliminating exchange rate risk between member countries, as exchange rates
are now permanent. Beginning in January 2002, new Euro-denominated
currency will be issued, and legacy currency will be removed from
circulation during the first six months of that year. Oak's subsidiaries
that are affected by the Euro conversion have modified business processes
to accommodate Euro denominated transactions. Certain of the Company's
operations expect to implement additional changes to improve the processing
of Euro denominated transactions. The anticipated future increase in Euro
denominated transactions is not expected to have a material impact on the
Company's business or results of operations, and the Company believes that
its currency risk in participating countries may be reduced as the legacy
currencies are converted to the Euro.
YEAR 2000 COMPLIANCE
Background
"Year 2000" issues may arise because many existing computer programs use
only the last two of the four digits that identify a year. Therefore,
certain computer programs may not properly recognize a year that begins
with "20" and these programs may not function correctly once dates
beginning with "20" start being used.
The Company is aware of the Year 2000 issue and its potential associated
business and financial risks. The Company completed an initial internal
assessment of the Year 2000 impact on each of its operating facilities
during 1997. As a result of this internal assessment, the Company
initiated corrective actions at several of its operating facilities.
During the second quarter of 1998, qualified external consultants performed
a more detailed assessment of the impact of the Year 2000 on the Company's
major operating facilities. This assessment included a review of existing
corrective action plans and recommendations for additional corrective
actions. The cost of this external assessment was approximately $0.1
million.
Based on the foregoing assessments, the Company believes that Year 2000
issues at its operating facilities should not have a material impact on its
financial or operating performance. However, pending completion of all
necessary corrective actions, it is not possible for the Company to
determine the extent of any difficulty it might experience at its operating
facilities as a result of Year 2000 issues. Such problems, or similar
problems at the Company's customers or suppliers, could temporarily affect
the Company's performance adversely.
Corrective Action Status
Personal Computers and Local Area Networks:
Each of the Company's domestic and foreign operating facilities uses
personal computers and networking hardware and software. The external
assessment completed during the second quarter of 1998 identified required
upgrades and provided information on the steps necessary to upgrade
hardware and software. Each operating facility is upgrading its hardware
and software, where necessary, to ensure personal computers and local area
networks are Year 2000 compliant. Many of the required upgrades would have
been made to keep pace with technological improvements even were they not
required for Year 2000 compliance, and had been provided for in each
operating facility's annual budget for capital expenditures and selling,
general and administrative expenses. All required upgrades are expected to
be completed by the third quarter of 1999. It is estimated that the total
cost for these upgrades will approximate $0.5 million to $1.0 million.
This figure includes amounts for capital equipment and amounts to be
charged to selling, general and administrative expenses.
Business Systems:
The term "Business Systems" includes the systems used in materials
requirements planning, manufacturing and materials control, general ledger
and other financial systems, order entry and customer activity tracking.
There is a wide variety of hardware and software used in the Company's
Business Systems; some of the Company's operating facilities have Business
Systems that have been developed, in part, "in-house." The systems have
been evaluated at each of the operating facilities and categorized as
follows:
1) Already Year 2000 compliant; no action required;
2) Software and/or hardware upgrade required; make necessary
changes to existing systems; or
3) Software and/or hardware upgrade required; replace existing
system with upgraded Year 2000 compliant system.
For existing systems that are to be revised to be brought into
compliance, Year 2000 program plans are in place and the majority of the
work has been completed. All remaining work is expected to be completed by
the third quarter of 1999. There is no significant incremental cost to
these efforts because the majority of the work is being performed by
internal management information systems personnel. These expenses are
reported as selling, general and administrative expenses as incurred.
At operating facilities where an existing system is being replaced with
a new system, program plans have been or will be established to ensure the
new systems are operational by the third quarter of 1999. These upgrades
are necessary investments for the operating facilities to keep pace with
technology and to enhance operational performance, in addition to being
required to ensure Year 2000 compliance.
The Company has focused the required resources on this area and
anticipates that all systems will be compliant by the third quarter of
1999. Approximately $3.0 million in capital investment has been made to
date for these systems improvements. The Company has planned an additional
$1.5 million to $2.5 million in capital expenditures for upgrades still to
be completed.
Corporate-Wide Systems:
The Company's corporate-wide electronic mail system and the corporate
financial reporting system will be upgraded by the end of the second
quarter of 1999. These systems are being upgraded to improve operational
performance. The upgraded systems will be Year 2000 compliant. The total
cost for these upgrades is approximately $1.2 million, including
capitalized amounts and selling, general and administrative expenses.
Other:
The Company has also identified certain corrective actions necessary to
ensure other computer-dependent equipment is Year 2000 compliant. This
equipment includes telephone systems and computer-controlled manufacturing
equipment. The Company believes that only minor efforts are required in
these areas to ensure Year 2000 compliance.
Funding for Required Corrective Actions
The Company believes it has budgeted sufficient funds to ensure all
required corrective actions are completed in time to avoid Year 2000
problems. The Company does not believe that costs required to address its
Year 2000 issues at its operating facilities will have a material financial
impact.
Year 2000 Compliance of Suppliers and Customers
The Company is presently surveying selected suppliers, customers and
service providers that are material to the Company's business to ensure
they are Year 2000 compliant, and will complete this process by mid-1999.
Where practicable, the Company will attempt to mitigate its risks with
respect to the failure of suppliers to be Year 2000 compliant. In the
event that certain suppliers indicate that they will not be Year 2000
compliant, and this non-compliance is expected to result in failure to meet
the Company's requirements, the Company will seek alternative suppliers.
However, such failures could temporarily affect the Company's operations.
Products
The products produced by the Company do not include date references that
could be affected by the Year 2000 issue, and therefore the Company does
not believe there is a material risk of warranty claims related to the Year
2000 issue.
Risks
If certain of the Company's systems fail to be brought into Year 2000
compliance, the most likely worst-case scenario would be a temporary
disruption of operations during the implementation of alternative manual
systems. The Company believes the impact of such a temporary disruption
would not be material.
Contingency Plans
Because of the rapidly changing Year 2000 situations at the Company and
its suppliers, customers and service providers, the Company has not
developed formal contingency plans to address the possibility that its
planned corrective actions may not achieve Year 2000 compliance. The
Company will consider the need for such contingency plans as it continues
to assess the Year 2000 risk and monitors the progress of its corrective
action plans.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments
and for Hedging Activities." SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from the changes in the values of those
derivatives would be accounted for depending on the use of the derivatives
and whether they qualify for hedge accounting. The requirements of this
statement are to be adopted by the Company as of the first quarter of 2000.
The Company is assessing the impact of SFAS No. 133 on its financial
position and results of operations.
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. In addition, although the Company's
direct sales to customers in Asia have historically been a small percentage
of total sales, the Company sells to customers that do business worldwide
and cannot predict how the businesses of these customers may be affected by
economic conditions in Asia or elsewhere.
The Company has completed an assessment of the impact of the Year 2000
on computers and software at its operating units. This assessment included
a review of the Company's year 2000 readiness by qualified independent
consultants. The Company has identified a number of potential problems and
corrective actions required. Some of these actions have already been, and
others remain to be, completed. The Company believes that Year 2000 issues
at its facilities should not have a material impact on its financial or
operating performance. However, pending completion of all necessary
corrective actions, it is not possible for the Company to determine the
extent of any difficulty it might experience at its facilities as a result
of Year 2000 issues. Such problems, or similar problems at the Company's
customers or suppliers, could temporarily affect the Company's performance
adversely. See "Year 2000 Compliance" above.
The Company's subsidiaries currently buy a number of raw materials from
single sources. 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 Oak or one or more of its subsidiaries involve
alleged breaches of contract, torts and miscellaneous other causes of
action. The Company does not currently believe that its compliance with
applicable regulations or any litigation against the Company 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates on its borrowings. In the
normal course of its business, the Company manages its exposure to these
risks as described below. The Company does not engage in trading market
risk sensitive instruments for speculative purposes.
FOREIGN EXCHANGE
During 1998, less than 20% of the Company's business was transacted in
currencies other than the U.S. dollar. From time to time, the Company
enters into forward exchange contracts as a hedge against the foreign
currency exchange risk on transactions denominated in foreign currencies.
The Company has not entered into forward exchange contracts for speculative
or trading purposes. The Company has performed a sensitivity analysis
assuming a hypothetical 10% adverse movement in foreign exchange rates. As
of December 31, 1998, the analysis demonstrated that such market movements
would not have had a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows. Actual gains and
losses in the future may differ materially from this analysis, however,
based on changes in the timing and amount of foreign currency rate
movements and the Company's actual exposures. The Company believes that
its exposure to foreign currency exchange rate risk at December 31, 1998
was not material. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risks and Uncertainties."
INTEREST RATES
As of December 31, 1998, the Company had outstanding borrowings that
were subject to a floating interest rate. The Company entered into
interest rate swap agreements to manage its exposure to interest rate
fluctuations on a portion of these borrowings. These swap agreements
provide for the exchange of floating rate for fixed interest payments
periodically over the life of the agreements without any change to the
underlying notional amounts. Information about the Company's investments
and interest rate swap agreements is set forth in Note 2 and Note 5 of the
Notes to Consolidated Financial Statements, which are incorporated by
reference herein.
The Company has performed a sensitivity analysis assuming a hypothetical
10% adverse movement in the floating interest rate on the borrowings
described above. As of December 31, 1998, the analysis demonstrated that
such movement would not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
Actual gains and losses in the future may differ materially from that
analysis, however, based on changes in the timing and amount of interest
rate movements and the Company's actual exposures. The Company believes
that it has minimal exposure to interest rate risk. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risks and Uncertainties."
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OAK INDUSTRIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS............................ xx
Financial Statements --
Consolidated Balance Sheet at December 31, 1997 and 1998.. xx
Consolidated Statement of Operations for the years ended
December 31, 1996, 1997 and 1998........................ xx
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998............ xx
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1997 and 1998.................. xx
Notes to Consolidated Financial Statements................ xx
Schedule --
II -- Valuation and Qualifying Accounts............... xx
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Oak Industries Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Oak Industries Inc. and its subsidiaries at December 31, 1997
and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 1999
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1998
--------- --------
<C> <C>
<S>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 8,642 $ 13,754
Receivables, less reserves of $2,582 and $2,873.... 47,036 59,968
Inventories........................................ 51,297 77,321
Deferred income taxes.............................. 16,143 11,491
Other current assets............................... 2,488 2,902
--------- ----------
Total current assets......................... 125,606 165,436
--------- ----------
PLANT AND EQUIPMENT:
Land............................................... 960 1,768
Buildings and leasehold improvements............... 26,004 31,337
Machinery and equipment............................ 124,076 157,125
Furniture and fixtures............................. 8,311 8,797
--------- ----------
159,351 199,027
Less -- Accumulated depreciation................... (89,926) (100,057)
--------- ----------
Total plant and equipment.................... 69,425 98,970
--------- ----------
OTHER ASSETS:
Goodwill and other intangible assets,
less accumulated amortization of $17,239
and $23,566................................... 178,577 196,531
Investment in affiliates........................... 8,358 11,014
Other assets....................................... 5,824 10,486
--------- ----------
Total other assets........................... 192,759 218,031
--------- ----------
Total Assets................................. $ 387,790 $ 482,437
========= ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.............. $ 443 $ 2,051
Accounts payable............................... 11,128 20,800
Accrued liabilities............................ 29,217 30,453
--------- ----------
Total current liabilities................... 40,788 53,304
--------- ----------
OTHER LIABILITIES:
Deferred compensation and pensions............. 5,737 6,554
Other.......................................... 2,692 2,049
--------- ----------
Total other liabilities..................... 8,429 8,603
--------- ----------
4 7/8% Convertible Subordinated Notes............. -- 100,000
--------- ----------
Long-Term Debt, Net of Current Portion............ 151,465 119,555
--------- ----------
Minority Interest................................. 4,954 --
--------- ----------
Commitments and Contingent Liabilities (Note 13)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
authorized 5,000,000 shares; none issued...... -- --
Junior preferred stock, no par value;
authorized 500,000 shares; none issued........ -- --
Common stock, par value of $0.01;
authorized 50,000,000 shares;
issued 18,953,980 and 19,204,095 shares....... 190 192
Additional paid-in capital..................... 305,740 312,860
Accumulated deficit............................ (97,956) (70,617)
Accumulated other comprehensive income......... (1,712) (4,662)
Treasury stock, 1,127,014 and 1,610,041 shares. (22,092) (35,541)
Unearned compensation - restricted stock....... (1,754) (995)
Stock purchase loan............................ (262) (262)
--------- ----------
Total stockholders' equity.................. 182,154 200,975
--------- ----------
Total Liabilities and
Stockholders' Equity.................... $ 387,790 $ 482,437
========= ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net Sales......................................... $ 303,536 $ 314,388 $ 347,866
Cost of sales..................................... (189,410) (197,974) (222,357)
--------- --------- ---------
Gross profit................................... 114,126 116,414 125,509
Selling, general and administrative expenses...... (67,139) (69,182) (74,376)
--------- --------- ---------
Operating income............................... 46,987 47,232 51,133
Interest expense.................................. (5,767) (10,973) (10,146)
Interest income................................... 541 393 986
Gain on sale of equity investments................ 21,502 -- 772
Equity in net income (loss) of affiliated
companies....................................... (1,251) 33 1,985
-------- --------- ---------
Income from continuing operations before
income taxes, minority interest and
extraordinary charge......................... 62,012 36,685 44,730
Income tax provision.............................. (22,764) (13,861) (16,697)
Minority interest in net income of subsidiaries... (7,272) (1,088) (694)
-------- --------- ---------
Income from continuing operations.............. 31,976 21,736 27,339
Income from discontinued operations, net of tax... 1,442 -- --
Gain on sale of discontinued operations,
net of tax...................................... 9,367 -- --
Net income before extraordinary charge......... 42,785 21,736 27,339
Extraordinary charge for early extinguishment
of debt, net of tax benefit of $582 in 1996..... (949) -- --
-------- --------- ---------
Net income........................................ $ 41,836 $ 21,736 $ 27,339
======== ========= =========
Income per share - basic
Continuing operations.......................... $ 1.77 $ 1.22 $ 1.54
Discontinued operations........................ .08 -- --
Gain on sale of discontinued operation......... .52 -- --
-------- --------- ---------
Net income before extraordinary charge......... 2.37 1.22 1.54
Extraordinary charge........................... (.05) -- --
-------- --------- ---------
Net income..................................... $ 2.32 $ 1.22 $ 1.54
======== ========= =========
Weighted average shares outstanding - basic....... 18,043 17,837 17,771
======== ========= =========
Income per share - diluted
Continuing operations.......................... $ 1.71 $ 1.20 $ 1.46
Discontinued operations........................ .08 -- --
Gain on sale of discontinued operation......... .50 -- --
-------- --------- ---------
Net income before extraordinary charge......... 2.29 1.20 1.46
Extraordinary charge........................... (.05) -- --
-------- --------- ---------
Net income..................................... $ 2.24 $ 1.20 $ 1.46
======== ========= =========
Weighted average shares outstanding - diluted..... 18,684 18,108 20,597
======== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDI- OTHER UN-
TIONAL ACCU- COMPRE- EARNED STOCK
COMMON PAID-IN MULATED HENSIVE COMPEN- TRESURY PURCHASE
STOCK CAPITAL DEFICIT INCOME SATION STOCK LOANS TOTAL
-------- --------- --------- ---------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995... $177 $282,179 $(161,528) $ 248 $ -- $ (1,316) $(547) $119,213
--------
Net income........... -- -- 41,836 -- -- -- -- 41,836
Currency translation
adjustments......... -- -- -- (626) -- -- -- (626)
--------
Comprehensive income. -- -- -- -- -- -- -- 41,210
Exercise of options.. 6 8,762 -- -- -- (133) -- 8,635
Tax benefit from
stock options....... -- 2,300 -- -- -- -- -- 2,300
Issuance of
restricted stock.... 1 2,944 -- -- (2,945) -- -- --
Other................ -- -- -- -- -- 80 285 365
---- -------- --------- ------- ------- -------- ----- --------
Balance,
December 31, 1996... 184 296,185 (119,692) (378) (2,945) (1,369) (262) 171,723
--------
Net income........... -- -- 21,736 -- -- -- -- 21,736
Currency translation
Adjustments......... -- -- -- (1,520) -- -- -- (1,520)
Unrealized gains on
Securities.......... -- -- -- 186 -- -- -- 186
--------
Comprehensive income. -- -- -- -- -- -- -- 20,402
Exercise of options.. 6 7,779 -- -- -- -- -- 7,785
Tax benefit from
stock options....... -- 2,162 -- -- -- -- -- 2,162
Issuance of
restricted stock.... -- 208 -- -- (208) -- -- --
Amortization of ]
restricted stock.... -- -- -- -- 805 -- -- 805
Cancellation of
restricted stock.... -- (594) -- -- 594 -- -- --
Stock repurchases.... -- -- -- -- -- (20,544) -- (20,544)
Other................ -- -- -- -- -- (179) -- (179)
---- -------- --------- ------- ------- -------- ----- --------
Balance,
December 31, 1997... 190 305,740 (97,956) (1,712) (1,754) (22,092) (262) 182,154
--------
Net income........... -- -- 27,339 -- -- -- -- 27,339
Currency translation
adjustments......... -- -- -- (1,067) -- -- -- (1,067)
Minimum pension
liability adjustment -- -- -- (1,697) -- -- -- (1,697)
Reclassification
adjustment on
unrealized gains
on securities....... -- -- -- (186) -- -- -- (186)
--------
Comprehensive income. -- -- -- -- -- -- -- 24,389
Exercise of options.. 2 5,474 -- -- -- 1,219 -- 6,695
Tax benefit from
stock options....... -- 1,671 -- -- -- -- -- 1,671
Issuance of
restricted stock.... -- 40 -- -- (108) 68 -- --
Amortization of
restricted stock.... -- -- -- -- 867 -- -- 867
Stock repurchases.... -- -- -- -- -- (14,581) -- (14,581)
Other................ -- (65) -- -- -- (155) -- (220)
---- -------- --------- ------- ------- -------- ----- --------
Balance,
December 31, 1998... $192 $312,860 $ (70,617) $(4,662) $ (995) $(35,541) $(262) $200,975
==== ======== ========= ======= ======= ======== ===== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations..................... $ 31,976 $ 21,736 $ 27,339
Adjustments to reconcile income from continuing
operations to net cash provided by operations:
Depreciation.................................... 10,028 12,287 14,358
Amortization.................................... 3,970 6,792 7,697
Minority interest............................... 7,273 1,088 694
Gain on sale of securities...................... -- -- (356)
Gain on the sale of properties.................. -- (253) --
Gain on the sale of equity investments.......... (21,502) -- (772)
Undistributed earnings of affiliated companies.. 1,263 135 (1,943)
Change in assets and liabilities,
net of effects from acquisition of businesses:
Receivables.................................. (582) (4,087) (5,765)
Inventories.................................. (4,036) 6,797 (12,293)
Accounts payable and accrued liabilities..... 5,204 (6,563) 5,072
Deferred compensation and pensions........... (172) 1,020 (1,188)
Deferred income taxes........................ 14,690 10,639 5,976
Other........................................ (920) (1,915) 427
---------- --------- --------
Net cash provided by operations.......................... 47,192 47,676 39,246
---------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures.................................. (23,205) (14,697) (16,834)
Acquisition of businesses, net of cash acquired....... (125,600) (29,941) (41,516)
Proceeds from the sale of properties.................. -- 1,924 --
Proceeds from the sale of equity investments.......... 30,871 -- 898
Repayments from employees............................. 285 -- --
Other................................................. (12) (47) 375
--------- --------- --------
Net cash used in investing activities.................... (117,661) (42,761) (57,077)
--------- --------- --------
FINANCING ACTIVITIES:
Long-term borrowings.................................. 146,000 58,052 189,246
Repayment of borrowings............................... (92,810) (44,595) (152,392)
Early retirement of debt.............................. (21,000) -- --
Stock repurchases..................................... -- (20,544) (14,581)
Exercise of options................................... 8,635 7,785 6,302
Dividends paid to minority stockholders............... -- (2,196) (1,090)
Deferred debt issuance costs.......................... (720) -- (3,404)
Other................................................. -- (179) (396)
--------- --------- --------
Net cash provided by (used in) financing activities...... 40,105 (1,677) 23,685
--------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................ (333) (712) (742)
--------- --------- --------
Net cash and cash equivalents provided by discontinued
operations............................................. 19,971 -- --
--------- --------- --------
Net change during year.................................. (10,726) 2,526 5,112
Balance, beginning of year.............................. 16,842 6,116 8,642
--------- --------- --------
Balance, end of year.................................... $ 6,116 $ 8,642 $ 13,754
========= ========= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
(1) NATURE OF BUSINESS:
Oak Industries Inc., together with its consolidated subsidiaries (the
"Company"), is a leading manufacturer of highly-engineered components that
it designs and sells to manufacturers and service providers in the
communications and other selected industries.
(2) STATEMENT OF ACCOUNTING POLICIES:
Following are the significant financial and accounting policies of the
Company:
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All significant
transactions between the Company and its subsidiaries are eliminated.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Minority Interest
Minority interest represents the minority stockholders' proportionate
share of the equity and the net income of Connector Holding Company
("Connector") and Gilbert Engineering Co., Inc. ("Gilbert") (see Note 3).
Investments in Affiliates
The Company's investments in affiliates consist of: (1) a 50% interest
in Wuhan Telecommunication Devices Co., a manufacturer of fiber-optic
components in Wuhan, China; (2) a 49% interest in Teletec Corporation, a
Japanese distributor of frequency control products; and (3) a 5% interest
in TQ Electronics Co., Ltd., a Taiwanese distributor of frequency control
products.
Translation of Foreign Currencies
The financial statements of foreign subsidiaries are translated into
United States dollars in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." Translation adjustments,
if any, are made directly to a separate component of stockholders' equity.
Foreign currency transaction gains and losses are included in net income
when realized and are insignificant.
Revenue Recognition
Revenues from product sales are recognized at the time products are
shipped.
Inventories
Inventories are valued at the lower of cost ("first-in, first-out"
basis) or market. Inventory costs, which include material, labor and
factory manufacturing overhead expenses, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1998
------- ------
<C> <C>
<S>
Raw materials....................... $ 14,153 $ 28,225
Work in process..................... 28,852 33,699
Finished goods...................... 8,292 15,397
-------- --------
$ 51,297 $ 77,321
======== ========
</TABLE>
Plant and Equipment
Plant and equipment are stated at cost. Replacements and improvements
are capitalized, while repairs and maintenance costs are charged to expense
as incurred. The Company expenses depreciation using the straight-line
method over the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings and leasehold improvements........ 5 to 40 years
Machinery and equipment..................... 3 to 15 years
Furniture and fixtures...................... 5 to 15 years
</TABLE>
The cost and accumulated depreciation of items sold or retired are
removed from the plant and equipment accounts and any resulting profit or
loss is recognized currently.
Intangible Assets
Goodwill and other intangibles, and the related amortization, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
OTHER
GOODWILL INTANGIBLES TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
Balance, December 31, 1996......... $ 164,321 $ 2,177 $ 166,498
Additions.......................... 17,752 162 17,914
Amortization....................... (5,442) (393) (5,835)
--------- ------- ---------
Balance, December 31, 1997......... 176,631 1,946 178,577
Additions.......................... 24,243 68 24,311
Amortization....................... (5,979) (378) (6,357)
--------- ------- ---------
Balance, December 31, 1998......... $ 194,895 $ 1,636 $ 196,531
========= ======= =========
</TABLE>
Goodwill represents the excess of the cost of acquired businesses over
the fair market value of their net tangible and identified intangible
assets. Goodwill is being amortized using the straight-line method over
periods of 10 to 40 years. Other intangibles are stated at cost and
amortized using the straight-line method over periods of 3 to 15 years.
Goodwill and other intangibles are assessed regularly to determine whether
any potential impairment exists. The Company assesses the potential
impairment of goodwill and other identified intangible assets based on
anticipated undiscounted cash flows from operations.
Capitalized Debt Costs
The Company capitalizes all costs related to the issuance of debt. The
resulting capitalized debt costs ($746,000 and $3,744,000 at December 31,
1997 and 1998, respectively) are classified as "Other assets" on the
consolidated balance sheet, and are amortized to expense using the
straight-line method over the life of the related debt issue. During 1996,
1997 and 1998, the Company amortized $361,000, $152,000 and $473,000
respectively, of capitalized debt costs. As a result of terminating its
previous debt facility, the Company wrote off capitalized debt costs of
$1,531,000 in 1996 which are included in the extraordinary charge for early
extinguishment of debt.
Income Taxes
The provision for income taxes includes federal, foreign and state
income taxes currently payable and those deferred because of temporary
differences between the financial statement expenses and tax deductible
expenses. Deferred tax assets are recognized, utilizing current tax rates,
for deductible temporary differences and operating loss and credit
carryforwards that are more likely than not to be realized. Deferred tax
benefit or expense represents the change in the deferred tax asset or
liability balances.
Research and Development
Research and development costs, which are expensed as incurred, were
$10,873,000, $12,647,000 and $13,520,000 in 1996, 1997 and 1998,
respectively. These costs are included in selling, general and
administrative expenses in the consolidated statement of operations.
Earnings Per Share
The following represents a reconciliation of the net income and weighted
average number of shares used in the basic and diluted earnings per share
computations (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
BASIC
Net income.............................. $ 41,836 $ 21,736 $ 27,339
Weighted average shares outstanding..... 18,043 17,837 17,771
Net income per share.................... $ 2.32 $ 1.22 $ 1.54
======== ======== ========
DILUTED
Net income.............................. $ 41,836 $ 21,736 $ 27,339
Interest expense and amortization of
deferred costs, net of tax,
related to 4 7/8% convertible
subordinated notes..................... -- -- 2,741
-------- -------- --------
Net income as adjusted.................. $ 41,836 $ 21,736 $ 30,080
Weighted average shares:
Outstanding............................ 18,043 17,837 17,771
Incremental shares related to 4 7/8%
convertible subordinated notes........ -- -- 2,199
Incremental shares related to other
common stock equivalents.............. 641 271 627
-------- -------- --------
Total shares outstanding, as adjusted .. 18,684 18,108 20,597
Net income per share.................... $ 2.24 $ 1.20 $ 1.46
======== ======== ========
</TABLE>
Options to purchase 50,000, 1,743,900 and 1,153,300 shares of common
stock in 1996, 1997 and 1998, respectively, were outstanding at year end
but were not included in the computation of diluted earnings per share
because the exercise prices of the options were greater than the average
market price of the common stock for the respective period.
Cash Equivalents
The Company's cash equivalents represent funds invested in a variety of
liquid short-term instruments with maturities of less than three months at
time of purchase. The carrying amount of these instruments approximates
fair value.
Investments
The Company has classified certain debt securities, which are included
in cash and cash equivalents, as held-to-maturity and certain debt and
equity securities, which are included in other assets, as available-for-
sale. Held-to-maturity securities are stated at cost, which approximates
fair value, and associated interest is included in interest income.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component
of stockholders' equity. Realized gains and losses and interest and
dividends on available-for-sale securities are included in interest income.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements in order to manage
its exposure to interest rate fluctuations. The swap agreements provide
for the exchange of floating rate for fixed interest payments periodically
over the life of the agreements without any change to the underlying
notional amounts. The interest rate swap agreements are used to measure
interest to be paid or received and do not represent the amount of exposure
to credit loss. In the unlikely event that a counterparty fails to meet
the terms of an interest rate swap agreement, the Company would be left
with its original floating interest rate rather than the fixed rate it had
anticipated. The Company does not anticipate non-performance by any of the
counterparties. Net interest differentials to be paid or received related
to interest rate swap agreements are accrued and ultimately recognized as
an adjustment to interest expense over the life of the agreements. The
fair values of interest rate swap agreements are the estimated amounts that
the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
credit worthiness of the counterparty.
Consolidated Statement of Cash Flows
Supplementary information for the consolidated statement of cash flows
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
Interest............................. $ 4,696 $ 11,569 $ 7,659
Income taxes......................... 6,171 3,470 9,891
</TABLE>
Details of businesses acquired are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Assets acquired...................... $ 92,607 $ 27,935 $ 79,467
Minority interest elimination........ 32,993 4,861 4,558
Liabilities assumed.................. -- (2,855) (42,256)
--------- --------- ---------
Cash paid............................ 125,600 29,941 41,769
Cash acquired........................ -- -- (514)
Effect of exchange rate
changes on cash..................... -- -- 261
--------- --------- ---------
Net cash paid........................ $ 125,600 $ 29,941 $ 41,516
========= ========= =========
</TABLE>
Reclassifications
Certain items in the 1996 and 1997 financial statements have been
reclassified to conform with the 1998 presentation.
(3) ACQUISITIONS:
TELE QUARZ GMBH
On October 30, 1998 the Company purchased 100% of the outstanding
capital stock of Tele Quarz GmbH ("Tele Quarz"). Tele Quarz, located in
Neckarbischofsheim, Germany, is a manufacturer of frequency control
products. The total purchase price for the capital stock and certain real
estate, including debt assumed and transaction costs, was approximately
$63.5 million.
Oak accounted for the acquisition as a purchase and, accordingly,
included operating results of this business subsequent to the date of
acquisition in the Company's consolidated financial statements. The
Company recorded $17,646,000 of goodwill and other intangibles associated
with this acquisition. The Company is amortizing the goodwill and other
intangibles over 12 to 30 years. During the fourth quarter of 1998, the
Company charged $975,000 to cost of goods sold related to the purchase
accounting for Tele Quarz's inventory.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and Tele Quarz as if the acquisition
had occurred at the beginning of 1997, after giving effect to certain
adjustments, including amortization of intangible assets, increased
interest expense on the acquisition debt, purchase accounting for
inventory, and related income tax effects. The pro forma summary does not
necessarily reflect the results of operations as they would have been if
the Company and Tele Quarz had constituted a single entity during such
periods (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(UNAUDITED)
-------------------------------
1997 1998
-------- --------
<S> <C> <C>
Sales............................ $ 379,051 $ 395,971
Net income....................... $ 21,664 $ 26,336
Net income per share - basic..... $ 1.21 $ 1.48
Net income per share - diluted... $ 1.20 $ 1.41
</TABLE>
PIEZO CRYSTAL COMPANY
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 initially paid approximately
$20,200,000 in cash, including transaction expenses. The purchase price
was financed with borrowings from the Company's credit facility. The
acquisition was accounted for as a purchase. During the fourth quarter of
1997, the Company charged $615,000 to cost of goods sold related to the
purchase accounting for Piezo's inventory. In April 1998, Piezo's selling
shareholders received additional consideration of $1,000,000 based on
Piezo's fourth quarter 1997 performance. The additional $1,000,000 earned
by Piezo's selling shareholders was recorded by the Company as of December
31, 1997 and is included in goodwill and accrued liabilities. The Company
recorded approximately $13,700,000 of goodwill that is being amortized over
40 years. Pro forma results of operations have not been presented because
the effects of the acquisition were not significant.
CONNECTOR AND GILBERT MINORITY INTEREST
On November 1, 1996, the Company purchased the 20% interest in Connector
owned by certain affiliates of Bain Capital, Inc. ("Bain") for
approximately $95,000,000 in cash, including transaction expenses.
Connector owned 85% of Gilbert, and as a result of the acquisition the
Company acquired Bain's 17% indirect interest in Gilbert. Oak accounted
for the acquisition as a purchase and accordingly there is no minority
interest expense related to Bain in the Company's consolidated financial
statements subsequent to the date of acquisition. Goodwill of
approximately $72,000,000 resulting from this acquisition is being
amortized over 36 years, which is consistent with the remaining period
relating to goodwill resulting from the purchase of an 80% equity interest
in Connector during 1992. The purchase was financed with borrowings from
the Company's credit facility.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company as if the acquisition of the Bain
interest had occurred at the beginning of 1996, after giving effect to
certain adjustments, including amortization of intangible assets, increased
interest expense and related income tax effects. The pro forma summary
does not necessarily reflect the results of operations as they would have
been if the Company had acquired the Bain interest during such period
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(UNAUDITED)
--------------------------
<S> <C>
Net sales........................... $ 303,536
Income from operations
before extraordinary charge........ $ 41,676
Net income.......................... $ 40,727
Income from operations before
extraordinary charge
per share - basic................. $ 2.31
Net income per share - basic........ $ 2.26
Income from operations before
extraordinary charge
per share - diluted............... $ 2.23
Net income per share - diluted...... $ 2.18
</TABLE>
On November 15, 1996, the Company agreed to purchase the 15% equity
interest in Gilbert owned by certain members of the management of Gilbert
(the "Selling Stockholders"). The Company purchased 7.5% of Gilbert from
the Selling Stockholders in the fourth quarter of 1996 at a purchase price
of approximately $30,600,000. The Company financed the acquisition with
borrowings from its credit facility and accounted for the acquisition as a
purchase and, accordingly, there is no minority interest expense related to
the portion purchased from the Selling Stockholders in the Company's
consolidated financial statements subsequent to the date of acquisition.
Goodwill of approximately $20,000,000 resulting from this acquisition is
being amortized over 36 years. Pro forma results of operations have not
been presented for the acquisition of 7.5% of Gilbert because the effects
of the acquisition were not significant.
On October 31, 1997, the Company purchased 3.75% of Gilbert held by the
Selling Stockholders for approximately $8,800,000 in cash. The purchase
price was financed with borrowings from the Company's credit facility and
with cash generated from operations. Oak accounted for this acquisition as
a purchase and, accordingly, there is no minority interest expense related
to the portion purchased from the Selling Stockholders in the Company's
consolidated financial statements subsequent to the date of the
acquisition. Goodwill of approximately $4,000,000 resulting from this
acquisition is being amortized over 35 years. The Company owned 96.25% of
Gilbert at December 31, 1997. Pro forma results of the 3.75% acquisition
are not presented because the effects of the acquisition were not
significant.
On October 30, 1998, the Company purchased the remaining 3.75% of
Gilbert held by the Selling Stockholders, resulting in the Company's 100%
ownership of Gilbert. The Company paid approximately $11,400,000 in cash.
The Company financed the purchase price with borrowings from its credit
facility and with cash generated from operations. The Company accounted
for this acquisition as a purchase and, accordingly, there is no minority
interest expense related to the portion purchased from the Selling
Stockholders in the Company's consolidated financial statements subsequent
to the date of the acquisition. Goodwill of approximately $6,857,000
resulting from this acquisition is being amortized over 34 years. Pro
forma results of this final acquisition are not presented because the
effects of the acquisition were not significant.
(4) DIVESTITURES:
During 1998, the Company sold its 50% interest in McCoy (Cayman) Ltd.
and McCoy International and received net proceeds of $898,000. The Company
recorded a pre-tax gain of $772,000 from the sale.
During 1996, the Company sold its 49% interest in Video 44 (WSNS-TV
Channel 44), and received net proceeds of $29,400,000. The Company
recorded a pre-tax gain of $20,550,000 from the sale.
During 1996, the Company completed the sale of its 45% interest in O/E/N
India Ltd. for $1,471,000 in cash. As a result of this sale the Company
reported a pre-tax gain of $952,000.
During 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. The Company
reported a gain of $9,367,000 from the sale in 1996. Because the tax basis
of Nordco was greater than the sales price, the Company did not pay income
taxes or record an income tax provision related to this transaction.
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 (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------
<S> <C>
Net sales.................................. $ 16,715
========
Gross profit............................... $ 5,780
========
Earnings before income taxes............... $ 2,325
Income taxes............................... (883)
--------
Net earnings from discontinued operations.. $ 1,442
========
</TABLE>
(5) INDEBTEDNESS:
Long-term debt and subordinated notes at December 31 are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Revolving credit facility................. $ 149,000 $ 109,000
4 7/8% Convertible Subordinated Notes..... -- 100,000
Other..................................... 2,908 12,606
--------- ---------
151,908 221,606
Less current portion...................... (443) (2,051)
--------- ---------
$ 151,465 $ 219,555
========= =========
</TABLE>
On February 25, 1998, the Company issued $100,000,000 of 4 7/8%
Convertible Subordinated Notes due 2008 (the "Notes"). The Notes are
convertible into common stock of the Company at a conversion price of
$38.66 per share. Interest on the Notes is payable semi-annually in
arrears on each March 1 and September 1, and the first interest payment was
made on September 1, 1998. The net proceeds from the sale of the Notes
were used to reduce borrowings under the Company's $300,000,000 revolving
credit facility.
On November 1, 1996, the Company entered into a credit agreement with
various lenders that provides for a $300,000,000 revolving credit facility
(the "Facility"). During 1996, proceeds of $125,000,000 from the Facility
were used to purchase the minority interest of Gilbert and $21,000,000 was
used to refinance existing indebtedness of the Company. During 1997, the
Facility was used for the repurchase of Company stock, the Piezo
acquisition, and the purchase of additional interests in Gilbert. During
1998, proceeds from the Facility were used for the repurchase of Company
stock, the Tele Quarz acquisition and the final purchase of minority
interests in Gilbert.
The Company's previously existing $200,000,000 credit agreement was
terminated on November 1, 1996. As a result, the Company recorded non-
cash, after tax, and other minority interest charges of $949,000 in 1996
related to the early extinguishment of the former credit facility.
Borrowings under the Facility bear interest, at the option of the
Company, either (i) at the prime rate (or, if higher, at 0.5% above the
federal funds rate) or (ii) at a spread ranging from 0.5% to 1.25% over the
reserve-adjusted 1, 2, 3, or 6 month LIBOR. The spread is subject to
adjustment based on certain financial tests. As of December 31, 1998,
interest rates on outstanding borrowings under the Facility ranged from
6.06% to 7.75%. Commitment fees ranging from 0.175% to 0.35% are payable
on unused borrowings under these agreements. Certain of the Company's
subsidiaries have guaranteed the obligations under the Facility. Pursuant
to the Facility's terms, Oak Industries Inc. is required to meet certain
financial covenants and is prohibited from paying dividends. The Facility
will be reduced by $50,000,000 on each of November 1, 1999 and November 1,
2000 and matures on December 31, 2001.
Other long-term debt consists of mortgages and leases with maturities
through 2008 and fixed rates ranging from 6.0% to 8.2%. These obligations
are secured by the related land, building, machinery and equipment.
Scheduled payments of long-term debt at December 31, 1998 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999................ $ 2,051
2000................ 2,173
2001................ 111,427
2002................ 1,010
2003................ 381
Thereafter.......... 104,564
</TABLE>
As of December 31, 1998, the Company had exchanged its floating rate
obligation on (i) a $25,000,000 notional principal amount for a fixed rate
payment obligation of 6.02% (plus a spread of 0.5% to 1.25%) per annum
through December 24, 1999; and (ii) a $25,000,000 notional principal amount
for a fixed rate payment obligation of 6.02% (plus a spread of 0.5% to
1.25%) per annum through December 27, 2000. The Company charged $26,000
and $125,000 to interest expense related to these interest rate swap
agreements for 1997 and 1998, respectively. The Company estimates that as
of December 31, 1998, the cost to terminate the agreements would have been
$721,000.
(6) CAPITAL STOCK:
SHAREHOLDERS' RIGHTS PLAN
On December 7, 1995 the Company's Board of Directors adopted a
shareholders' rights plan. The Board declared a distribution of one right
for each share of common stock outstanding on December 18, 1995. Stock
issued after that date is issued with an attached right. Each right
entitles the holder, upon the occurrence of certain events, to purchase
1/100th of a share of junior preferred stock at an initial exercise price
of $125. The Board may, at any time, redeem the rights until their
expiration on December 7, 2005, and may amend the rights under certain
circumstances until they become exercisable.
STOCK PURCHASE LOANS
In connection with a secondary offering of its stock in December 1993,
the Company lent $1,305,000 to corporate officers and certain key
divisional managers to finance their purchase of 90,000 shares of the
Company's stock from selling shareholders. The principal amount of the
remaining loan is repayable in full on January 1, 2000. Interest on this
loan is calculated quarterly, based on the interest rate applicable to the
Company's outstanding debt, and is payable annually until maturity. The
loan, which is included in stockholders' equity, is secured by the common
stock that was purchased and certain other amounts owed to such individual
by the Company. In 1996, principal of $285,000 was paid to the Company by
the borrowers. In 1996, 1997 and 1998, respectively, interest of $55,000,
$20,000 and $17,000 was paid to the Company by the borrowers. The
principal balance of the remaining loan at December 31, 1997 and 1998 was
$262,000.
STOCK REPURCHASE
In December 1996, the Company was authorized to expend up to $50.0
million to repurchase shares of its common stock on the open market. In
October 1998, this program was amended to allow stock repurchases not to
exceed $75.0 million in the aggregate. As of December 31, 1998, the
Company had spent $35.1 million to repurchase 1,602,200 shares of its
common stock.
(7) STOCK OPTIONS AND AWARDS:
The Company has award plans for directors, officers, employees,
consultants and advisors, which provide for, among other things, the
issuance of stock options and restricted stock. With respect to stock
options, the Compensation Committee of the Company's Board of Directors
determines the option price (not to be less than fair market value) at the
date of the grant. Options granted pursuant to the Company's award plans
generally vest over three years from the date of the grant and expire after
ten years or ten years and one day. Certain options granted under the 1995
Stock Option and Restricted Stock plan were originally exercisable prior to
the tenth anniversary of their grant date only if the Company's common
stock closed at or above 150% of the grant date price for ten consecutive
trading days within the three year period following the grant date. On
December 4, 1996, the Board of Directors approved an amendment to the
exercisability terms of these options. As a result, options for the
purchase of 550,000 of the Company's shares were amended in order to
provide for their exercisability over a period of 3 years from their
original grant date.
During 1996 and 1997, the Company granted 124,000 and 5,000 shares,
respectively, of restricted stock from the 1995 Stock Option and Restricted
Stock Plan (the "1995 Plan") to certain of its officers and employees.
These shares vest on the third anniversary of the date of grant provided
that the recipient is still employed by the Company. During 1997, 25,000
shares of the restricted stock were forfeited. The market value of the
restricted stock awarded to certain officers and employees totaled
$2,945,000 and $133,000 in 1996 and 1997, respectively, and these amounts
have been recorded as a separate component of stockholders' equity. The
Company granted no restricted stock under the 1995 Plan in 1998. The
Company amortizes unearned compensation to expense over the three-year
vesting period.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
The following table summarizes information about the Company's stock
option activity for the years ended December 31, 1996, 1997, and 1998.
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE EXERCISE PRICE
--------- ----------------- -------------------
<S> <C> <C> <C>
Outstanding at December 31, 1995........... 3,192,966 $ 4.02 to $ 29.38 $ 17.13
Granted................................. 894,000 $19.25 to $ 33.50 $ 25.16
Expired or cancelled.................... (935,199) $ 4.02 to $ 33.50 $ 12.02
Exercised............................... (690,281) $ 4.02 to $ 26.63 $ 8.14
---------
Outstanding at December 31, 1996........... 2,461,486 $ 4.02 to $ 33.50 $ 20.20
Granted................................. 999,000 $18.50 to $ 28.50 $ 25.57
Expired or cancelled.................... (189,035) $18.38 to $ 27.00 $ 24.37
Exercised............................... (491,911) $ 4.02 to $ 26.63 $ 14.30
---------
Outstanding at December 31, 1997........... 2,779,540 $ 4.02 to $ 33.50 $ 22.89
Granted................................. 1,215,300 $26.00 to $ 39.63 $ 34.21
Expired or cancelled.................... (161,400) $14.07 to $ 35.00 $ 24.12
Exercised............................... (315,963) $ 4.02 to $ 33.25 $ 19.95
---------
Outstanding at December 31, 1998........... 3,517,477 $ 4.02 to $ 39.63 $ 27.01
=========
Exercisable at December 31, 1998........... 1,587,972 $ 22.31
=========
Available for grant at December 31, 1998... 1,665,341
=========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
----------------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 4.02 - 7.50 178,293 3 $ 4.64 178,293 $ 4.64
8.04 - 14.07 70,990 5 11.03 52,822 9.98
16.50 - 21.88 57,900 6 17.22 50,640 16.78
23.00 - 33.50 1,095,694 7 25.35 1,001,577 25.36
25.38 - 37.44 931,800 9 25.89 304,640 25.63
26.00 - 39.63 1,182,800 10 34.22 -- --
-------------- --------- ---------
$ 4.02 - 39.63 3,517,477 1,587,972
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates in the range of
5.4% to 7.9%, 4.8% to 6.9% and 4.2% to 5.7% in 1996, 1997 and 1998,
respectively; volatility factors of the expected market price of the
Company's common stock of .72, .56 and .45 in 1996, 1997 and 1998,
respectively; and an expected life of the option of 6 years. The weighted-
average fair values of options granted were $18.40, $15.23 and $17.10 per
share in 1996, 1997 and 1998, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in thousands except for earnings
per share information):
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Pro forma net income ...................... $ 35,590 $ 12,957 $ 18,411
Pro forma earnings per share - basic....... $ 1.97 $ 0.73 $ 1.04
Pro forma earnings per share - diluted..... $ 1.96 $ 0.73 $ 1.04
</TABLE>
(8) POSTRETIREMENT BENEFITS:
The Company has three noncontributory pension plans covering certain of
its employees. Benefits under the plans are generally based on years of
service and employees' compensation during the last years of employment or
a specified dollar benefit. It is the Company's policy to fund at least
the minimum amount required by the Employee Retirement Income Security Act
of 1974, as amended, for each plan.
Net periodic pension income for all defined benefit plans is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service cost................................... $ 143 $ 181 $ 137
Interest cost.................................. 2,739 2,842 2,790
Expected return on assets...................... (2,862) (3,144) (3,659)
Amortization of net obligation (asset)
at transition................................ 9 9 8
Amortization of prior service cost............. 31 36 34
Recognized actuarial (gain) loss............... (14) 26 --
Recognized gain due to curtailment............. (139) -- --
------ ------- -------
Net periodic pension income.................... $ (93) $ (50) $ (690)
====== ======= =======
</TABLE>
The following table summarizes information about the benefit obligation,
plan assets and funded status of all defined benefit plans at December 31,
1997 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation at
beginning of year................... $ 32,867 $ 3,737 $ -- $ 39,904
Service cost........................... 81 100 -- 137
Interest cost.......................... 2,531 311 -- 2,790
Actuarial loss......................... 2,730 687 -- 3,933
Benefits paid.......................... (2,426) (370) -- (2,463)
Effect of exchange rate changes........ (154) (190) -- (423)
-------- ------- ------ --------
Projected benefit obligation at
end of year........................... 35,629 4,275 -- 43,878
Accumulated benefit obligation......... 35,158 4,275 -- 43,675
Change in plan assets:
Fair value of plan assets at
beginning of year..................... 33,705 3,269 -- 39,616
Actual return on plan assets........... 5,000 392 -- 3,986
Employer contributions................. -- 361 -- 415
Benefits paid.......................... (2,426) (370) -- (2,463)
Effect of exchange rate changes........ (157) (158) -- (425)
-------- ------- ------ --------
Fair value of plan assets at
end of year........................... 36,122 3,494 -- 41,129
Funded (underfunded) status of plans... 493 (781) -- (2,749)
Unrecognized net (asset) obligation
at transition......................... (129) 306 -- 157
Unrecognized prior service cost........ -- 628 -- 628
Unrecognized actuarial (gain) loss..... (2,007) 169 -- 1,738
-------- ------- ------ --------
Net amount recognized.................. (1,643) 322 -- (226)
Amounts recognized in the consolidated
balance sheet consist of:
Accrued benefit liability........ (1,643) (612) -- (2,819)
Intangible asset................. -- 934 -- 896
Accumulated other comprehensive
income.......................... -- -- -- 1,697
-------- ------- ------ --------
Net amount recognized............ $ (1,643) $ 322 $ -- $ (226)
======== ======= ====== ========
</TABLE>
In 1996, the Company curtailed one of its plans as a result of reduced
employment levels and plan amendments. This curtailment resulted in a gain
of $139,000 in 1996.
The projected benefit obligation was determined using an assumed
discount rate of 7.25% for 1997 and 6.75% for 1998. The expected long-term
rate of return on plan assets was 10% for 1997 and 1998.
The assets of the defined benefit plans at December 31, 1997 and 1998
consist principally of common stocks, bonds and cash equivalents.
The Company has defined contribution plans covering all full-time
employees who meet certain eligibility requirements. Contributions by the
Company and the employees are determined according to salary-based
formulas. The Company recognized expense related to these plans of
$2,422,000, $2,453,000 and $2,527,000 in 1996, 1997 and 1998, respectively.
In 1993, the Company established a non-qualified supplemental retirement
plan for certain employees. Under the plan, participants may elect to
contribute up to 15% of their annual salary and bonus and the Company makes
matching contributions in the form of shares of the Company's common stock
having a value equal to 50% of participants' contributions. The Company's
matching contributions vest on the third anniversary of a participant's
enrollment in this plan provided the participant remains employed by the
Company through that date. Upon termination of employment, participants
receive the fair value of their account for the employee-contribution
portion in cash and shares of the Company's common stock for the vested
portion of the Company's matching contribution. Contributions by the
employees currently earn interest at the yield for three year U.S. Treasury
Notes, adjusted annually. The Company recorded expense of $431,000,
$400,000 and $419,000 in 1996, 1997 and 1998, respectively, related to this
plan.
(9) INCOME TAXES:
The sources of income from continuing operations before income taxes,
minority interest and extraordinary charge for the years ended December 31
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Domestic...................................... $ 58,295 $ 31,555 $ 38,429
Foreign....................................... 3,717 5,130 6,301
--------- --------- ---------
$ 62,012 $ 36,685 $ 44,730
========= ========= =========
</TABLE>
The components of the income tax provisions for the years ended December
31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Current --
Federal.................................. $ (1,800) $ (902) $ (7,245)
Foreign.................................. (1,526) (1,304) (2,066)
State and local.......................... (2,429) (1,016) (1,410)
--------- --------- ---------
$ (5,755) $ (3,222) $ (10,721)
Deferred --
Provision for federal and state
taxes payable in future ............... (17,009) (10,639) (5,976)
--------- --------- ---------
Total tax provision..................... $ (22,764) $ (13,861) $ (16,697)
========= ========= =========
</TABLE>
Deferred income tax assets (liabilities) at December 31 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 4,550 $ 4,837
Other..................................................... 16,950 7,405
-------- ---------
Gross deferred tax assets................................. 21,500 12,242
Gross deferred tax liabilities............................ (5,870) (1,023)
-------- ---------
Net deferred tax assets................................... $ 15,630 $ 11,219
======== =========
</TABLE>
In connection with the acquisition of Tele Quarz in October 1998, the
Company recorded deferred tax assets in the amount of approximately
$1,582,000.
The decrease in the gross deferred tax assets from 1997 to 1998 results
primarily from the utilization of the Company's tax credit carryforwards.
The following table displays the differences between income tax
provision and the amount of income tax that would result by applying the
applicable U.S. statutory federal income tax rate to income from continuing
operations before income taxes, minority interest and extraordinary charge
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------------------- -------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed statutory tax provision....... $ (21,704) (35.0) $ (12,840) (35.0) $(15,656) (35.0)
(Increase) decrease in tax provision
resulting from --
State income taxes (net of
federal benefit)................... (1,580) (2.5) (660) (1.8) (917) (2.1)
Alternative minimum tax............. (1,150) (1.9) -- -- -- --
Goodwill amortization............... (1,034) (1.7) (1,798) (4.9) (1,871) (4.2)
Foreign sales corporation........... 1,200 1.9 1,030 2.8 1,000 2.2
Resolution of tax issues............ 800 1.3 324 0.9 300 0.7
Other............................... 704 1.2 83 0.2 447 1.0
--------- ----- --------- ----- -------- -----
Income tax provision.................. $ (22,764) (36.7) $ (13,861) (37.8) $(16,697) (37.4)
========= ===== ========= ===== ======== =====
</TABLE>
At December 31, 1998, the Company had no net operating loss
carryforwards for federal tax reporting purposes. The Company had foreign
tax credit carryforwards of approximately $630,000 at December 31, 1998
that, if unused, will expire from 2000 to 2001. Realization of the credit
carryforwards is dependent on generating sufficient taxable income prior to
the expiration of the credits. Although realization is not assured, the
Company believes it is more likely than not that all of the deferred tax
assets will be realized. Undistributed earnings of certain foreign
subsidiaries and of certain foreign equity method investees of the Company
are considered to be indefinitely reinvested. Accordingly, no provision
for U.S. federal and state income taxes has been provided for these
unremitted earnings.
(10) SEGMENT INFORMATION:
The Company's reportable segments are business units that offer
different products. The Company has four reportable segments: the Cable
Broadband Products Segment, which manufactures coaxial connector products
used primarily in the CATV industry; the Frequency Control Products
Segment, which manufactures quartz-based crystals and oscillators for
wireless base stations and telecommunications applications; the Fiber-Optic
Products Segment, which manufactures fiber-optic components primarily used
in wired telephony networks; and the Controls Products Segment, which
manufactures components for gas ranges, and switches and encoders used in a
variety of applications.
Reported segment income is operating income and equity in net income
(loss) of affiliated companies directly attributable to the segment,
adjusted for minority interest in income before income taxes of
subsidiaries. Operating income is before corporate expenses, interest, and
unusual transactions. Equity in net income (loss) of affiliated companies
is before unusual transactions. Segment assets are all assets directly
attributable to the segment, excluding goodwill and other intangible
assets, deferred income taxes and investment in affiliates. The accounting
policies for the segments are the same as those described in the statement
of accounting policies.
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
<TABLE>
<CAPTION>
CABLE FREQUENCY
BROADBAND CONTROL FIBER-OPTIC CONTROLS
PRODUCTS PRODUCTS PRODUCTS PRODUCTS TOTAL
--------- --------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Sales.......................... $ 123,760 $ 74,794 $ 52,791 $ 96,521 $ 347,866
Depreciation................... 3,517 3,194 3,337 4,046 14,094
Amortization................... 4,639 638 866 214 6,357
Operating income............... 34,617 8,460 8,452 10,603 62,132
Equity in net income
of affiliated companies.(1). -- 665 1,800 -- 2,465
Minority interest in income
before income taxes of
subsidiaries................ (1,199) -- -- -- (1,199)
Segment income................. 33,418 9,125 10,252 10,603 63,398
Segment assets................. 66,236 98,769 35,038 51,801 251,844
Capital expenditures........... 6,827 4,408 1,808 3,269 16,312
YEAR ENDED DECEMBER 31, 1997
Sales.......................... 107,136 56,411 54,513 96,328 314,388
Depreciation................... 3,284 1,937 2,801 3,864 11,886
Amortization................... 4,504 231 867 233 5,835
Operating income............... 26,858 9,001 10,407 9,677 55,943
Equity in net income (loss)
of affiliated companies..... -- (48) 46 -- (2)
Minority interest in income
before income taxes of
subsidiaries................ (2,049) -- -- -- (2,049)
Segment income................. 24,809 8,953 10,453 9,677 53,892
Segment assets................. 56,351 43,531 31,217 43,972 175,071
Capital expenditures........... 3,653 2,380 3,296 4,224 13,553
YEAR ENDED DECEMBER 31, 1996
Sales.......................... 127,754 43,954 39,825 92,003 303,536
Depreciation................... 2,925 1,640 1,815 3,441 9,821
Amortization................... 2,350 195 844 220 3,609
Operating income............... 42,774 6,108 5,159 9,386 63,427
Equity in net loss
of affiliated companies..... -- (306) (180) -- (486)
Minority interest in income
before income taxes of
subsidiaries................ (13,056) -- -- -- (13,056)
Segment income................. 29,718 5,802 4,979 9,386 49,885
Segment assets................. 64,585 27,972 31,884 44,150 168,591
Capital expenditures........... 8,215 2,467 7,205 4,869 22,756
</TABLE>
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Total for reportable segments............. $ 49,885 $ 53,892 $ 63,398
Corporate................................. (7,641) (8,096) (7,002)
Interest expense.......................... (5,767) (10,973) (10,146)
Interest income........................... 541 393 986
Equity in net income of affiliated
companies................................ 476 35 292
Minority interest in income before
income taxes of subsidiaries........... 13,056 2,049 1,199
Unusual transactions (2).................. 11,462 (615) (3,997)
--------- --------- ---------
Income from continuing operations
before income taxes, minority
interest and extraordinary charge.... 62,012 36,685 44,730
ASSETS
Total for reportable segments............. 168,591 175,071 251,844
Goodwill and other intangible assets, net. 166,498 178,577 196,531
Deferred income taxes..................... 26,558 16,918 12,242
Investment in affiliates.................. 8,315 8,358 11,014
Corporate (3)............................. 4,323 8,866 10,806
--------- --------- ---------
Total assets........................... 374,285 387,790 482,437
CAPITAL EXPENDITURES
Total for reportable segments............. 22,756 13,553 16,312
Corporate................................. 449 1,144 522
--------- --------- ---------
Total capital expenditures............. 23,205 14,697 16,834
DEPRECIATION EXPENSE
Total for reportable segments............. 9,821 11,886 14,094
Corporate................................. 207 401 264
--------- --------- ---------
Total depreciation expense............. 10,028 12,287 14,358
AMORTIZATION EXPENSE
Total for reportable segments............. 3,609 5,835 6,357
Corporate (4)............................. 361 957 1,340
--------- --------- ---------
Total amortization expense............. 3,970 6,792 7,697
<FN>
(1) Includes gain on sale of equity investment in Frequency Control
Products.
(2) Unusual transactions for 1998 include the following: an inventory
write-down of $1.4 million; a $1.0 million charge related to the
purchase accounting for inventory at Tele Quarz; a $0.9 million plant
and equipment write-down; and $0.7 million of reorganization and
severance charges. Unusual transactions for 1997 include a $0.6
million charge related to the purchase accounting for inventory at
Piezo. Unusual transactions for 1996 include the following: a gain
of $21.5 million from the sale of equity investments; reorganization
and severance charges of $3.8 million; a $4.2 million charge
associated with the write-down of certain assets and a reserve for
potential legal and environmental matters, of which $1.2 million
related to investment in affiliates; a $1.1 million correction of
improperly capitalized expenses; and a $0.9 million charge related to
the purchase accounting for inventory at Gilbert.
(3) Principally cash and cash equivalents, fixed assets and other non-
current assets.
(4) Capitalized debt costs and restricted stock.
</TABLE>
The geographic areas of the Company's sales for the years ended December
31 and long-lived assets at December 31 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SALES (1)
---------------------------------------
1996 1997 1998
------------ ---------- ---------
<S> <C> <C> <C>
United States......................... $ 199,726 $ 200,005 $ 241,363
Foreign countries..................... 103,810 114,383 106,503
--------- ---------- ----------
Consolidated sales................. $ 303,536 $ 314,388 $ 347,866
========= ========== ==========
<FN>
(1) Sales are attributed to countries based on the location of customers.
</TABLE>
<TABLE>
<CAPTION>
LONG-LIVED ASSETS
---------------------------------------
1996 1997 1998
------------ ---------- ---------
<S> <C> <C> <C>
United States......................... $ 214,792 $ 234,676 $ 236,102
Germany............................... -- -- 46,590
Other foreign countries............... 27,733 23,224 26,714
--------- ---------- ----------
Long-lived assets.................. $ 242,525 $ 257,900 $ 309,406
========= ========== ==========
</TABLE>
(11) CURRENT ACCRUED LIABILITIES:
The following table summarizes the Company's current accrued liabilities
at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Wages, bonuses, commissions, vacation,
and other compensation............... $ 10,481 $ 10,383
Income taxes............................. 5,049 3,034
Insurance................................ 2,718 1,916
Other.................................... 10,969 15,120
---------- ----------
$ 29,217 $ 30,453
========== ==========
</TABLE>
(12) ACCUMULATED OTHER COMPREHENSIVE INCOME:
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income." This statement requires disclosure of comprehensive income and
its components in interim and annual reports. Comprehensive income
includes all changes in stockholders' equity during a period except those
resulting from investments by stockholders and distributions to
stockholders. Accordingly, the components of comprehensive income include
net income, cumulative translation adjustments, minimum pension liability
adjustments and unrealized gains and losses on available-for-sale
securities.
The components of other comprehensive income are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FOREIGN MINIMUM ACCUMULATED
CURRENCY PENSION UNREALIZED OTHER
TRANSLATION LIABILITY GAINS ON COMPREHENSIVE
ADJUSTMENT ADJUSTMENT SECURITIES INCOME
------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............. $ 248 $ -- $ -- $ 248
Currency translation adjustment.......... (626) -- -- (626)
------- ------- ------- --------
Balance at December 31, 1996............. (378) -- -- (378)
Currency translation adjustment.......... (1,520) -- -- (1,520)
Unrealized gains on securities........... -- -- 303 303
Deferred taxes relating to unrealized
gains on securities................... -- -- (117) (117)
------- ------- ------- --------
Balance at December 31, 1997............. (1,898) -- 186 (1,712)
Currency translation adjustment.......... (1,067) -- -- (1,067)
Minimum pension liability adjustment..... -- (1,697) -- (1,697)
Reclassification adjustment relating
to unrealized gains on securities..... -- -- (303) (303)
Deferred taxes relating to
reclassification adjustment........... -- -- 117 117
------- ------- ------- --------
Balance at December 31, 1998............. $(2,965) $(1,697) $ -- $ (4,662)
======= ======= ======= ========
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES:
The Company incurred rent expense for facilities and office equipment of
$4,601,000, $3,970,000 and $4,296,000 in 1996, 1997 and 1998, respectively.
At December 31, 1998, the Company was committed under non-cancellable
operating leases for minimum annual rentals for the next five years as
follows: 1999 - $4,260,000; 2000 - $3,814,000; 2001 - $3,260,000; 2002 -
$2,494,000; 2003 - $1,547,000; thereafter - $7,835,000.
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. The Company does
not consider any of such proceedings to be material to the Company's
financial position, results of operations, or liquidity. In January 1997
the Company discovered that the controller at one of its divisions had
improperly capitalized expenses that should have been expensed during the
periods in which they were incurred. The Company filed amended Form 10-Qs
for the first three quarters of 1996 during February 1997 to correct these
errors. The Company is voluntarily cooperating with the Securities and
Exchange Commission (the "SEC") on an informal basis with respect to
inquiries by the SEC concerning these matters.
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of the unaudited quarterly results of
operations for 1997 and 1998 (dollars in thousands, except per share date):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
------------ ----------- ------------ ----------- ---------
<C> <C> <C> <C> <C>
<S>
1997
Net sales.......................... $ 73,042 $ 80,306 $ 76,975 $ 84,065 $314,388
Gross profit....................... $ 25,086 $ 30,783 $ 28,602 $ 31,943 $116,414
Net income......................... $ 4,027 $ 5,361 $ 5,824 $ 6,524 $ 21,736
Earnings per share - basic
Net income...................... $ .22 $ .30 $ .33 $ .37 $ 1.22
Earnings per share - diluted
Net income...................... $ .22 $ .30 $ .32 $ .36 $ 1.20
1998
Net sales.......................... $ 79,214 $ 88,662 $ 81,627 $ 98,363 $347,866
Gross profit....................... $ 29,674 $ 34,033 $ 30,172 $ 31,630 $125,509
Net income......................... $ 6,492 $ 7,916 $ 7,404 $ 5,527 $ 27,339
Earnings per share - basic
Net income...................... $ .37 $ .44 $ .41 $ .32 $ 1.54
Earnings per share - diluted
Net income...................... $ .35 $ .41 $ .39 $ .31 $ 1.46
</TABLE>
Fourth Quarter - 1998
The Company recorded a $1.9 million charge, net of tax, in the Frequency
Control Products segment related to the reorganization of certain Frequency
Control Products operations.
The Company recorded a $0.6 million charge, net of tax, related to the
purchase accounting for inventory at Tele Quarz.
Fourth Quarter - 1997
The Company recorded a charge of $0.4 million, net of tax, related to
the purchase accounting for inventory at Piezo.
The Company received $1.0 million of royalty income that included
approximately $0.6 million relating to 1996. Royalty income is reported as
an offset to selling, general, and administrative expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the
registrant, see "Executive Officers of the Registrant" in Part I of this
report. For information with respect to the directors of the registrant,
see "Election of Directors" in the Proxy Statement, incorporated herein by
reference, to be filed no later than March 31, 1999 for the Annual Meeting
of Stockholders to be held on April 23, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of Executive
Officers" and "Compensation of Directors" in the Proxy Statement to be
filed no later than March 31, 1999 for the Annual Meeting of Stockholders
to be held on April 23, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Directors and
Executive Officers" in the Proxy Statement to be filed no later than March
31, 1999 for the Annual Meeting of Stockholders to be held on April 23,
1999 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement to be filed no later than
March 31, 1999 for the Annual Meeting of Stockholders to be held on April
23, 1999 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of the report:
1. Financial Statements
Consolidated balance sheet at December 31, 1997 and 1998
Consolidated statement of operations for the years ended
December 31, 1996, 1997 and 1998
Consolidated statement of stockholders' equity for the years
ended December 31, 1996, 1997 and 1998
Consolidated statement of cash flows for the years ended
December 31, 1996, 1997 and 1998
Notes to consolidated financial statements
2. Schedule
II - Valuation and qualifying accounts
All other schedules have been omitted since the information is
either not applicable, not required or is included in the
financial statements or notes thereto.
3. Exhibit Index
(3)(a) Restated Certificate of Incorporation of Oak Industries Inc.
dated October 28, 1980; Certificate of Amendment of Restated
Certificate of Incorporation dated May 1, 1981; Certificate of
Amendment of Restated Certificate of Incorporation, as Amended
dated August 14, 1985; Certificate of Amendment of Restated
Certificate of Incorporation, as Amended dated September 30,
1986; Certificate of Amendment of Certificate of Incorporation,
as Amended dated July 15, 1987; Certificate of Amendment of
Certificate of Incorporation, as Amended dated June 3, 1992; and
Certificate of Amendment of Restated Certificate of
Incorporation, as Amended dated May 7, 1993 all filed as Exhibit
3.1 to the Company's Amendment No. 1 to Form S-3 dated November
24, 1993 are incorporated herein by this reference.
(3)(b) Certificate of Designation dated December 21, 1995, filed as
Exhibit 2 to the Company's Form 8-K dated December 27, 1995 is
incorporated herein by this reference.
(3)(c) Bylaws of Oak Industries Inc. as amended through December 7,
1995, filed as Exhibit (3)(c) to Form 10-K dated February 11,
1998 is incorporated herein by this reference.
(4)(a) Rights Agreement dated as of December 7, 1995, between Oak
Industries Inc. and Bank of Boston as Rights Agent, filed as
Exhibit 1 to the Company's Form 8-K dated December 27, 1995 is
incorporated herein by this reference.
(4)(b) Indenture between Oak Industries Inc. and the State Street Bank
and Trust Company, as Trustee, dated as of February 25, 1998,
filed as Exhibit 4.2 to the Company's Form S-3, Registration
Number 333-50093, dated April 14, 1998 is incorporated herein by
this reference.
(4)(c) Registration Rights Agreement dated as of February 20, 1998 by
and among Oak Industries Inc., Donaldson, Lufkin and Jenrette
Securities Corporation, Lehman Brothers and Cowen and Company,
filed as Exhibit 4.3 to the Company's Form S-3, Registration
Number 333-50093, dated April 14, 1998 is incorporated herein by
this reference.
(10)(a) 1986 Stock Option and Restricted Stock Plan for Executive and Key
Employees of Oak Industries Inc. filed as Annex III to the Proxy
Statement dated February 14, 1986 for a Special Meeting of
Stockholders is incorporated herein by this reference.
(10)(b) 1988 Stock Option Plan for Non-Employee Directors of Oak
Industries Inc. filed as Exhibit A to the Company's Proxy
Statement in connection with 1988 Annual Meeting of Stockholders
filed with the Commission on April 6, 1988 is incorporated herein
by this reference.
(10)(c) 1992 Stock Option and Restricted Stock Plan, as amended effective
as of December 17, 1997, filed as Exhibit (10)(d) to Form 10-K
dated February 11, 1998 is incorporated herein by this reference.
(10)(d) Oak Industries Inc. Non-Qualified Stock Option Plan, as amended
effective as of October 22, 1998, filed herewith.
(10)(e) 1995 Stock Option and Restricted Stock Plan, as amended effective
as of April 24, 1998, filed as Exhibit 10.1 to the Form 10-Q
dated May 12, 1998 is incorporated herein by this reference.
(10)(f) Lasertron, Inc. 1982 Incentive Stock Option Plan and 1992 Stock
Option Plan filed as Exhibit 10.1 and 10.2 to Form S-8 dated
September 21, 1995 are incorporated herein by this reference.
(10)(g) Credit Agreement (the "Credit Agreement") dated as of November 1,
1996 among Oak Industries Inc., the lenders from time to time
party thereto and the Chase Manhattan Bank, as administrative
agent and issuing bank, filed as Exhibit 10 to Form 10-Q dated
November 14, 1996 is incorporated herein by this reference.
(10)(h) Amendment No. 1 dated as of December 13, 1996 to the Credit
Agreement, filed as Exhibit 10 to Form 10-Q dated May 14, 1997 is
incorporated herein by this reference.
(10)(i) Second Amendment dated as of October 6, 1997 to the Credit
Agreement, filed as Exhibit 10 to the Form 10-Q dated November
12, 1997 is incorporated herein by this reference.
(10)(j) Third Amendment to the Credit Agreement dated as of February 13,
1998, filed as Exhibit 10.2 to Form 10-Q dated May 12, 1998 is
incorporated herein by this reference.
(10)(k) Fourth Amendment to the Credit Agreement dated as of October 2,
1998 filed as Exhibit 10.1 to Form 10-Q dated November 12, 1998
is incorporated herein by this reference.
(10)(l) Fifth Amendment to the Credit Agreement dated as of October 28,
1998, filed as Exhibit 10.2 to Form 10-Q dated November 12, 1998
is incorporated herein by this reference.
(10)(m) Form of Severance Agreement dated as of May 1, 1998 by and
between the Company and each of William S. Antle III, Coleman S.
Hicks and Pamela F. Lenehan, filed as Exhibit 10.1 to Form 10-Q
dated August 12, 1998 is incorporated herein by this reference.
(10)(n) Oak Industries Inc. Severance Plan filed as Exhibit 10.2 to Form
10-Q dated August 12, 1998 is incorporated herein by this
reference.
(13) 1998 Annual Report to be provided no later than March 31, 1999
for the information of the Commission and not deemed "filed" as a
part of the filing.
(21) Subsidiaries of the Company, 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:
On October 30, 1998, the Company filed a report on Form 8-K regarding
its acquisition, through a wholly-owned subsidiary, of Tele Quarz
GmbH.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 33-14708, 33-62817, 33-59073, 33-32104, 2-
83639, 33-53012, 33-58878, 333-50093, 333-65641 and 333-65643) of Oak
Industries Inc. of our report dated February 9, 1999 appearing in this Form
10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OAK INDUSTRIES INC.
Date: March 19, 1999 By: WILLIAM S. ANTLE III
(William S. Antle III)
Chairman of the Board,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C< <C>
<S>
WILLIAM S. ANTLE III President and March 19, 1999
(William S. Antle III) Chief Executive Officer
(Principal Executive Officer)
COLEMAN S. HICKS Senior Vice President March 19, 1999
(Coleman S. Hicks) and Chief Financial Officer
(Principal Financial Officer)
RODERICK M. HILLS Vice Chairman of March 19, 1999
(Roderick M. Hills) the Board
BETH L. BRONNER Director March 19, 1999
(Beth L. Bronner)
DANIEL W. DERBES Director March 19, 1999
(Daniel W. Derbes)
GILBERT E. MATTHEWS Director March 19, 1999
(Gilbert E. Matthews)
CHRISTOPHER H. B. MILLS Director March 19, 1999
(Christopher H. B. Mills)
ELLIOT L. RICHARDSON Director March 19, 1999
(Elliot L. Richardson)
<PAGE>
OAK INDUSTRIES INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1997 and 1998
(dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES IN COLLECTION
1996 1997 1998
------ ------ ------
<C> <C> <C>
<S>
Balance, beginning of year......................... $ 1,573 $ 2,330 $ 2,582
Provision charged to selling, general,
and administrative expenses....................... 812 335 647
Recoveries of accounts previously written off...... 3 11 --
Less write-off of uncollectible accounts........... (58) (194) (668)
Acquisition of businesses.......................... -- 100 312
------- ------- --------
Balance, end of year............................... $ 2,330 $ 2,582 $ 2,873
======= ======= ========
</TABLE>
<PAGE>
Exhibit 10(d)
OAK INDUSTRIES INC.
NON-QUALIFIED STOCK OPTION PLAN
As amended through October 22, 1998
OAK INDUSTRIES INC. (the "Company"), a corporation organized under the
laws of the State of Delaware, hereby adopts this Non-Qualified Stock
Option Plan. The purpose of this Plan is to advance the interests of the
Company by enhancing the ability of the Company to attract and retain
employees, consultants or advisors who are in a position to make
significant contributions to the success of the Company; to reward such
individuals for their contributions; and to encourage such individuals to
take into account the long-term interests of the Company through interests
in shares of the Company's common stock.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and
the singular shall include the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended
Section 1.3 - Committee
"Committee" shall mean the Compensation Committee of the Board, which
shall consist of at least two Directors; provided, however that the Chief
Executive Officer of the Company, so long as such individual is also a
Director, shall have the authority to make awards under this Plan for not
more than 10,000 shares each of the Company's Stock to Employees who are
not executive officers for the purpose of Section 16 of the Securities
Exchange Act of 1934, as amended.
Section 1.4 - Company
"Company" shall mean Oak Industries Inc. In addition, "Company" shall
mean any corporation assuming, or issuing new employee stock options in
substitution for, Options outstanding under the Plan, in a transaction to
which Section 424(a) of the Code applies.
Section 1.5 - Employee
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of
the Code) of the Company, or of any corporation which is then a Parent
Corporation or a Subsidiary, whether such employee is so employed at the
time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.
Section 1.6 - Fair Market Value
"Fair Market Value" of a share of Stock for purposes of the Plan, of a
given date, shall be: (i) the closing price of a share of the Stock on the
principal exchange on which shares of the Stock are then trading, if any,
on such date, or, if shares were not traded on such date, then on the next
preceding trading day during which a sale occurred; or (ii) if such Stock
is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, (1) the last sales price (if the Stock is then listed as
a National Market Issue under the NASD National Market System), or (2) the
mean between the closing representative bid and asked prices (in all other
cases) for the Stock on such date as reported by NASDAQ or such successor
quotation system; or (iii) if such Stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the Stock on such date as
determined in good faith by the Committee; or (iv) if the Stock is not
publicly traded, the fair market value established by the Committee acting
in good faith.
Section 1.7 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option that is not an "incentive
stock option" as defined in the Code.
Section 1.8 - Officer
"Officer" shall mean an officer of the Company, any Parent Corporation
or any Subsidiary.
Section 1.9 - Option
"Option" shall mean an option to purchase Stock, granted under the Plan.
All Options granted under this Plan shall be Non-Qualified Options.
Section 1.10 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
Section 1.11 - Participant
"Participant" shall mean any Employee, consultant or adviser designated
to participate in the Plan.
Section 1.12 - Plan
"Plan" shall mean this Non-Qualified Stock Option Plan of Oak Industries
Inc.
Section 1.13 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.14 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.15 - Stock
"Stock" shall mean shares of the Company's common stock, $.01 par value
per share.
Section 1.16 - Subsidiary
"Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
Section 1.17 - Termination of Service
"Termination of Service" shall mean terminaton of the employee-employer
or business relationship between the Participant and the Company, a parent
Corporation or a Subsidiary for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death or retirement,
but excluding terminations where there is a simultaneous reemployment by,
or establishment of a business relationship with, the Company, a Parent
Corporation or a Subsidiary. In the case of a Participant who is not an
Employee, the effective date of a Termination of Service shall be the date
specified by the Committee. The Committee, in its absolute discretion,
shall determine the effect of all other matters and questions relating to
Termination of Service and all questions of whether particular leaves of
absence constitute Terminations of Service.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
Shares delivered under the Plan shall be authorized but unissued Stock
or, if the Committee so decides in its sole discretion, previously issued
Stock acquired by the Company and held in its treasury. The aggregate
number of such shares which may be delivered upon exercise of Options shall
not exceed 1,000,000.
Section 2.2 - Unexercised Options
If any Option expires or is canceled without having been fully
exercised, the number of shares of Stock subject to such Option but as to
which such Option was not exercised prior to its expiration or cancellation
may again be awarded hereunder, subject to the limitation of Section 2.1.
Section 2.3 - Changes in Company's Shares
In the event that the outstanding shares of Stock are hereafter changed
into or exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, stock dividend or combination of shares, appropriate
adjustments shall be made by the Committee in the number and kind of shares
subject to Options then outstanding or subsequently granted under the Plan,
including but not limited to adjustments of the limitation in Section 2.1
on the maximum number and kind of shares which may be issued under the Plan
on exercise of Options.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Persons eligible to receive awards under the Plan shall be those
Participants who, in the opinion of the Committee, are in a position to
make a significant contribution to the success of the Company. No awards
under this Plan may be made to Officers or directors who hold such position
with the Company at the time of such award.
Section 3.2 - Granting of Options to Participants
The Committee shall from time to time, in its absolute discretion:
(a) Determine to whom Options should be granted; and
(b) Determine the number of shares of Stock to be subject to
such Options granted to such selected Participants; and
(c) Determine the terms and conditions of such Options,
consistent with the Plan.
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written stock option agreement,
which shall be executed by the Participant and an authorized Officer of the
Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with the Plan.
Section 4.2 - Option Price
The price of the shares subject to each Option shall be set by the
Committee.
Section 4.3 - Commencement of Exercisability
Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of
each individual Option; provided, however, that by resolution adopted after
an Option is granted the Committee may, on such terms and conditions as it
may determine to be appropriate, accelerate the time at which such Option
or any portion thereof may be exercised.
Section 4.4 - Expiration of Options
The Committee shall provide, either at the time of grant or any time
thereafter, in the terms of each individual Option, when such Option
expires and becomes unexercisable; and (without limiting the generality of
the foregoing) the Committee may provide in the terms of individual Options
that said Options expire immediately upon a Termination of Service for any
reason.
Section 4.5 - Employment/Business Relationship
Nothing in this Plan or in any stock option agreement hereunder shall
confer upon any Participant any right to continue in the employ of, or
maintain a business relationship with, the Company, any Parent Corporation
or any Subsidiary or shall interfere with or restrict in any way the rights
of the Company, its Parent Corporations and its Subsidiaries, which are
hereby expressly reserved (subject to applicable agreements specifically to
the contrary), to discharge any Participant, or terminate at such
relationship, at any time for any reason whatsoever, with or without cause.
Section 4.6 - Merger, Consolidation, Acquisition, Liquidation or
Dissolution
In the event of the merger or consolidation of the Company with or into
another corporation as a result of which the Stock is no longer
outstanding, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 50% or more of the Company's
then outstanding voting stock, or the liquidation or dissolution of the
Company, all outstanding Options shall become immediately exercisable on
the 45th day prior to the proposed effective date of any such merger,
consolidation, acquisition, liquidation or dissolution. Immediately prior
to the consummation of such merger, consolidation or sale of assets all
outstanding Options shall terminate unless the Committee shall have
arranged that the surviving or acquiring corporation or an affiliate of
that corporation assume the Options or grant to Participants replacement
Options.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Participant, only the Participant or the
Participant's permitted transferees may exercise an Option granted to such
Participant, or any portion thereof. After the death of the Participant,
any exercisable portion of any Option may, prior to the time when such
portion becomes unexercisable, be exercised by the Participant's personal
representative or by any person empowered to do so under the deceased
Participant's will or under the then applicable laws of descent and
distribution.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable, such Option or
portion thereof may be exercised in whole or in part; provided, however,
that the Company shall not be required to issue fractional shares and the
Committee may, by the terms of the Option, require any partial exercise to
be with respect to a specified minimum number of shares.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the Secretary's office of
all of the following prior to the time when such Option or such portion
becomes unexercisable:
(a) Notice in writing signed by the Participant or other
person then entitled to exercise such Option or portion, stating that such
Option or portion is exercised, such notice complying with all applicable
rules established by the Committee; and
(b) Full payment for the shares of Stock with respect to
which such Option or portion is thereby exercised by:
(i) cash or by check; or
(ii) shares of Stock owned by the Participant (which in
the case of Stock acquired from the Company, shall have been held for at
least six months) duly endorsed for transfer to the Company with a Fair
Market Value on the date immediately prior to the date of delivery equal to
the aggregate Option price; or
(iii) with the consent of the Committee, a full recourse
promissory note bearing interest (at a rate at least sufficient to preclude
the imputation of interest under the Code or any successor provision) and
payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. No Option may, however, be exercised by delivery of a
promissory note or by a loan from the Company when or where such loan or
other extension of credit is prohibited by law; or
(iv) delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds
to pay the exercise price; or
(v) any combination of the consideration provided in
the foregoing subsections (i), (ii), (iii), and (iv); and
(c) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or
state securities laws or regulations. The Committee may, in its absolute
discretion, also take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(d) In the event that the Option or portion thereof shall be
exercised by any person or persons other than the Participant, appropriate
proof of the right of such person or persons to exercise the Option or
portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
The Company shall not be required to issue or deliver any certificate or
certificates for shares of Stock purchased upon the exercise of any Option
or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its absolute
discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it, any
Parent Corporation or any Subsidiary is required to withhold under federal,
state or local law in connection with the exercise of the Option. If
permitted by the Committee, either at the time of the grant of the option
or at the time of exercise, the Participant may elect at such time and in
such manner as the Committee may prescribe, to satisfy such withholding
obligation by (i) delivering to the Company Stock owned by such individual
having a Fair Market Value on the day immediately prior to the date of
delivery equal to such withholding obligation, or (ii) requesting that the
Company withhold from the shares of Stock to be delivered upon exercise of
such option a number of shares of Stock having a Fair Market Value on the
date immediately prior to the date of delivery equal to such withholding
obligation; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience.
Section 5.5 - Rights as Shareholders
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to
such holders.
Section 5.6 - Transfer Restrictions
Except as the Committee may otherwise provide, an Option granted under
the Plan is personal to the Participant and is not transferable by the
Participant in any manner other than by will or the laws of descent and
distribution. The Committee, in its absolute discretion, may impose such
other restrictions on the transferability of the shares purchasable upon
the exercise of an Option as it deems appropriate. Any such restriction,
as well as any requirement to notify the Committee of the disposition of
such shares, shall be set forth in the respective stock option agreement
and may be referred to on the certificates evidencing such shares.
ARTICLE VI
ADMINISTRATION
Section 6.1 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The
Committee shall have the power to interpret the Plan, the Options and to
adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any
such rules.
Section 6.2 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 6.3 - Good Faith Actions
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Participants,
the Company and all other interested persons. No member of the Committee
shall be personally liable for any action, determination or interpretation
made in good faith with respect to the Plan or the Options and all members
of the Committee shall be fully protected by the Company in respect to any
such action, determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board or
the Committee. Neither the amendment, suspension nor termination of the
Plan shall, without the consent of the holder of the Option, alter or
impair any rights or obligations under any Option theretofore granted. No
Option may be granted during any period of suspension nor after termination
of the Plan, and in no event may any Option be granted under this Plan
after the expiration of ten years from the date the Plan is adopted.
Section 7.2 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of
the Company, any Parent Corporation or any Subsidiary (a) to establish any
other forms of incentives or compensation for employees of the Company, any
Parent Corporation or any Subsidiary, or (b) to grant or assume options or
to issue restricted stock otherwise than under this Plan in connection with
any proper corporate purpose, including, but not by way of limitation, the
grant or assumption of options or the issuance of restricted stock in
connection with the acquisition, by purchase, lease, merger, consolidation
or otherwise, of the business, stock or assets of any corporation, firm or
association.
Section 7.3 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.
<PAGE>
OAK INDUSTRIES INC.
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction
in which
Incorporated Ownership
or Organized Percentage
------------ ------------
<C> <C>
<S>
Cabel-Con A/S........................................... Denmark 100 (1)
Cabel-Con, Inc. (USA)................................... Arizona 100 (1)
Connector Holding Company............................... Delaware 100
Croven Crystals Ltd..................................... Ontario, Canada 100 (2) (3)
Electronic Technologies Inc............................. Delaware 100
Gilbert Engineering Co., Inc............................ Delaware 100 (4)
Gilbert Engineering France, S.A......................... France 100 (1)
Harper-Wyman Company.................................... Delaware 100 (14)
Harper-Wyman International Inc.......................... Delaware 100 (5)
Harper-Mex S.A. de C.V.................................. Mexico 100 (6)
H.E.S. International, Inc............................... Kansas 100 (7)
Kruger Vermogensverwaltungs GmbH........................ Germany 100 (20)
Laboratoire Piezo Electricite S.A....................... France 100 (22)
Lasertron, Inc.......................................... Massachusetts 100
Lasertron International (UK) Limited.................... United Kingdom 100 (19)
Lasertron Worldwide Inc................................. Delaware 100 (17)
McCoy International Holding Company..................... Delaware 100 (8)
National Subscription Television of Chicago Inc......... Illinois 100 (9)
Oak China Inc........................................... Delaware 100 (18)
Oak Com Inc............................................. Delaware 100
Oak Communications Components (Shanghai) Co., Ltd....... China 100 (18)
Oak Communications Inc.................................. Delaware 100
Oak Crystal (Cayman) Ltd................................ Cayman Islands 100 (10)
Oak Crystal Inc......................................... Delaware 100 (11)
Oak Enclosures Inc...................................... Delaware 100
Oak Industries German Holding GmbH...................... Germany 100
Oak Industries Verwaltungs GmbH......................... Germany 100 (20)
Oak Investment Corporation.............................. Delaware 100 (14)
Oak Omega Inc........................................... Delaware 100 (12)
Oak Systems Inc......................................... Delaware 100 (13)
Oak TQ Inc.............................................. Delaware 100
OakGrigsby Inc.......................................... Delaware 100
Piezo Crystal Company................................... Pennsylvania 100
SGI de Mexico, S.A. de C.V.............................. Mexico 100 (14)
Societe d'Appareillages Electroniques, S.A.............. France 100 (15)
Tele Quarz GmbH......................................... Germany 100 (21)
Tele Quarz Slovakia S.R.O............................... Slovakia 100 (22)
Tele Quarz Slovensko S.R.O.............................. Slovakia 100 (23)
Tele Quarz USA Inc...................................... North Carolina 100 (22)
TQ Vermogensverwaltungs GmbH and Co. KG................. Germany 100 (24)
Wuhan Telecommunication Devices Co...................... China 50 (16)
<FN>
(1) Owned by Gilbert Engineering Co., Inc.
(2) Owned by Electronic Technologies Inc.
(3) Doing business as Oak Frequency Control Group.
(4) Owned by Connector Holding Company.
(5) Owned by Harper-Wyman Company.
(6) Owned by Harper-Wyman International Inc.
(7) Owned by Oak Enclosures Inc.
(8) 50% owned by Electronic Technologies Inc.(and 50% owned by Oak
Crystal Inc.
(9) Owned by Oak Systems Inc.
(10) Owned by Oak Omega Inc.
(11) Doing business as Oak Frequency Control Group, McCoy, and OFC.
(12) Owned by Oak Crystal Inc.
(13) Owned by Oak Investment Corporation.
(14) Owned by OakGrigsby Inc.
(15) Owned by Gilbert Engineering France, S.A.
(16) 50% owned by Lasertron, Inc.
(17) Owned by Lasertron, Inc.
(18) Owned by Oak Communications Inc.
(19) Owned by Lasertron Worldwide Inc.
(20) Owned by Oak Industries German Holding GmbH.
(21) Owned by Kruger Vermogensverwaltungs GmbH.
(22) Owned by Tele Quarz GmbH.
(23) Owned by Tele Quarz Slovakia S.R.O.
(24) Partners are Oak TQ Inc. and Oak Industries Verwaltungs GmbH.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 13,754
<SECURITIES> 0
<RECEIVABLES> 62,841
<ALLOWANCES> 2,873
<INVENTORY> 77,321
<CURRENT-ASSETS> 165,436
<PP&E> 199,027
<DEPRECIATION> 100,057
<TOTAL-ASSETS> 482,437
<CURRENT-LIABILITIES> 53,304
<BONDS> 219,555
<COMMON> 192
0
0
<OTHER-SE> 200,783
<TOTAL-LIABILITY-AND-EQUITY> 482,437
<SALES> 347,866
<TOTAL-REVENUES> 347,866
<CGS> 222,357
<TOTAL-COSTS> 222,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,146
<INCOME-PRETAX> 44,730
<INCOME-TAX> 16,697
<INCOME-CONTINUING> 27,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,339
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.46
</TABLE>
