Acting Chief of Oak Is Optimistic : Sees a Turnaround to Profitability ‘Sometime in 1986’
E. L. McNeely was under some peer pressure when he became acting chairman and chief executive of financially troubled Oak Industries last November: His fellow directors had threatened to resign if he didn’t accept the jobs.
“I insisted that the posts be temporary and part time,” said McNeely, who until then kept busy playing golf and serving as a director of five other corporations, including Transamerica and Pacific Telesis.
He thought he would work only 20 hours per week until a younger, more energetic and more ambitious replacement was found.
It hasn’t worked out that way.
McNeely arrives at Oak’s opulent, 75,000-square-foot Spanish-style headquarters in Rancho Bernardo each morning at 7:30. He leaves 14 to 16 hours later.
His exercise routine has suffered, but McNeely, healthy and robust at 66, maintains that he’s enjoying the challenge of trying to turn around a company whose fortunes fell as quickly as they had risen.
Still saddled with the likely prospect of significant losses in 1985, as well as a continuing Securities and Exchange Commission investigation of its prior business practices, McNeely predicted in an interview Thursday that Oak will “make money sometime in 1986.”
Oak will become a “mean and lean . . . $300-million-per-year” company, he said. “We’re headed for the comeback trail, although I don’t want to make promises we can’t keep.”
Included in McNeely’s optimism is the possibility that Oak, loaded with tax-loss carry-forwards, could eventually even acquire a small electronics company.
Since assuming control of Oak, McNeely has led a corporate reorganization and cost-cutting programdesigned to return the company to its profitable roots as an electronics/communications materials and components manufacturer.
Gone are Oak’s days as a movie producer and subscription television operator and programmer.
Cost-Cutting Measures
Gone, too, are the corporate limousine and first-class air fare for traveling executives.
And, if McNeely has his way, Oak’s sprawling headquarters also will be disposed of, although the company has received “only nibbles” on its $15-million asking price.
Finally, McNeely has stepped up other cost-cutting measures initiated by his predecessor, Everitt A. Carter. A 25-year Oak veteran, Carter resigned last fall after the company was hit by $300 million in losses from 1982 through 1984, a shareholders lawsuit that alleged conflicts of interest and the SEC investigation into Oak’s business dealings with Carter’s family and friends.
(Oak is now trying to recover more than $1 million in loans and “improperly reimbursed” non-business expenses from Carter, and the company has canceled an employment contract that would have paid Carter $250,000 in cash and more than $125,000 in benefits annually until 1989. Officials have said that Oak may eventually begin litigation against Carter.)
Oak’s worldwide labor force of 12,000 in 1983 has been slashed to 6,400, while capital spending has been trimmed 70% to about $8 million this year.
Most of that will be spent on Oak’s materials group, based in Hoosick Falls, N.Y., which makes laminates--or “high-tech plywood,” as described by McNeely--used in electronics.
The segment also is a joint-venture partner with Mitsui Mining & Smelting of Japan in a subsidiary that makes laminates used in printed circuit boards.
Also key to a turnaround at Oak is its components segment, which makes and markets controls for gas and electric appliances and components for several types of measuring instruments.
Oak is looking for a buyer for Oak Communications, which designs and makes cable-TV equipment. The division will incur “significant losses” if the division isn’t sold in 1985, Oak officials said.
Oak already has discontinued its subscription television operations. ON TV in Los Angeles was sold earlier this year for $30 million, and Oak is trying to sell ON TV in Chicago. In addition, Oak is disposing of its Oak/Adec energy management business, which includes components manufacturing plants in South Africa and Mexico City.
McNeely’s survival plan exists only because 79% of the investors holding $230 million in Oak debentures agreed last month to exchange their bonds for a combination of stock, notes and warrants. The restructuring could save $22 million in annual interest payments.
Had the bondholders rejected the offer--approval required acceptance by at least 70%--then Oak would have considered filing for protection from creditors.
Such talk doesn’t sit well with McNeely, the former chairman and chief executive of Wickes Cos. who resigned in 1982 rather than accompany the once high-flying retail giant into Chapter 11 reorganization. He said at the time that bankruptcy was not the proper alternative for debt-ridden Wickes, which has since emerged from Chapter 11 under the U.S. Bankruptcy Code.
“I have nothing to prove,” he said Thursday when asked whether his “white knight” approach to Oak is being spurred by Wickes’ downfall.
As if to prove the point, McNeely insisted that Oak is still actively searching for his replacement--”I’m opting for a younger person; it’s a high-energy job.”
But McNeely acknowledged that, despite the long hours, the SEC investigation and the negotiations to settle the shareholders lawsuit (a $13.25-million settlement payment is expected soon), he’s enjoying himself.
“I’m getting a kick out of seeing it through,” he said. “You’ve got to stick with it. When we round the bend (to profitability), we’ll find someone” to head the company.
Among the many changes at Oak has been McNeely’s personal relationship with Carter, a longtime friend and former golfing partner.
Because of the allegations of wrongdoing and because Oak may eventually sue Carter to recover monies paid him, McNeely acknowledged that the pair’s friendship has been strained.
Nonetheless, he said he empathized with Carter’s decision to resign.
“It’s hard to kick the kids out,” he said, referring to the drastic business cutbacks and layoffs that Carter was carrying out. “And it’s difficult for the person who (expanded) the company to be in charge of its divestiture.”
THE CHANGING CONDITIONS AT OAK INDUSTRIES The San Diego-based media concern, which has discontinued its subscription television operations, including ON TV service, will now focus primarily on its electronics materials and components segments. Year ended Dec. 31, in millions of dollars
1984 1983 1982 1981 1980 Sales a 398.7 426.4 545.7 507.1 385.6 Net Income (Loss) (149.3) (122.1) b (39.9) b 30.4 20.1 Total Assets 285.1 450.6 636.2 609.3 408.7 Long-Term Debt 224.8 227.1 238.4 141.7 138.3 Stockholders’ Equity (59.0) 85.2 208.8 c 262.3 159.1
a--Oak has restated sales figures to include only its current continuing operations and eliminate sales figures from ON TV and related operations, which were discontinued as of Dec. 31, 1984. b--Oak restated its net losses for 1983 and 1982, although the combined losses for the two years remains the same. c--Reduced by $44 million as a result of Oak’s restatement of 1982 net income.
