Oak Industries, in the midst of a bond conversion effort that could lead to a desperately needed capital infusion and a 32% ownership position by Allied-Signal, on Wednesday reported a $37.6-million net loss for the year ended Dec. 31.
The troubled Rancho Bernardo-based company also said that, for the third consecutive year, its auditors have qualified the company’s year-end financial statements. The auditors, Coopers & Lybrand, opined that Oak’s “ability to continue in existence” is dependent on reducing its debt, generating additional cash or generating profits from operations.
The qualified opinion does not give a timetable to its warning, although it seems apparent that the opinion is linked to Oak’s current drive to convince holders of $230 million in notes and bonds to exchange them for common stock.
Through Wednesday, only 53% of the total outstanding--or $121.5 million--has been tendered, according to Oak spokeswoman Mary Lou Coburn.
At least part of Allied-Signal’s equity proposal hinges on 85% of the note and bondholders accepting exchange. Under terms of the proposal, Allied-Signal will purchase Oak’s materials group, and if at least 85% of the notes and bonds are tendered, will pump another $15 million in cash into the ailing company.
The sale of the materials group will take place regardless of the tender offer.
The tender offer originally was to expire March 28 but has been extended twice. The offer now expires April 17.
The response has been sluggish, Coburn said, because interest rates have dropped since the offer’s pricing was set in February and some debt holders “may feel it’s better to hold on.”
The debt carries interest rates ranging from 9.62% to 13.65%.
One analyst suggested, however, that reluctance to the exchange offer is due to bondholders believing they have a “better eventuality of being paid off than (taking) common stock that may prove worthless in the long run.”
Oak’s sales in 1985 reached $284.3 million, down 15%. Last year’s loss compares to a loss of $149.3 million in 1984, which included $53.7 million in red ink from discontinued operations and another $49.4 million from a non-recurring provision for restructured operations.