Oak Industries Takes Steps to Rebuild Beleaguered Firm

During Oak Industries’ special meeting late last month, shareholders approved a stock option plan that Chairman E.L. McNeely described as a desperately needed tool that will help the financially troubled company attract qualified executives.

The need for senior management is acute.

“There are precious few of us remaining,” McNeely said during the shareholder’s meeting. “We have very few officers these days.”

Oak has dwindled from 13,000 employees three years ago to 5,000 employees today and has undergone an equally drastic reduction at its opulent Rancho Bernardo headquarters. The corporate staff has shriveled from more than 200 to just over 40 during a two-year span.

One of tasks facing McNeely is filling vacancies created by the departure of nearly half a dozen officers--including a president and several vice presidents.

That executive rebuilding program, coupled with last week’s completion of a stock-for-debt swap that paved the way for a $166.7-million cash infusion from Allied-Signal Corp., could help to restructure a company that started 1986 with a negative net worth of $69.9 million.

“Right now, we’re in an embryonic state,” McNeely said after shareholders had approved both the stock option plan and the sale of Oak’s materials division to Allied-Signal.

“By the time of our annual meeting (on June 23), we hope to be ‘born again,’ ” McNeely added.

A reborn Oak probably will not bear much resemblance to the high-flying electronics firm that included television stations, communications and components divisions, and the materials division that is being sold to Allied-Signal.

McNeely has promised that Oak will experience a “quantum leap forward” that will be fueled by the acquisition of “profitable, mid-tech companies” with as much as $75 million in revenues.

In addition, McNeely suggested that Oak “won’t be deterred by the prospect of acquiring a company that’s larger than us.”

McNeely also promised shareholders that the company would “pay more attention to continuing operations” instead of continually “applying tourniquets and oxygen.”

That life-saving approach became necessary during 1985 when Oak “needed to look at Chapter 11” reorganization bankruptcy, McNeely told shareholders.

McNeely said a recent Securities and Exchange Commission investigation ended with former company officers signing documents that “said that we didn’t do it and we’ll never do it again.”

That agreement stemmed from a June 25, 1985, settlement with the SEC that grew from allegations that Oak established and manipulated reserves to create the appearance of growing earnings; issued false and misleading financial statements, and made untrue and misleading statements in proxy solicitation materials. In March, that investigation produced similar agreements signed by five former Oak officers.

Last year, Oak entered into an agreement to pay $13.3 million to settle a class action lawsuit filed by shareholders, which alleged that various Oak officers and directors misstated the company’s financial condition, engaged in insider trading and benefited from low-interest loans. Oak, however, denied all allegations of wrongdoing in making the settlement.

With the cash infusion from Allied-Signal, Oak’s net worth could skyrocket to a $50 million. Revenues, which are highly dependent upon the company’s cable television equipment business, could hit $165 million, McNeely said.

With the sale of the materials division to Allied-Signal (which will spin it off to the newly formed Henley Group that will be run by former Signal Cos. executive Michael Dingman), Oak’s only remaining divisions will be the components division, which generated $117 million in revenues during 1985, and the communications division, which generated $31 million in 1985 revenues.

Future revenues could depend largely upon how well Oak’s communications division sales--which fell 78% from a 1982 high of $166.4 million to 1985’s $31 million--rebound.

“(Oak) used to own the business and now they don’t,” said Steven Rosenberg, a cable industry analyst with Paul Kagan Associates in Carmel. “Now Oak has about 7% of the cable decoder business.”

Rosenberg blamed Oak’s demise in the cable television converter business to a “loss of respect due to reliability problems” with the TC-56 model converter that was introduced several years ago.