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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED DECEMBER 26, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-26092
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C.P. CLARE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MASSACHUSETTS 04-2561471
(State of incorporation) (IRS Employer Identification No.)
78 CHERRY HILL DRIVE 01915
BEVERLY, MASSACHUSETTS (zip code)
(Address of principal executive
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 524-6700
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 24, 2000, there were 9,600,193, shares of Common Stock, $.01
par value per share, outstanding.
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C.P. CLARE CORPORATION
TABLE OF CONTENTS
PAGE
--------
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements........................................
Consolidated Condensed Balance Sheets....................... 1
Consolidated Condensed Statements of Operations............. 2
Consolidated Condensed Statements of Cash Flows............. 3
Notes to Consolidated Condensed Financial Statements........ 4-12
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations................................... 13-17
Item 3 Quantitative and Qualitative Disclosure About Market Risk... 17
PART II OTHER INFORMATION:
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Default Upon Senior Securities.............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures........................................................... 19
PART I FINANCIAL INFORMATION
ITEM 1.
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
DECEMBER 26, 1999 MARCH 31, 1999
----------------- --------------
ASSETS
Current assets:
Cash, cash equivalents and investments (Note 5)........... $ 33,422 $ 7,796
Accounts receivable, less allowance for doubtful accounts
of $2,248 and $1,365 as of December 26, 1999 and
March 31, 1999, respectively............................ 14,579 18,672
Inventories (Note 6)...................................... 12,615 23,842
Other current assets...................................... 1,801 2,932
Deferred income taxes..................................... 6,277 4,036
-------- --------
Total current assets.................................. 68,694 57,278
Property, plant and equipment, net.......................... 26,988 40,275
Other assets:
Intangible assets, net of accumulated amortization of
$2,937 and $1,526 as of December 26, 1999 and March 31,
1999, respectively...................................... 9,826 11,244
Other..................................................... 463 418
-------- --------
$105,971 $109,215
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 143 $ 248
Accounts payable.......................................... 3,818 11,805
Accrued expenses.......................................... 7,210 10,175
-------- --------
Total current liabilities............................. 11,171 22,228
Long-term debt, net of current portion...................... 175 282
Deferred income taxes....................................... 510 510
-------- --------
Total liabilities..................................... 11,856 23,020
-------- --------
Contingencies (See note 9)
Stockholders' equity:
Preferred stock, $.01 par value--
Authorized: 2,500,000 shares Issued and outstanding:
None.................................................. -- --
Common stock, $.01 par value--
Authorized: 40,000,000 shares Issued and outstanding:
9,546,632 shares and 9,454,339 shares as of December
26, 1999 and March 31, 1999, respectively............. 96 95
Additional paid-in capital................................ 96,635 96,228
Deferred compensation..................................... -- (62)
Accumulated deficit....................................... (1,373) (8,973)
Cumulative translation adjustment......................... (1,243) (1,093)
-------- --------
Total stockholders' equity............................ 94,115 86,195
-------- --------
$105,971 $109,215
======== ========
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
1
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales................................... $ 21,617 $ 37,248 $ 86,590 $ 107,829
Cost of sales............................... 15,748 27,174 67,472 77,401
---------- ---------- ---------- ----------
Gross profit.............................. 5,869 10,074 19,118 30,428
Operating expenses:
Selling, general and administrative....... 5,005 7,498 17,689 21,187
Research and development.................. 3,500 2,292 10,162 6,658
Write-off of purchased in-process research
and development......................... -- -- -- 5,000
Restructuring costs (credit).............. -- -- (875) 4,000
Gain on sale of Clare EMG................. -- -- (12,990) --
---------- ---------- ---------- ----------
Operating (loss) income..................... (2,636) 284 5,132 (6,417)
Interest income............................. 332 62 594 440
Interest expense............................ (51) (77) (100) (157)
Other income (loss), net.................... 124 (118) 259 (255)
---------- ---------- ---------- ----------
(Loss) income before provision (benefit)
for income taxes........................ (2,231) 151 5,885 (6,389)
Provision (benefit) for income taxes........ -- 60 (1,702) (480)
---------- ---------- ---------- ----------
Net (loss) income......................... $ (2,231) $ 91 $ 7,587 $ (5,909)
========== ========== ========== ==========
(Loss) earnings per common and common share
equivalent (Note 3)
Basic (loss) earnings per share........... $ (0.23) $ 0.01 $ 0.80 $ (0.63)
========== ========== ========== ==========
Diluted (loss) earnings per share......... $ (0.23) $ 0.01 $ 0.79 $ (0.63)
========== ========== ========== ==========
Weighted average common and common share
equivalent shares outstanding:
Basic..................................... 9,522,942 9,394,942 9,496,522 9,382,806
========== ========== ========== ==========
Diluted................................... 9,522,942 9,560,656 9,666,471 9,382,806
========== ========== ========== ==========
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
2
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
---------------------------
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 7,587 $ (5,909)
Adjustments to reconcile net income (loss) to net cash (used
in) provided by operating activities:
Gain on disposal of business activities................... (12,990) --
Depreciation and amortization............................. 7,056 6,038
Write-off of purchased in-process research and
development............................................. -- 5,000
Non-cash portion of restructuring charge.................. (875) 1,134
Compensation expense associated with stock options........ 62 67
Changes in assets and liabilities, net of amounts divested
through disposal of business activities in 1999 and
acquisition of Micronix in 1998:
Accounts receivable..................................... 4,795 1,675
Inventories............................................. 1,392 (278)
Other current assets.................................... (540) (1,564)
Accounts payable........................................ (7,975) (5,397)
Accrued expenses........................................ (2,242) 716
-------- --------
Net cash (used in) provided by operating activities..... (3,730) 1,482
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net.............. (3,836) (7,876)
Other assets................................................ (120) --
Purchase of Micronix, net of cash acquired.................. -- (16,012)
Net proceeds from disposal of business activities........... 33,115 --
-------- --------
Net cash provided by (used in) investing activities..... 29,159 (23,888)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. 392 108
Proceeds from exercise of options and warrants.............. 15 223
Payments of principal on long-term debt..................... (211) (271)
Tax benefit of disqualifying disposition of incentive stock
options................................................... -- 11
-------- --------
Net cash provided by financing activities............... 196 71
-------- --------
Effect of Exchange Rates on Cash, cash equivalents and
investments............................................... -- 124
Net increase (decrease) in cash, cash equivalents and
investments............................................... 25,624 (22,211)
Cash, cash equivalents and investments, beginning of
period.................................................... 7,796 26,364
Cash, cash equivalents and investments, end of period....... $ 33,422 $ 4,153
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 282 $ 74
======== ========
Income taxes............................................ $ 69 $ 1,586
======== ========
Acquisition of Micronix:
Fair value of assets acquired........................... $ -- $ 20,825
Liabilities assumed..................................... -- (4,525)
Cash acquired........................................... -- (288)
-------- --------
Cash paid for acquisition and direct costs net of cash
acquired............................................... $ -- $ 16,012
======== ========
Sale of business:
Carrying amount of net assets sold...................... $(20,829) $ --
Cash received........................................... 36,426 --
Receivable held in escrow based on final asset
valuation, net......................................... 703 --
Expenses................................................ (3,310) --
-------- --------
Gain on sale after expenses............................. $ 12,990 $ --
======== ========
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
3
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. FISCAL PERIODS
The Company's fiscal year is comprised of either 52 or 53 weeks and ends on
the Sunday closest to March 31. Interim quarters are comprised of 13 weeks
unless otherwise noted, and end on the Sunday closest to June 30, September 30,
December 31 and March 31.
2. INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated condensed financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10-Q and Regulation S-X pertaining to interim financial statements.
Accordingly, these interim financial statements do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. The financial statements reflect all normal, recurring
adjustments and accruals that management considers necessary for a fair
presentation of the Company's financial position as of December 26, 1999, and
results of operations for the three months ended December 26, 1999 and
December 27, 1998. The results for the interim periods presented are not
necessarily indicative of results to be expected for any future period. The
financial statements should be read in conjunction with the summary of
significant accounting policies and notes to consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1999 as filed with the Securities and Exchange Commission.
3. (LOSS) EARNINGS PER SHARE
The Company calculates (loss) earnings per share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Basic (loss) earnings per share are calculated by dividing net (loss)
income by the weighted average number of common shares outstanding for the
period. Diluted (loss) earnings per share reflect the potential dilution of
stock options and warrants that could share in the earnings of the Company.
A reconciliation of basic and diluted shares outstanding, as required by
SFAS No. 128, is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Basic weighted average shares outstanding... 9,522,942 9,394,942 9,496,522 9,382,806
Weighted average common share equivalents... -- 165,714 169,949 --
--------- --------- --------- ---------
Diluted weighted average shares
outstanding............................... 9,522,942 9,560,656 9,666,471 9,382,806
4
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. (LOSS) EARNINGS PER SHARE (CONTINUED)
The following securities were not included in computing diluted earnings per
share because their effect would be anti-dilutive.
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Options to purchase common stock (1)........ 1,506,922 2,272,137 2,175,856 1,634,013
Other antidilutive options and warrants
(2)....................................... 209,061 -- -- 220,939
--------- --------- --------- ---------
1,715,983 2,272,137 2,175,856 1,854,952
(1) In accordance with SFAS No. 128, options to purchase common stock were
excluded from diluted weighted average shares, because the option price was
above the average stock price for the period.
(2) Other options and warrants to purchase common stock that are at or below the
average stock price for the period have been excluded, since their inclusion
would be anti-dilutive.
4. DIVESTITURE
On July 2, 1999, the Company entered into an Agreement to sell all of the
issued and outstanding shares of common stock of Clare EMG, Inc. ("EMG") a
wholly-owned subsidiary of C.P. Clare to Sumida Electric Co., Ltd. ("Sumida"),
for $36,426 in cash. EMG includes the company's advanced magnetic windings, reed
relay, and surge arrestor product lines together with the second tier affiliate
C.P. Clare Mexicana. The final sale price is subject to a post closing audit of
the net asset value of EMG as of the closing date, August 20, 1999. The Company
has deferred $703 of the gain associated with the divestiture pending a final
settlement of the amount due.
The gain on the sale of Clare EMG, Inc. is calculated as follows.
Cash Received............................................... $36,426
Plus: Net Amount Held In Escrow Pending Final Asset
Valuation................................................. 703
Less: Net Assets Divested................................... (20,829)
-------
Gain On Sale Before Expenses................................ $16,300
=======
Less: Expenses.............................................. 3,310
-------
Gain On Sale After Expenses................................. $12,990
=======
5
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. DIVESTITURE (CONTINUED)
Pro forma financial information reflecting the divestiture of Clare EMG,
Inc. is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales................................... 21,617 23,301 60,797 63,598
Gross profit................................ 5,869 7,835 15,279 21,904
Operating (loss) income..................... (2,636) 178 (5,517) (3,784)
Net (loss) income........................... (2,231) 29 (3,418) (2,441)
Basic (loss) earnings per share............. (0.23) -- (0.36) (0.26)
Diluted (loss) earnings per share........... (0.23) -- (0.35) (0.26)
5. CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investment instruments with
maturities of six months or less to be cash equivalents. Short-term investments
are instruments with maturities of less than one year. The Company accounts its
investments in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Investments at December 26, 1999 consisted
principally of overnight commercial paper and other short-term fixed income
investments. Investments at March 31, 1999 consisted principally of overnight
and short-term tax exempt commercial paper and tax exempt variable rate
municipal bonds. The Company had the option to require the issuers of the tax
exempt variable rate municipal bonds to purchase these investments upon seven
days notice. The Company deemed these investments to be available for sale at
December 26, 1999 and March 31, 1999, and they are carried at cost, which
approximates market value.
6. INVENTORIES
Inventories include materials, labor and manufacturing overhead, and are
stated at the lower of cost (first-in, first-out) or market and consist of the
following at December 26, 1999 and March 31, 1999:
DECEMBER 26, MARCH 31,
1999 1999
------------ ---------
Raw Material.......................................... $ 3,784 $10,259
Work in process....................................... 5,756 8,227
Finished goods........................................ 3,075 5,356
------- -------
$12,615 $23,842
======= =======
6
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 26, 1999 and
March 31, 1999:
DECEMBER 26, MARCH 31,
1999 1999
------------ ---------
Payroll and benefits.................................. $2,534 $ 3,881
Restructuring (Note 9)................................ 331 2,152
Environmental remediation (Note 10)................... 866 922
Other................................................. 3,479 3,220
------ -------
$7,210 $10,175
====== =======
8. RESTRUCTURING COSTS
In fiscal 1999, the Company announced a restructuring of its operations, and
recorded a non-recurring pretax charge of $3,700 in accordance with Emerging
Issues Task Force Issue ("EITF") 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The non-recurring charge includes
severance-related costs associated with a workforce reduction of approximately
60 persons on a worldwide basis, half of whom are in manufacturing and the
remainder of whom are in sales, general and administrative. The balance of this
charge includes a write-down of assets, associated with the closure of the
Company's Wakefield, MA production facility, which will be completed by the
fourth quarter of fiscal 2000. During the quarter ended September 26, 1999, the
Company reversed $875 of restructuring to reflect its change in estimate
regarding the proceeds from the sale of some of the Wakefield assets and cash
paid for severance costs.
The components of the restructuring as of March 31, 1999 were as follows:
Employee severance, benefits and related costs.............. $2,094
Write-off and write-down of assets to be disposed........... 1,134
Lease termination and relocation costs...................... 410
Other....................................................... 62
------
$3,700
======
The total cash impact of the restructuring is $1,945, which the Company
anticipates to be paid by the end of the fourth quarter of fiscal 2000.
9. CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company accrues for estimated costs associated with known environmental
matters when such costs are probable and can be reasonably estimated. The actual
costs to be incurred for environmental remediation may vary from estimates,
given the inherent uncertainties in evaluating and estimating environmental
liabilities, including the possible effects of changing laws and regulations,
the stage of the
7
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. CONTINGENCIES (CONTINUED)
remediation process and the magnitude of contamination found as the remediation
progresses. Management believes the ultimate disposition of known environmental
matters will not have a material adverse effect upon the liquidity, capital
resources, business or consolidated financial position of the Company. However,
one or more environmental matters could have a significant negative impact on
the Company's consolidated financial results for a particular reporting period.
10. DERIVATIVE FINANCIAL INSTRUMENTS
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" requires disclosure of any significant
derivative or other financial instruments. The Company hedges its net
intercompany trade balance (Belgian francs) which relates to trade sales to
third party customers in the ordinary course of business. At December 26, 1999,
the Company had no outstanding Belgian franc ("BF") or Mexican peso ("MXP")
forward contracts. At March 31, 1999, the Company had one outstanding BF forward
contract amounting to 23,000 BF or $625 with a gross deferred loss of $4 from
the rollover of such contracts to the planned settlement date. Also, at
March 31, 1999, the Company had no outstanding MXP forward contracts. The
forward contracts hedge currency transactional exposure resulting from
intercompany trade transactions.
11. COMPREHENSIVE (LOSS) INCOME
The Company adopted SFAS No. 130 "Reporting Comprehensive Income," effective
April 1, 1998. SFAS No. 130 establishes standards for reporting and displays of
comprehensive income and its components in the financial statements. The
components of the Company's comprehensive (loss) income are as follows:
THREE MONTHS
ENDED NINE MONTHS ENDED
------------------- -------------------
DEC. 26, DEC. 27, DEC. 26, DEC. 27,
1999 1998 1999 1998
-------- -------- -------- --------
Net (loss) income......................... $(2,231) $ 91 $7,587 $(5,909)
Foreign currency translation adjustments,
net of taxes............................ (94) 23 (150) (79)
------- ---- ------ -------
Comprehensive (loss) income............... $(2,325) $114 $7,437 $(5,988)
======= ==== ====== =======
12. FINANCIAL INFORMATION BY SEGMENT
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the fourth quarter of 1999. SFAS
No. 131 established standards for reporting information about operating segments
in annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate
8
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
resources and in assessing performance. The Company's chief operating decision
making group is comprised of the Chief Executive Officer, members of Senior
Management and the Board of Directors.
The Company's reportable operating segments are Semiconductor products and
Electromechanical products.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on gross profit. Revenues are attributed to geographic areas
based on where the customer is located. The Company does not measure transfers
of sales between Company segments. Segment information for the periods ended
December 26, 1999 and December 27, 1998 is as follows.
9
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
ELECTRO-
SEMICONDUCTOR MECHANICAL CORPORATE TOTAL
------------- ---------- --------- --------
THREE MONTHS ENDED--DECEMBER 26, 1999
Net product sales from external customers........ $14,726 $ 6,891 -- $ 21,617
Gross Profit..................................... 3,500 2,369 -- 5,869
Expenses......................................... -- -- 8,505 8,505
Other items
Charge for in-process research and
development.................................. -- -- -- --
Gain on disposal of business activities, net of
restructuring and other related costs........ -- -- -- --
Restructuring (reversal)....................... -- -- -- --
Total assets..................................... 105,971 -- -- 105,971
NINE MONTHS ENDED--DECEMBER 26, 1999
Net product sales from external customers........ $44,287 $42,303 -- $ 86,590
Gross Profit..................................... 11,196 7,922 -- 19,118
Expenses......................................... -- -- 27,851 27,851
Other items
Charge for in-process research and
development.................................. -- -- -- --
Gain on disposal of business activities, net of
restructuring and other related costs........ -- -- 12,990 12,990
Restructuring (reversal)....................... -- -- (875) (875)
Total assets..................................... 105,971 -- -- 105,971
THREE MONTHS ENDED--DECEMBER 27, 1998
Net product sales from external customers........ $18,530 $18,718 -- $ 37,248
Gross Profit..................................... 6,936 3,138 -- 10,074
Expenses......................................... -- -- 9,790 9,790
Other items
Charge for in-process research and
development.................................. -- -- -- --
Gain on disposal of business activities, net of
restructuring and other related costs........ -- -- -- --
Restructuring.................................. -- -- -- --
Total assets..................................... 107,432 -- -- 107,432
NINE MONTHS ENDED--DECEMBER 27, 1998
Net product sales from external customers........ $51,795 $56,034 -- $107,829
Gross Profit..................................... 18,351 12,077 -- 30,428
Expenses......................................... -- -- 27,845 27,845
Other items
Charge for in-process research and
development.................................. -- -- 5,000 5,000
Gain on disposal of business activities, net of
restructuring and other related costs........ -- -- -- --
Restructuring.................................. -- -- 4,000 4,000
Total assets..................................... 107,432 -- -- 107,432
10
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
Interest income and expense, in-process research and development, gain on
disposal of business activities, restructuring, and income taxes are considered
corporate level activities and are therefore, not allocated to segments.
Management believes transfers between geographic areas are accounted for on an
arm's length basis.
Long-lived tangible assets by geographic area were as follows:
DECEMBER 26, MARCH 31,
GEOGRAPHIC AREA 1999 1999
- --------------- ------------ ---------
LONG-LIVED TANGIBLE
ASSETS
United States......................................... $26,793 $26,100
Belgium............................................... 171 296
France................................................ 11 8
Germany............................................... 13 14
Mexico................................................ -- 13,857
------- -------
$26,988 $40,275
======= =======
Revenues by geographic area for the quarter and nine months ended
December 26, 1999 were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
GEOGRAPHIC AREA DECEMBER 26, 1999 DECEMBER 26, 1999
- --------------- ------------------ -----------------
REVENUE
United States............................. $ 8,862 $43,453
France.................................... 981 2,994
Germany................................... 1,164 3,792
Ireland................................... 522 1,185
Italy..................................... 196 1,384
Netherlands............................... 77 572
Sweden.................................... 923 2,794
United Kingdom............................ 1,573 6,401
Other..................................... 7,319 24,015
------- -------
$21,617 $86,590
------- -------
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999,
as filed with the Securities and Exchange Commission. See "Trends and
Uncertainties" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth the relative percentage that certain income
and expense items bear to net sales for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 72.9 73.0 77.9 71.8
----- ----- ----- -----
Gross profit.............................. 27.1 27.0 22.1 28.2
Operating expenses:
Selling, general and administrative....... 23.2 20.1 20.4 19.6
Research and development.................. 16.1 6.2 11.7 6.2
Write-off of purchased in-process research
and development......................... -- -- -- 4.6
Restructuring costs (credit).............. -- -- (1.0) 3.7
Gain on disposal of business activities,
net of related restructuring and other
costs................................... -- -- (15.0) --
----- ----- ----- -----
Operating income (loss)..................... (12.2) 0.8 6.0 (6.0)
Interest income............................. 1.6 0.2 0.7 0.4
Interest expense............................ (0.2) (0.2) (0.1) (0.1)
Other income (expense), net................. 0.5 (0.3) 0.3 (0.2)
----- ----- ----- -----
(Loss) income before income taxes........... (10.3) 0.4 6.9 (5.9)
Provision (benefit) for income taxes........ (0.0) 0.2 (2.0) (0.4)
----- ----- ----- -----
Net (loss) income......................... (10.3)% 0.2% 8.9% (5.5)%
===== ===== ===== =====
NET SALES. In the third quarter of fiscal 2000 revenues totaled
$21.6 million compared with $37.2 million for the same period in fiscal 1999, a
decrease of 42.0%. For the nine months ended December 26, 1999, revenues were
$86.6 million compared with $107.8 million for the same period in the prior
year, a decrease of 19.7%. Lower sales were largely the result of the
disposition of the Company's electromagnetic product lines, which were sold to
Sumida Electric in August of 1999, and to lower average selling prices for
semiconductor products. For the three and nine months ending December 26, 1999,
the revenue would have been $21,617 and $60,797, respectively, without the
Company's electromagnetic products. For the three and nine months ending
December 27, 1998, the revenue would have been $23,301 and $63,598,
respectively, without the Company's electromagnetic products. Lower sales,
without the Company's electromagnetic products, were primarily the result of
lower average selling prices and unit shipments for the semiconductor products.
12
Net sales to customers located outside of the United States decreased 21.7%
in the third quarter of fiscal 2000 to $12.8 million from $16.3 million in the
same period in fiscal 1999. Net sales to customers in Europe represented 25.1%
and 20.7% of the Company's net sales for the third quarter ended December 26,
1999 and third quarter ended December 27, 1998, respectively. Net sales to
customers in Asia represented 26.0% and 19.2% of the Company's net sales for the
third quarter ended December 26, 1999 and third quarter ended December 27, 1998,
respectively.
The Company monitors its currency exposure and international economic
developments and takes actions to reduce the Company's risk from exposures to
fluctuations in foreign currency markets. Due to the inherent uncertainty of
foreign exchange markets the Company cannot predict future events in this area.
The Company will continue to focus on new markets and expansion of certain
existing international markets.
GROSS PROFIT. The Company's gross profit as a percentage of net sales was
27.1% in the third quarter in fiscal 2000 compared with 22.1% during the same
period in fiscal 1999. This increase is primarily due to the elimination of
lower margin products included in the sale of EMG. Gross profit as a percentage
of net sales decreased to 22.1% for the nine months ended December 26, 1999 from
28.2% for the comparable period of fiscal 1999. The gross profit as a percentage
of net sales without the Company's electromagnetic products, was 27.1% and 33.6%
for the third quarter of fiscal 2000, and the same period in fiscal 1999,
respectively. The loss for the nine months ended December 26, 1999, was (9.1)%
compared with (5.9)% during the same period of fiscal 1999. The decrease quarter
to quarter, and year to year, in the gross profit percentage without the
Company's electromagnetic products, was primarily the result of lower average
selling prices and unit shipments, and underutilized plant capacity, for the
semiconductor products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("S,G&A") expenses decreased $2.5 million or 33% to $5.0 million
in the third quarter in fiscal 2000 from $7.5 million in the same period in the
prior fiscal year. The decrease was attributable primarily to reduced
employment, lower sales commissions, lower charges for environmental clean up,
the elimination of the electromagnetic products headquarters operation in
Arlington Heights, Illinois. On a year-to-date basis, S,G&A expense totaled
$17.7 million, down $3.5 million from the prior year, for the same reasons
mentioned in the preceding sentence.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased to $3.5 million for the third quarter of fiscal 2000, from
$2.3 million for the same period in fiscal 1999, primarily due to semiconductor
process development projects and licensing fees associated with home phone
network products. On a year-to-date basis, R&D expense totaled $10.2 million,
$3.5 million higher than the prior year, for the same reasons mentioned in the
preceding sentence.
WRITE-OFF OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. Intangible
assets acquired during the second quarter of fiscal 1999 as part of
Clare-Micronix included $5.0 million for purchased in-process research and
development ("in-process R&D") for projects that had no future alternative uses.
This amount represented the estimated fair value based on risk-adjusted cash
flows related to the in-process R&D projects. The development of these projects
had not yet reached technological feasibility, and the R&D in process had no
alternative uses. Accordingly, these costs were expensed as of the acquisition
date.
RESTRUCTURING COSTS. In the second quarter of fiscal 1999, the Company
announced a restructuring of its operations, and recorded a non-recurring charge
of $4.0 million. The non-recurring charge included severance-related costs
associated with a workforce reduction of approximately 60 persons on a worldwide
basis, half of whom were in manufacturing and the remainder whom were in sales,
general and administrative areas. The balance of this charge included write-down
of assets associated with the closure of the Company's Wakefield, Massachusetts
production facility. During the second quarter of fiscal 2000, $0.9 million of
this charge was reversed to reflect residuals received from the sale of some of
the Wakefield
13
assets and lower than anticipated severance costs. See Note 8 of the
Consolidated Condensed Financial Statements.
GAIN ON DISPOSAL OF BUSINESS ACTIVITIES. Gain on disposal of business
activities totaled $13.0 million during the second quarter of fiscal 2000 and
represented the gain on the sale of the reed relay, advanced magnetic winding,
and surge arrestor product lines to Sumida Electric Company of Tokyo, Japan. The
amount consists of the difference between the gross proceeds, less related
selling and restructuring costs, and the value of the assets sold. See Note 4 of
the Consolidated Condensed Financial Statements. There was no counterpart for
this gain during the prior year.
INTEREST INCOME. Interest income totaled $0.3 million for the third quarter
of fiscal 2000, $0.2 million higher than the same period in fiscal 1999. The
increase was the result of higher average cash balances associated with the
proceeds from sale of business activities discussed above. Interest income is
derived from investments in both commercial paper and short-term tax exempt
municipal bonds. Interest income totaled $0.6 million for the nine months ended
December 26, 1999, compared with $0.4 million for the comparable period in
fiscal 1999. The increase resulted from the same reason mentioned above.
INTEREST EXPENSE. Interest expense for the third quarter of fiscal 2000 was
approximately the same as in the third quarter of fiscal 1999. The same is true
for the nine months ended December 26, 1999 as compared with the same period in
fiscal 1999.
OTHER INCOME. In the third quarter of fiscal 2000 and the same period in
fiscal 1999, other income consisted principally of net foreign currency
transactional gains and losses. The other losses shown for three and nine months
ended December 27, 1998 resulted from transactional losses on sales of product
in Belgian Francs. During fiscal 1999, the Company began conducting business in
Europe in the Euro.
INCOME TAXES. In accordance with generally accepted accounting principles,
the Company has provided for income taxes at its estimated annual effective tax
rate. For the first six months of fiscal 2000, the Company recorded a tax
benefit at an effective rate of 37% based on the anticipated benefit to be
ultimately realized as a result of net operating losses. No benefit was
recognized for the third quarter of fiscal 2000.
TRENDS AND UNCERTAINTIES
COMPETITION. C.P. Clare competes with various global companies. Certain
competitors of the Company have greater manufacturing, engineering or financial
resources.
CUSTOMER CONCENTRATION. In the third quarter of fiscal 2000, the Company's
ten largest customers accounted for 28.0% of total net sales. The Company is
highly reliant upon continued revenues from its largest customers and any
material delay, cancellation or reduction of orders from these customers could
have a material adverse effect on the Company's future results.
DEVELOPMENT OF NEW PRODUCTS. Technological change and new product
introductions characterize the markets for the Company's products. In
particular, the Company is dependent on the communications industry, which is
characterized by intense competition and rapid technological change. The Company
expects sales to the communications industry to continue to represent a
significant portion of its sales for the foreseeable future. A decline in demand
for communications related equipment such as facsimile machines, modems and
cellular telephones would cause a significant decline in demand for the
Company's products. The Company has invested heavily over the past several years
in the capital expenditures necessary to develop new products. Slower than
expected acceptance of new products will adversely affect the Company's
operating results. To remain competitive, the Company must continue to develop
new process and manufacturing capabilities to meet customer needs and introduce
new products that reduce size and increase functionality and performance. With
the addition of Clare-Micronix, the Company will need to develop and bring to
market the acquired technology and new products in the areas of
14
high-voltage analog and mixed-signal application specific integrated circuits.
Development of all these capabilities is expected to require significant
additional capital expenditures. The Company is currently limited by its
existing capital availability and may need to use its existing or new lines of
credit, in order to fund the capital expenditures required developing new
products. If the Company is unable to access adequate sources of capital or is
unable to design, develop and introduce competitive new products, its operating
results will be adversely affected.
FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced fluctuation
in its operating results in the past and its operating results may fluctuate in
the future. In addition, based on the fiscal 1999 capital expansions, the
Company has increased its operational fixed costs. This expansion also has
resulted in new and increased responsibilities for management personnel and has
placed pressures on the Company's operating systems. These operating systems
have been 85% updated and centralized, while the existing operating systems are
mostly phased out. The Company's future success will depend to a large part on
its ability to manage these changes and manage effectively its remote offices
and facilities.
FULL UTILIZATION OF THE NEW WAFER FABRICATION FACILITY. The Company
completed construction of a larger, more advanced semiconductor facility in
Beverly, Massachusetts to address capacity constraints and operating
efficiencies in the production of its semiconductor products. To date, lower
demand in semiconductor products has not allowed the Company to fully utilize
the facility and has contributed to a decline in the Company's overall gross
margin rate. In addition, it is not expected that the new facility will be fully
utilized in the short term, as certain planned new semiconductor products,
including the Clare-Micronix products, will require significant additional
capital investment to be able to be produced in the fabrication facility.
Currently, these wafers and products are made utilizing outside foundries. A
delay or lack of capital investment in the new manufacturing fabrication
facility would have a material adverse effect on future operating results.
INTERNATIONAL OPERATIONS. The Company's international operations are
subject to several risks including, but not limited to, fluctuations in the
value of foreign currencies, changes to import and export duties or regulations,
greater difficulty in collecting accounts receivable and labor unrest. While, to
date, these factors have not had a material effect on the Company's results,
there can be no assurance that there will not be such an impact in the future.
LIQUIDITY. The Company's ended the quarter with cash balances of
$33.4 million compared with $7.8 million at March 31, 1999. The Company
maintains a $10.0 million operating lease line as well as a $15.0 unsecured
committed revolving credit facility. If the Company is unable to access adequate
sources of capital this could have a material adverse effect on the Company's
liquidity.
MARKETS. The Company continues to evaluate its operations and product
offerings, in order to invest in or potentially divest of certain business or
market opportunities.
NEW SYSTEMS. The Company is approximately 85% complete with the process of
implementing an Oracle Enterprise Resource Planning ("ERP") system for certain
applications and locations. The vendor has informed the Company that this new
system is compliant with year 2000 issues. This effort has consumed significant
resources of the Company and implementation of various applications for the
remaining locations is scheduled throughout fiscal year 2000. As a result of the
systems transition, the Company may experience business disruptions or
compliance issues, which may have a material adverse effect on the Company's
results of operations.
RELIANCE ON KEY SUPPLIERS. The Company relies on certain suppliers of raw
materials and services for sole source supply of critical items. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's demand needs effectively and on a timely basis. Also, the suppliers
could experience their own business disruption, including disruption caused by
year 2000 issues, which could have a material adverse effect on future results.
15
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 26, 1999, the Company's cash, cash
equivalents and investments increased by $25.6 million, more than accounted for
by $33.1 million in net proceeds received from the sale of its Mexico
operations. Capital expenditures aggregated $3.8 million during the period.
At December 26, 1999, the Company had $0.3 million of outstanding debt
representing capital leases assumed when the Company acquired Clare-Micronix. In
fiscal 1999, the Company entered into a $15 million unsecured committed
revolving credit facility. No borrowings have been made against this credit
facility.
The Company manages its foreign exchange exposure by monitoring its net
monetary position using natural hedges of its assets and liabilities denominated
in local currencies and entering into forward contract hedges with financial
institutions for trade transactions. There can be no assurance that this policy
will eliminate all currency exposure.
The Company believes that cash generated from operations, cash, cash
equivalents and investments, and amounts available under its credit agreement
and operating lease facilities will be sufficient to satisfy its working capital
needs and planned capital expenditures for the balance of this fiscal year.
However, there can be no assurance that events in the future will not require
the Company to seek additional capital sooner or, if so required, that adequate
capital will be available on terms acceptable to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None
16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to routine litigation incident to the conduct of its
business. None of such proceedings is considered material to the business or
financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On October 26, 1999, the Company's Board of Directors authorized a share
repurchase program to buy up to one million shares of the Company's common stock
up through October 26, 2000. No shares have been repurchased through the third
quarter of fiscal 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
27.0 Financial Data Schedule (Edgar)
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K/A on November 3, 1999
amending the Form 8-K filed on August 27, 1999 disclosing the divestiture on
August 20, 1999 of Clare EMG, Inc.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C.P. CLARE CORPORATION
By: /s/ HARRY ANDERSEN
-----------------------------------------
Harry Andersen
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Date: February 7, 2000
18