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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file no. 0-26092
------------------------
C.P. CLARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2561471
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
78 CHERRY HILL DRIVE
BEVERLY, MASSACHUSETTS 01915
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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 July 31, 2000, there were 9,643,013 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....................... 2
Consolidated Condensed Statements of Operations............. 3
Consolidated Condensed Statements of Cash Flows............. 4
Notes to Consolidated Condensed Financial Statements........ 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations......................... 12-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13
PART II OTHER INFORMATION:
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities and Use of Proceeds................... 13
Item 3. Default Upon Senior Securities.............................. 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Other Information........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures........................................................... 14
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 25, 2000 MARCH 31, 2000
------------- --------------
ASSETS
Current assets:
Cash, cash equivalents and investments (Note 5)........... $32,456 $ 37,267
Accounts receivable, less allowance for doubtful
accounts................................................ 10,655 11,068
Inventories (Note 6)...................................... 14,163 11,406
Other current assets...................................... 1,401 1,636
Deferred income taxes..................................... 2,733 2,733
------- --------
Total current assets................................ 61,408 64,110
Property, plant and equipment, net.......................... 26,730 26,294
Other assets:
Intangibles, net of accumulated amortization of $3,881 and
$3,410, as of June 25, 2000 and March 31, 2000,
respectively............................................ 8,881 9,354
Deferred income taxes..................................... 451 451
Other..................................................... 602 451
------- --------
$98,072 $100,660
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 133 $ 139
Accounts payable.......................................... 5,427 5,151
Accrued expenses.......................................... 4,947 5,896
------- --------
Total current liabilities........................... 10,507 11,186
Long-term debt, net of current portion...................... 113 146
------- --------
Total liabilities................................... 10,620 11,332
------- --------
Commitments and contingencies (Note 8)
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: 9,595,865 shares and 9,591,266
shares as of June 25, 2000 and March 31, 2000,
respectively............................................ 97 96
Additional paid-in capital................................ 96,922 96,895
Accumulated deficit....................................... (9,154) (7,210)
Cumulative translation adjustment......................... (413) (453)
------- --------
Total stockholders' equity.......................... 87,452 89,328
------- --------
$98,072 $100,660
======= ========
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
2
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
Net sales................................................... $ 21,470 $ 36,038
Cost of sales............................................... 14,559 27,512
--------- ---------
Gross profit............................................ 6,911 8,526
Operating expenses:
Selling, general and administrative....................... 6,131 6,555
Research and development.................................. 3,044 3,035
--------- ---------
Operating loss.............................................. (2,264) (1,064)
Interest income............................................. 584 26
Interest expense............................................ (40) (23)
Other (expense) income, net................................. (225) 29
--------- ---------
Loss before benefit for income taxes...................... (1,945) (1,032)
Benefit for income taxes.................................... -- (354)
Net Loss................................................ $ (1,945) $ (678)
========= =========
Basic and diluted net loss per common and common share
equivalent (Note 3)....................................... $ (0.20) $ (0.07)
========= =========
Basic and diluted weighted average common and common
equivalent shares outstanding............................. 9,594,361 9,457,992
========= =========
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
3
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,945) $ (678)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 1,854 2,172
Compensation expense associated with stock options...... -- 62
Changes in assets and liabilities:
Accounts receivable................................... 413 (2,546)
Inventories........................................... (2,757) 1,459
Other current assets.................................. 254 1,015
Other assets.......................................... (149) 901
Accounts payable...................................... 276 74
Accrued expenses...................................... (972) (1,370)
------- -------
Net cash (used in) provided by operating activities... (3,026) 1,089
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net.............. (1,818) (1,313)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants.............. 27 15
Payments of principal on long-term debt..................... (36) (580)
------- -------
Net cash used in financing activities................. (9) (565)
------- -------
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND
INVESTMENTS............................................... 42 (7)
------- -------
NET DECREASE IN CASH, CASH EQUIVALENTS AND INVESTMENTS...... (4,811) (796)
Cash, cash equivalents and investments, beginning of
period.................................................... 37,267 7,796
------- -------
Cash, cash equivalents and investments, end of period....... $32,456 $ 7,000
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................. $ 59 $ 23
======= =======
Income taxes, net of refunds.......................... $ 21 $ 86
======= =======
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
4
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 25, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND 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 June 25, 2000, and
results of operations for the three months ended June 25, 2000 and June 27,
1999. 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,
2000 as filed with the Securities and Exchange Commission.
3. LOSS PER SHARE
Options to purchase 1,344,959 and 2,266,781 shares of common stock for the
three months ended June 25, 2000 and June 27, 1999, respectively, were not
included in calculating dilutive net loss per share because the effect would be
anti-dilutive.
4. DIVESTITURE
On August 20, 1999, the Company sold all of the issued and outstanding
shares of comon stock of Clare EMG, Inc. ("EMG"), a wholly owned subsidiary of
C.P. Clare, and certain assets to Sumida Electric Co., Ltd. ("Sumida"), for
$37,426 in cash. EMG included the Company's advanced magnetic winding, reed
relay, and surge arrestor product lines together with the second tier affiliate
Clare Mexicana S.A. de C.V.
Pro forma results assuming the sale of Clare EMG occurred on April 1, 1999
are as follows:
THREE MONTHS ENDED
JUNE 27, 1999
--------------------
Net Sales................................................. $21,571
Net Loss.................................................. $(2,309)
Net Loss per share........................................ $ (0.24)
5. CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investment instruments with
maturities of nine months or less to be cash equivalents. Short-term investments
are instruments with maturities of less than one year. The Company accounts for
its investments in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Investments at June 27, 1999
consisted principally of overnight
5
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 25, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
5. CASH, CASH EQUIVALENTS AND INVESTMENTS (CONTINUED)
commercial paper and at June 25, 2000 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 7 days notice.
The Company deemed these investments to be held to maturity at June 25, 2000, as
the Company has the ability and intent to hold these investments until maturity.
The investments are carried at cost, which approximates amortized cost.
Investments classified as held to maturity are $1,969 at June 25, 2000.
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 June 25, 2000 and March 31, 1999:
JUNE 25, 2000 MARCH 31, 2000
------------- --------------
Raw Material...................................... $ 3,644 $ 3,200
Work in process................................... 7,663 5,858
Finished goods.................................... 2,856 2,348
------- -------
$14,163 $11,406
======= =======
7. ACCRUED EXPENSES
Accrued expenses consist of the following at June 25, 2000 and March 31,
2000:
JUNE 25, 2000 MARCH 31, 2000
------------- --------------
Payroll and benefits.............................. $2,191 $2,679
Restructuring..................................... 17 149
Environmental remediation (Note 8)................ 851 854
Other............................................. 1,888 2,214
------ ------
$4,947 $5,896
====== ======
6
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 25, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
8. CONTINGENCIES
ENVIRONMENTAL MATTER
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 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.
9. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at fair value. The
statement requires that changes in the derivatives fair value be recognized in
earnings currently, unless specific hedge accounting criteria are met. Special
accounting or qualifying hedges allows derivative gains or losses to offset
related results on the hedged item in the income statement, and require that a
Company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The Company does not expect that
such adoption will have an impact on the Company's results of operations,
financial position or cash flows.
In March 2000, the FASB issued FASB interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25 (Interpretation 44)." Interpretation No. 44 clarifies the
application of APB No. 25 in certain situations, as defined. Interpretation 44
is effective July 1, 2000 but is retroactive for certain events that occurred
after December 15, 1998. The Company does not expect that the adoption of
Interpretation 44 will materially affect its consolidated results of operations.
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition," in December 1999. The Company is required
to adopt this new accounting guidance through a cumulative charge to operations,
in accordance with Accounting Principles Board Opinion (APB) No. 20, "Accounting
Changes," no later than December 31, 2000. The Company believes that the
adoption of the guidance provided in SAB No. 101 will not have had a material
impact on future operating results.
7
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 25, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
10. COMPREHENSIVE LOSS
The components of the Company's comprehensive loss are as follows:
THREE MONTHS ENDED
-----------------------------
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
Net loss............................................ $(1,945) $(678)
Foreign currency translation adjustments, net of
taxes............................................. 40 (157)
------- -----
Comprehensive loss.................................. $(1,905) $(835)
======= =====
11. FINANCIAL INFORMATION BY SEGMENT
The Company changed this composition of reportable operating segments during
fiscal 2001. Reportable operating segments are Solid State Relays, Integrated
Circuits, Reed Switches and Electromechanical and other products. Segment
information for the quarter ended June 27, 1999, has been restated to reflect
these changes.
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 quarters ended
June 25, 2000 and June 27, 1999 is as follows.
ELECTRO-
SOLID STATE INTEGRATED REED MECHANICAL
RELAYS CIRCUITS SWITCHES AND OTHER CORPORATE TOTAL
----------- ---------- -------- ---------- --------- --------
THREE MONTHS ENDED--JUNE 25, 2000
Net product sales from external
customers............................... $12,425 $3,775 $5,270 $ -- $ -- $21,470
Gross profit.............................. 3,791 2,129 991 -- -- 6,911
Depreciation and amortization............. 1,098 506 250 -- -- 1,854
Interest income........................... -- -- -- -- 584 584
Interest expense.......................... -- -- -- -- 40 40
Property, plant and equipment............. 15,833 7,294 3,603 -- -- 26,730
8
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 25, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
11. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
ELECTRO-
SOLID STATE INTEGRATED REED MECHANICAL
RELAYS CIRCUITS SWITCHES AND OTHER CORPORATE TOTAL
----------- ---------- -------- ---------- --------- --------
THREE MONTHS ENDED--JUNE 27, 1999
Net product sales from external
customers............................... $11,861 $2,959 $6,558 $14,660 $ -- $36,038
Gross profit.............................. 2,466 1,660 1,819 2,581 -- 8,526
Depreciation and amortization............. 1.097 127 324 624 -- 2,172
Interest income........................... -- -- -- -- 26 26
Interest expense.......................... -- -- -- -- 23 23
Income tax benefit........................ -- -- -- -- (354) (354)
Property, plant and equipment............. 19,905 1,195 5,877 12,439 -- 39,416
Interest income and expense, restructuring, and income taxes are considered
corporate level activities and are therefore, not allocated to segments.
Long-lived tangible assets by geographic area were as follows:
THREE MONTHS ENDED
---------------------------------
GEOGRAPHIC AREA JUNE 25, 2000 JUNE 27, 1999
- --------------- --------------- ---------------
United States............................ $26,580 $25,579
Belgium.................................. 150 227
France................................... -- 14
Germany.................................. -- 16
Mexico................................... -- 13,580
------- -------
$26,730 $39,416
======= =======
Revenues by geographic area for the quarter ended June 25, 2000 were as
follows:
THREE MONTHS ENDED
-----------------------------
GEOGRAPHIC AREA JUNE 25, 2000 JUNE 27, 1999
- --------------- ------------- -------------
United States...................................... $ 9,774 $21,951
France............................................. 1,012 1,219
Germany............................................ 1,221 1,473
Ireland............................................ 254 400
Italy.............................................. 372 848
Netherlands........................................ 65 296
Sweden............................................. 1,007 915
United Kingdom..................................... 1,183 2,542
Japan.............................................. 583 447
Malaysia........................................... 1,404 808
Mexico............................................. 917 103
Taiwan............................................. 1,000 1,406
Other.............................................. 2,678 3,630
------- -------
$21,470 $36,038
======= =======
9
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, 2000,
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
-------------------
JUNE 24, JUNE 27,
2000 1999
-------- --------
Net sales.................................................. 100.0% 100.0%
Cost of sales.............................................. 67.8 76.3
----- -----
Gross profit............................................. 32.2 23.7
Operating expenses:
Selling, general and administrative...................... 28.6 18.2
Research and development................................. 14.2 8.5
Operating income........................................... (10.6) (3.0)
Interest income............................................ 2.7 0.1
Interest expense........................................... (0.2) (0.1)
Other (expense) income net................................. (1.0) 0.1
----- -----
Loss before income taxes................................... (9.1) (2.9)
Benefit for income taxes................................... -- (1.0)
----- -----
Net loss................................................. (9.1)% (1.9)%
===== =====
NET SALES. In the first quarter of fiscal 2001 revenues totaled
$21.5 million compared with $36.0 million for the same period in fiscal 2000.
This decrease was a result of the divestiture of the electromagnetic product
lines (EMG) during the second fiscal quarter of 2000. Excluding these products,
revenues would have remained consistent during the first quarter of 2001 versus
the comparable period in the prior year.
Net sales by major product category were as follows:
THREE MONTHS ENDED
----------------------
JUNE 25, JUNE 27,
2000 1999
-------- --------
(IN MILLIONS)
Solid State Relays........................................ $12.4 $11.9
Integrated Circuits....................................... 3.8 3.0
Reed Switches............................................. 5.3 6.6
Electromagnetic and other products........................ -- 14.7
10
Solid state relays provide isolation and switching of signals and voltages.
The primary application for the Company's relays is PCMCIA modems. Integrated
circuits are used in a wide variety of both applications and markets. The
principal application for reed switches is in cellular phones.
Net sales to customers located outside of the United States totaled
$9.8 million in the first quarter of fiscal 2001. Net sales to customers in
Europe and Asia represented 30% and 21%, respectively, of the Company's total
net sales for the first quarter of fiscal 2001.
Due to the inherent uncertainty of foreign exchange markets, the Company
monitors its currency exposure and international economic developments and takes
actions to reduce risk from foreign currency fluctuations. The Company will
continue to focus on new markets and expansion of existing international
markets.
GROSS PROFIT. The Company's gross profit as a percentage of net sales
increased to 32.2% in the first quarter of fiscal 2001 from 23.7% in the same
period of fiscal 2000. This increase was principally due to the divestiture of
the lower margin electromagnetic product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses decreased $0.4 million or 6% to $6.1 million in the
first quarter of fiscal 2001 from $6.6 million in the same period in the prior
fiscal year. The decrease was largely the result of closure of sales affiliates
in France, Germany, and Japan, and the divestiture of EMG.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense totaled
$3.0 million for the first quarter of fiscal 2001 consistent with the same
period in fiscal 2000, as the elimination of spending on EMG product development
was offset by increased investment in integrated circuit products research
efforts.
INTEREST INCOME. Interest income increased by $0.6 million for the first
quarter of fiscal 2001 from the same period in fiscal 2000 due to significantly
higher average cash balances associated with the proceeds from the sale of EMG.
INTEREST EXPENSE. Interest expense for quarter ended June 25, 2000,
remained consistent with the same period in fiscal 2000.
OTHER (EXPENSE) INCOME. In the first quarters of both fiscal 2001 and 2000,
other (expense) income consisted principally of net foreign currency
transactional gains and losses. The Company reported foreign exchange losses of
$95 thousand in the first quarter of fiscal 2001 as compared to foreign exchange
losses of $90 thousand during the first quarter of fiscal 2000.
INCOME TAXES. The Company provides for income taxes at its estimated annual
effective tax rate. In the first quarter of fiscal 2001, the Company did not
record a tax benefit for pre-tax losses because the Company believes that it is
not likely that they will be able to utilize such a carryforward in the
foreseeable future. In the first quarter of 2000, the Company recorded a tax
benefit based on its carryback ability to be applied to prior year earnings as a
result of its net operating losses.
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 first quarter of fiscal 2000, the Company's
ten largest customers accounted for 32% 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
11
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.
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 recent capital expansions, the Company has
increased its operational fixed costs
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,
and difficulty in collecting accounts receivable. 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 cash balance has remained consistently over
$30 million during the first three months of fiscal 2001. The Company believes
that this cash, the availability of operating leases for capital additions, and
cash available through a $15.0 million committed revolving credit facility
should be adequate to cover its needs for the foreseeable future. If the Company
is unable to access adequate sources of capital this could have a material
adverse effect on the Company's results.
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.
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 Year 2000, which could
have a material adverse effect on future results.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended June 25, 2000, the Company's cash, cash
equivalents and investments decreased by $4.8 million. Operations used
$3.0 million of cash during this period, mainly for inventory needed for
shipments during a shut down and relocation of the reed switch facility and for
anticipated orders for LiteLink. Capital expenditures during the quarter totaled
$1.8 million, largely for the new reed switch facility in St. Louis.
12
At June 25, 2000, 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 committed revolving credit
facility ("credit facility"). This credit line has been amended to remove
certain covenants and grant the bank a specified security interest in securities
maintained in the Company's investment account. No borrowings have been made
against this credit facility.
The Company believes that 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
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 the
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
None
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
None
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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: August 9, 2000
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