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UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<Table>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15() OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED DECEMBER 23, 2001.
</Table>
OR
<Table>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15() OF THE
SECURITIES EXCHANGE ACT OF 1934
</Table>
COMMISSION FILE NO. 0-26092
------------------------
CLARE INC.
(Exact Name Of Registrant As Specified In Its Charter)
<Table>
MASSACHUSETTS 04-2561471
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
78 CHERRY HILL DRIVE, BEVERLY, 01915
MASSACHUSETTS (zip code)
(Address of principal executive
offices)
</Table>
------------------------
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 23, 2002, there were 9,895,167 shares of Common Stock, $.01
par value per share, outstanding.
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CLARE INC.
TABLE OF CONTENTS
<Table>
<Caption>
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........ 4-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13
PART II OTHER INFORMATION:
Item 1. Legal Proceedings........................................... 14
Item 2. Changes in Securities and Use of Proceeds................... 14
Item 3. Default Upon Senior Securities.............................. 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 5. Other Information........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures.......................................................................... 14
</Table>
<Page>
CLARE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
DECEMBER 23, 2001 MARCH 31, 2001
------------------ ---------------
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of
$2,250 (Note 8)......................................... $21,345 $22,968
Accounts receivable, less allowance for doubtful
accounts................................................ 5,189 7,646
Inventories (Note 6)...................................... 9,891 12,982
Other current assets...................................... 1,303 1,796
Deferred income taxes..................................... 2,733 2,733
Net assets from discontinued operations (Note 4).......... - 8,424
------- -------
Total current assets.................................... 40,461 56,549
Property, plant and equipment, net.......................... 15,430 18,796
Other assets:
Intangibles, net of accumulated amortization of $6,201
and $5,492, respectively.............................. 8,218 8,927
Other assets............................................ 565 884
------- -------
$64,674 $85,156
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.............. $ 56 $ 153
Accounts payable.......................................... 3,963 5,767
Accrued liabilities (Note 7).............................. 2,389 4,133
Deferred revenue.......................................... 464 940
Net liabilities from discontinued operations (Note 4)..... 197 --
------- -------
Total current liabilities............................... 7,069 10,993
------- -------
Deferred revenue............................................ 2,362 1,071
Capital lease obligations, net of current portion........... 19 42
------- -------
Total liabilities....................................... 9,450 12,106
======= =======
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 9,828,364 shares and 9,775,467 shares,
respectively............................................ 98 98
Additional paid-in capital.................................. 97,449 97,341
Accumulated deficit....................................... (41,553) (23,619)
Treasury stock, 30,000 shares, at cost.................... (165) (165)
Accumulated other comprehensive loss...................... (605) (605)
------- -------
Total stockholders' equity.............................. 55,224 73,050
------- -------
$64,674 $85,156
======= =======
</Table>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
1
<Page>
CLARE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------------------
DECEMBER 23, 2001 DECEMBER 24, 2000 DECEMBER 23, 2001 DECEMBER 24, 2000
------------------ ------------------ ------------------ ------------------
Net sales.................. $ 11,107 $ 16,862 $ 34,189 $ 50,220
Cost of sales.............. 9,905 11,260 29,767 32,355
--------- --------- --------- ---------
Gross profit............. 1,202 5,602 4,422 17,865
Operating expenses:
Selling, general and
administrative......... 4,220 4,847 11,296 15,842
Research and
development............ 2,685 4,067 8,150 10,605
Restructuring costs...... 515 -- 515 --
Gain on sale of real
estate................. -- (716) -- (716)
--------- --------- --------- ---------
Operating loss............. (6,218) (2,596) (15,539) (7,866)
Interest income............ 119 345 550 1,378
Interest expense........... (4) (18) (34) (149)
Other (expense) income,
net...................... (41) 14 (324) (211)
--------- --------- --------- ---------
Loss from continuing
operations............... (6,144) (2,255) (15,347) (6,848)
--------- --------- --------- ---------
Loss from discontinued
operations............... (743) (2,368) (1,972)
---
Loss on sale of
discontinued
operations............... -- -- (218) --
--------- --------- --------- ---------
Net loss from discontinued
operations............... -- (743) (2,586) (1,972)
--------- --------- --------- ---------
Net loss................... $ (6,144) $ (2,998) $ (17,933) $ (8,820)
========= ========= ========= =========
Basic and diluted net loss
per common and common
share equivalent (Note 3)
From continuing
operations............... $ (0.63) $ (0.23) $ (1.56) $ (0.71)
From discontinued
operations............... -- (0.08) (0.26) (0.20)
--------- --------- --------- ---------
Total net loss per share... $ (0.63) $ (0.31) $ (1.83) $ (0.92)
========= ========= ========= =========
Basic and diluted weighted
average common and common
share equivalents (Note
3)....................... 9,825,668 9,677,691 9,806,959 9,628,645
========= ========= ========= =========
</Table>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
2
<Page>
CLARE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
FOR THE NINE MONTHS ENDED
---------------------------------------
DECEMBER 23, 2001 DECEMBER 24, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(17,933) $(8,820)
Loss from discontinued operations........................... 2,368 1,972
Loss on sale of discontinued operations..................... 218 --
-------- -------
Loss from continuing operations............................. (15,347) (6,848)
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
Gain on sale of real estate............................... -- (716)
Common stock issued for services rendered................. 45 45
Depreciation and amortization............................. 4,681 5,396
Changes in assets and liabilities:
Accounts receivable..................................... 2,457 659
Inventories............................................. 3,091 (2,581)
Other current assets.................................... 493 153
Accounts payable........................................ (1,811) 2,873
Accrued expenses........................................ (1,093) 1,022
Deferred revenue........................................ 814 (2,229)
-------- -------
Net cash used in continuing operations.................. (6,670) (2,226)
Net cash used in discontinued operations................ (2,493) (1,350)
-------- -------
Net cash used in operating activities................... (9,163) (3,576)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net.............. (585) (4,469)
Proceeds from sale of discontinued operations............... 8,000 --
Net proceeds from sale of real estate....................... -- 1,300
Purchase of Teltone inventory and intangible assets......... -- (1,987)
Decrease (Increase) in other assets......................... 319 (401)
-------- -------
Net cash provided by (used in) investing activities....... 7,734 (5,557)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. 63 187
Proceeds from exercise of options and warrants.............. -- 53
Purchase of treasury stock.................................. -- (165)
Payments of principal on long-term debt..................... (257) 25
-------- -------
Net cash (used in) provided by financing activities....... (194) 100
-------- -------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS....... -- (161)
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (1,623) (9,194)
Cash and cash equivalents, beginning of period.............. 22,968 37,267
-------- -------
Cash and cash equivalents end of period..................... $ 21,345 $28,073
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 3 $ 138
======== =======
Income taxes, net of refunds............................ $ 42 $ (70)
======== =======
</Table>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
3
<Page>
CLARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 23, 2001
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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.
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 23, 2001, and results of operations
for the three and nine months ended December 23, 2001 and December 24, 2000. 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, 2001 as filed with the
Securities and Exchange Commission.
3. LOSS PER SHARE
Options to purchase 1,972,762 and 2,299,882 shares of common stock at
December 23, 2001 and December 24, 2000, respectively, were not included in
calculating dilutive net loss per share because the effect would be
anti-dilutive.
4. DISCONTINUED OPERATIONS
On August 10, 2001, the Company sold the business and certain assets
(primarily inventory and fixed assets) of its reed switch business to Sumida
REMtech Corporation, a subsidiary of Sumida Corporation of Japan, for $8,000
cash.
Pursuant to Accounting Principles Board (APB) Opinion No. 30 (APB No. 30),
REPORTING RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT
OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
TRANSACTIONS, the consolidated financial statements of the Company have been
presented to reflect the disposition of the reed switch business in accordance
with APB 30. Accordingly, revenues, expenses, and cash flows of the reed switch
business have been excluded from the respective captions in the accompanying
consolidated statements of operations and consolidated statements of cash flows.
The net assets and liabilities of the reed switch business have been reported as
"Net assets or liabilities of discontinued operations" in the accompanying
consolidated balance sheets; the net operating losses of the reed switch
business have been reported as "Net loss from discontinued operations" in the
accompanying consolidated statements of operations; the net loss from the sale
of the reed switch business has been presented as "Net loss on sale of
discontinued operation";
4
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and the net cash flows of the reed switch business have been reported as "Net
cash used in discontinued operations" in the accompanying consolidated
statements of cash flows.
Net sales for the reed switch business were approximately $0 and $3,069 for
the three and nine months ended December 23, 2001, respectively, and were $2,873
and $10,754 for the three and nine months ended December 24, 2000, respectively.
Net assets (liabilities) of discontinued operations were as follows (in
thousands):
<Table>
<Caption>
DECEMBER 23, 2001 MARCH 31, 2001
------------------ ---------------
Accounts receivable............................ $ -- $1,145
Inventory...................................... -- 1,934
Property and equipment, net.................... -- 6,209
Accounts payable............................... -- (761)
Accrued expenses............................... (197) (103)
----- ------
$(197) $8,424
===== ======
</Table>
5. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments with
maturities of three months or less to be cash equivalents. Cash equivalents
consisted of money market accounts and overnight demand notes at December 23,
2001 and March 31, 2001.
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 23, 2001 and March 31, 2001:
<Table>
<Caption>
DECEMBER 23, 2001 MARCH 31, 2001
------------------ ---------------
Raw material................................... $4,270 $ 4,849
Work in process................................ 3,905 6,145
Finished goods................................. 1,716 1,988
------ -------
$9,891 $12,982
====== =======
</Table>
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 23, 2001 and
March 31, 2001:
<Table>
<Caption>
DECEMBER 23, 2001 MARCH 31, 2001
------------------ ---------------
Payroll and benefits........................... $1,470 $2,008
Restructuring (Note 9)......................... 92 580
Environmental remediation (Note 10)............ 337 450
Other.......................................... 490 1,095
------ ------
$2,389 $4,133
====== ======
</Table>
8. CREDIT FACILITY
The Company has a $10,000 committed revolving Credit Facility (the "Credit
Facility") expiring December 31, 2002. Interest on 30-day loans is based on
either LIBOR plus a spread ranging from 0.50% to 1.50%, based on Company
performance or the higher of the latest Federal Funds rate plus
5
<Page>
0.50% or the bank's reference rate. The Company must be 110% cash collateralized
under the Credit Facility.
There have been no borrowings since the inception of the Credit Facility in
March 1999. However, as of December 23, 2001 and March 31, 2001, the Company had
$2,045 of letters of credit outstanding under the Credit Facility in connection
with certain leases. Letters of credit in the amount of $2,045 are
collateralized by $2,250 cash on deposit at the bank as of December 23, 2001 and
March 31, 2001. The letters of credit expire on December 31, 2001 and will
automatically renew annually at the discretion of the lessor. The letters of
credit were renewed at December 31, 2001. The cash collateral is included in
restricted cash in the accompanying balance sheets.
The Credit Facility contains a financial covenant that requires the Company
to maintain minimum cash on hand. The Credit Facility also contains certain
non-financial covenants. The Company was in compliance with all covenants as of
December 23, 2001.
9. RESTRUCTURING COSTS
In March 2001, the Company implemented a restructuring plan to better align
its organization with its corporate strategy and recorded a restructuring charge
of $723 in accordance with Emerging Issues Task Force Issue ("EITF") 94-3 and
SEC Staff Accounting Bulletin 100 (SAB 100). The 2001 restructuring charge
includes severance-related costs associated with workforce reduction of
approximately 20 persons across the following functions: manufacturing (15),
general and administrative (1), research and development (4). At December 23,
2001, approximately $30 of the accrued restructuring remained. The total cash
impact of the restructuring was approximately $723, all of which will be paid by
the end of the fourth quarter of fiscal 2002.
During the third quarter of fiscal 2002, the Company implemented a
restructuring plan to better align its organization with its corporate strategy
and recorded a restructuring charge of $515K in accordance with EITF 94-3 and
SAB100. The 2002 restructuring charge includes severance-related costs
associated with workforce reduction of approximately 33 persons across the
following functions: manufacturing (16), selling and marketing (2), general and
administrative (6), research and development (9). At December 23, 2001,
approximately $62 of the accrued restructuring remained. The total cash impact
of the restructuring was approximately $515, all of which will be paid by the
end of the first quarter of fiscal 2003.
10. 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.
11. NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". SFAS No. 141 requires all business
6
<Page>
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. This statement is effective for all business combinations
initiated after June 30, 2001.
In July 2001, the FASB issued SFAS no. 142, "Goodwill and Other Intangible
Assets". This statement applies to goodwill and intangible assets acquired after
June 30, 2001, as well as goodwill and intangible assets previously acquired.
Under this statement goodwill as well as certain other intangible assets,
determined to have an infinite life, will no longer be amortized, instead these
assets will be reviewed for impairment on a periodic basis. Early adoption of
this statement is permitted for noncalendar year-end companies whereby the
entity's fiscal year begins after March 15, 2001 and its first interim period
financial statements have not been issued. Pursuant to this statement, the
Company elected early adoption during the first fiscal quarter ended June 24,
2001. The goodwill associated with the Clare-Micronix acquisition is no longer
subject to amortization over its estimated useful life. Such goodwill will be
subject to an annual assessment for impairment. As a result of this early
adoption the Company's amortization expense for the nine month period ended
December 23, 2001 is approximately $960 lower than the Nine Months Ended
December 24, 2000. In accordance with SFAS no. 142, the Company believes the
Clare-Micronix goodwill is not deemed to be impaired at December 23, 2001.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement amends FASB Statement No. 19 and is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company is currently
evaluating the ultimate impact of this statement on its results of operations or
financial position until such time as its provisions are applied.
In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes FASB SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, but retains SFAS
No. 121's fundamental provisions for (a) recognition/measurement of impairment
of long-lived assets to be held and used and (b) measurement of long-lived
assets to be disposed of by sale. SFAS No. 144 also supersedes the
accounting/reporting provisions of APB No. 30, for segments of a business to be
disposed of but retains APB No. 30's requirement to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that either has been disposed of or is classified as held
for sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The Company is
evaluating the impact of the adoption of SFAS No. 144.
12. COMPREHENSIVE LOSS
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires disclosure of all
components of comprehensive loss. Comprehensive loss is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The Company does not have any
items of comprehensive loss other than net loss.
13. FINANCIAL INFORMATION BY SEGMENT
The Company changed this composition of reportable operating segments during
fiscal 2002. Reportable operating segments are Solid State Relays, Integrated
Circuits and Corporate.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies described in the Company's most
recently filed Form 10-K. The
7
<Page>
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 December 23, 2001 and December 24, 2000 is as follows.
<Table>
<Caption>
SOLID STATE INTEGRATED
RELAYS CIRCUITS CORPORATE TOTAL
----------- ---------- --------- --------
THREE MONTHS ENDED--DECEMBER 23, 2001
Net product sales from external customers............. $ 5,067 $ 6,040 $ -- $11,107
Gross (loss) profit................................... (1,268) 2,470 -- 1,202
Depreciation and amortization......................... 1,127 445 -- 1,572
Interest income....................................... -- -- 119 119
Interest expense...................................... -- -- 4 4
Property, plant and equipment......................... 13,023 2,407 -- 15,430
THREE MONTHS ENDED--DECEMBER 24, 2000
Net product sales from external customers............. $12,302 $ 4,560 $ -- $16,862
Gross profit.......................................... 3,415 2,187 -- 5,602
Depreciation and amortization......................... 1,195 775 -- 1,970
Interest income....................................... -- -- 345 345
Interest expense...................................... -- -- 18 18
Property, plant and equipment......................... 18,086 3,337 -- 21,423
NINE MONTHS ENDED--DECEMBER 23, 2001
Net product sales from external customers............. $18,960 $15,229 $ -- $34,189
Gross (loss) profit................................... (2,103) 6,525 -- 4,422
Depreciation and amortization......................... 3,495 1,186 -- 4,681
Interest income....................................... -- -- 550 550
Interest expense...................................... -- -- 34 34
Property, plant and equipment......................... 13,023 2,407 -- 15,430
NINE MONTHS ENDED--DECEMBER 24, 2000
Net product sales from external customers............. $37,322 $12,898 $ -- $50,220
Gross profit.......................................... 11,285 6,580 -- 17,865
Depreciation and amortization......................... 3,478 1,918 -- 5,396
Interest income....................................... -- -- 1,378 1,378
Interest expense...................................... -- -- 149 149
Property, plant and equipment......................... 18,086 3,337 -- 21,423
</Table>
Interest income and expense, 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
arms' length basis.
Long-lived tangible assets by geographic area were as follows:
<Table>
<Caption>
GEOGRAPHIC AREA DECEMBER 23, 2001 MARCH 31, 2001
- --------------- ------------------ --------------
United States.................................. $15,331 $18,686
Belgium........................................ 91 104
Taiwan......................................... 8 6
------- -------
$15,430 $18,796
======= =======
</Table>
8
<Page>
Revenues by geographic area for the three and nine months ended
December 23, 2001 and December 24, 2000 were as follows:
<Table>
<Caption>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
GEOGRAPHIC AREA DECEMBER 23, 2001 DECEMBER 24, 2000 DECEMBER 23, 2001 DECEMBER 24, 2000
- --------------- ----------------- ----------------- ----------------- -----------------
United States.............. $ 8,116 $ 6,968 $22,005 $23,932
Malaysia................... 181 3,004 2,587 6,234
Taiwan..................... 543 543 1,571 1,602
Germany.................... 119 1,166 629 3,203
France..................... 324 851 844 2,516
United Kingdom............. 161 851 1,069 2,477
Other...................... 1,987 3,479 5,484 10,256
------- ------- ------- -------
$11,107 $16,862 $34,189 $50,220
======= ======= ======= =======
</Table>
9
<Page>
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, 2001,
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:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
DECEMBER 23, DECEMBER 24, DECEMBER 23, DECEMBER 24,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 89.2 66.8 87.1 64.4
----- ----- ----- -----
Gross profit.............................. 10.8 33.2 12.9 35.6
Operating expenses:
Selling, general and administrative....... 38.0 28.7 33.0 31.5
Research and development.................. 24.2 24.1 23.8 21.1
Restructuring............................. 4.6 -- 1.5 --
Gain on sale of real estate............... -- (4.2) -- (1.4)
----- ----- ----- -----
Operating loss............................ (56.0) (15.4) (45.4) (15.6)
Interest income........................... 1.1 2.0 1.6 2.7
Interest expense.......................... 0.0 0.1 0.1 0.3
Other (expense) income, net............... (0.4) 0.1 (0.9) (0.4)
----- ----- ----- -----
Loss from continuing operations........... (55.3) 13.4 (44.8) (13.6)
Loss from discontinued operations......... -- (4.4) (6.9) (3.9)
Loss on sale of discontinued operations... -- -- (0.6) --
----- ----- ----- -----
Net loss.................................. (55.3)% (17.8)% (52.3)% (17.5)
===== ===== ===== =====
</Table>
NET SALES. In the third quarter of fiscal 2002, revenues from continuing
operations totaled $11.1 million compared with $16.9 million for the same period
in fiscal 2001, a decrease of 34%. For the nine months ended December 23, 2001,
revenues from continuing operations were $34.2 million compared with
$50.2 million for the same period in the prior year, a decrease of 32%. Lower
sales were largely the result of decreased demand for solid state relays in the
communications market.
Net sales from continuing operations to customers located outside of the
United States totaled $3.0 million in the third quarter of fiscal 2002, or about
27% of total net sales. Net sales from continuing operations to customers in
Europe represented 16% and net sales from continuing operations to customers in
Asia represented 11% of total net sales from continuing operations for the third
quarter ended December 23, 2001.
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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. Because the Company ships and invoices
all of its business from the United States, 100% of sales into Asia and
approximately 75% of sales into Europe are U.S dollar denominated transactions
and are, therefore, not exposed to exchange risk. Although a portion of sales
into Europe are denominated in Euros, the related foreign currency assets are
partially naturally hedged by foreign currency liabilities for local sales
operations.
GROSS PROFIT. Gross profit from continuing operations as a percentage of
net sales was 10.8% in the third quarter of fiscal 2002 compared with 33.2%
during the same period in fiscal 2001. The gross profit ratio from continuing
operations decreased to 12.9% for the nine months ended December 23, 2001 from
35.6% for the comparable period ended December 24, 2000. The decrease was
primarily the result of under-utilization of the Company's semiconductor
fabrication facility and pricing pressure on solid state relay sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative (S,G&A) expenses decreased $0.6 million, or 13%, in the third
quarter of fiscal 2002 from $4.8 million for the same period in the prior fiscal
year. On a year-to-date basis, S,G&A expense totaled $11.3 million, down
$4.5 million from the prior year. The decrease was attributable primarily to
reduced employment, lower third-party sales commissions, lower promotion
expense, and the adoption of SFAS 142, which discontinued goodwill amortization
during fiscal 2002.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense (R&D),
net of customer funded engineering, totaled $2.7 million for the third quarter
of fiscal 2002, down $1.4 million from the comparable prior year period. On a
year-to-date basis, R&D expense aggregated $8.2 million, which is $2.5 million,
or 23%, lower than last year. The decrease was principally due to higher
customer funded engineering. Despite lower overall spending, the Company
continued to invest in product design and process technology to support new
products such as application specific integrated circuits (ASICs), the Line Card
Access Switch (LCAS), LiteLink, and OLED display drivers.
RESTRUCTURING COSTS. In the third fiscal quarter of 2002, the Company
recorded a restructuring charge of $0.5 million as a result of a reduction of
personnel (33 positions were eliminated, primarily in manufacturing). See
Note 9 to financial statements.
INTEREST INCOME. Interest income totaled $0.1 million and $0.5 million for
the third quarter and first nine months of fiscal 2002, respectively. Interest
income is derived from investments in money market funds. Lower interest income
compared with the prior fiscal year periods resulted from lower average cash
balances.
OTHER EXPENSE, NET. On a year-to-date basis, other expense totaled
$0.3 million and included a $0.25 million charge to revalue the Company's
investment in Enrichnet, a quality of service software provider that became
dormant during the second quarter.
LOSS FROM DISCONTINUED OPERATIONS AND LOSS ON SALE OF DISCONTINUED
OPERATIONS. On August 10, 2001, the Company sold all of the assets of its Reed
Switch business to Sumida Corporation of Japan for $8.0 million and recorded a
$0.2 million net loss on the transaction. In accordance with APB Opinion
No. 30, Reporting the Results of Operations, the business is being accounted for
as a discontinued operation and appears on one line in the Statements of
Operations. See Note 4 to financial statements
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 nine months of fiscal years 2001 and 2002, the Company did
not record a tax benefit for pre-tax losses because it is not likely that such a
benefit will be utilized in the foreseeable future.
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TRENDS AND UNCERTAINTIES
COMPETITION. 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 2002, the Company's
ten largest customers accounted for 43% 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. 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, because of recent 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. 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 WAFER FABRICATION FACILITY. The Company operates a
semiconductor fabrication facility in Beverly, Massachusetts. To date, demand
for 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 facility will be fully utilized
in the near term.
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. These
factors have not had a material effect on the Company's results; however, there
can be no assurance that there will not be such an impact in the future.
LIQUIDITY. The Company ended the quarter with cash balances of $21.3
million compared with $28.1 million at December 24, 2000. The Company maintains
a $10.0 million secured 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 23, 2001, the Company's cash and cash
equivalents decreased by $1.6 million to $21.3 million. This decrease consisted
of the net of proceeds from the sale
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<Page>
of the Reed Switch business ($8.0 million), cash provided from working capital
($4.1 million) and depreciation and amortization ($4.7 million) offset, in part,
by operating losses ($17.9 million).
In fiscal 1999, the Company entered into a $10 million secured committed
revolving credit facility. Although the Company has had no borrowings against
this line, the facility has been used to obtain letters of credit totaling $2.0
million at December 23, 2001 to secure future operating lease payments.
The Company believes that cash generated from operations, cash and cash
equivalents, 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
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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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
27.0 Financial Data Schedule (Edgar)
</Table>
(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.
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.
<Table>
C.P. CLARE CORPORATION
By:
-----------------------------------------
Harry Andersen
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
</Table>
(date)
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