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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997 Commission file number 0-26092
C.P. CLARE CORPORATION
(Exact name of registrant as specified in its charter)
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MASSACHUSETTS 04-2561471
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
78 CHERRY HILL DRIVE
BEVERLY, MA 01915
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 524-6700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of each class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of June 5, 1997, was $131,391,616
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of June 5, 1997, was 9,196,137
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Proxy Statement for the Registrant's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K, are incorporated by
reference in Part III, Items 10, 11, 12 and 13, of this Form 10-K.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business..................................................................... 1
2. Properties................................................................... 10
3. Legal Proceedings............................................................ 10
4. Submission of Matters to a Vote of Securityholders........................... 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters........ 11
6. Selected Financial Data...................................................... 12
7. Management's Discussion and Analysis of Financial Condition and Results of 13
Operations...................................................................
7a. Quantitative and Qualitative Information About Market Risk................... 17
8. Financial Statements and Supplementary Data.................................. 17
9. Changes in and Disagreements with Accountants on Accounting and Financial 17
Disclosure...................................................................
PART III
10. Directors and Executive Officers of the Registrant........................... 17
11. Executive Compensation....................................................... 17
12. Security Ownership of Certain Beneficial Owners and Management............... 17
13. Certain Relationships and Related Transactions............................... 17
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K............... 18
(a) Financial Statement Schedule
(b) Reports on Form 8-K
(c) Exhibits
15. Signatures................................................................... 49
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This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1993, 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 section entitled
"Certain Factors Affecting Future Operating Results" on page 9 of this Form
10-K.
PART I
ITEM 1. BUSINESS
C.P. Clare is a leading provider of high voltage analog semiconductor
components, electromagnetic relays and switches, surge protection products and
specialized electronic components. Customers include the foremost worldwide
manufacturers of electronic communications equipment. Switch and relay
components supply the interface between electrical power sources and electronic
components by providing the basic isolation and switching functions required by
electronic products. The Company's newer semiconductor products have recently
achieved rapid acceptance in many new applications and have replaced older
technologies in some established applications.
C.P. Clare is a technology leader in the semiconductor segment of the small
signal relay market. C.P. Clare's semiconductor relays are capable of
integrating a number of functions previously provided by discrete components
into one package and have contributed to the development of a number of new
product applications such as PCMCIA card modems. Semiconductor relays represent
the fastest growing segment of the small signal relay market and accounted for
47% and 37% of the Company's net sales in fiscal 1997 and 1996, respectively.
C.P. Clare focuses on providing solutions for the telecommunications and
datacommunications industries due to their significant utilization of switches
and relays and growing demand for highly integrated semiconductor relays. The
Company's customers include leading global OEMs such as ABB, Alcatel, Compaq,
Daewoo, GVC, LM Ericsson, Lucent Technologies, Motorola, Nokia, Samsung and US
Robotics.
C.P. Clare Corporation (the "Company" or "C.P. Clare"), founded in 1937 to
design, manufacture and sell electromagnetic products, was sold to General
Instrument Corporation in 1967 and operated as a division thereof. Theta-J
Corporation, founded in 1975 to design, manufacture and market semiconductor
based electronic components, purchased the North American, Taiwanese and
European operations of the Clare Division of General Instrument in 1989 (the
"1989 Transaction") and changed its name to C.P. Clare Corporation. The 1989
Transaction resulted in the formation of the Company in substantially its
present form. The Company is incorporated under the laws of Massachusetts and
its principal offices are located at 78 Cherry Hill Drive, Beverly,
Massachusetts, 01915.
BACKGROUND
The growth in the worldwide telecommunications and data communications
markets is being fueled by the convergence of several technological and market
trends which are leading to a broad and increasing array of communications and
computing products. Advances in computer hardware and software have accelerated
the technological shift to distributed processing over communications networks.
Trends toward portability and miniaturization have resulted in significant
growth in mobile communications and mobile computing products.
Electronic switch and relay components are enabling building blocks for a
broad range of products in the telecommunications and data communications
markets, as well as for products in a wide array of other applications such as
telemetering and remote access, consumer electronics, appliances, computer
peripherals, gaming equipment, automotive, aerospace, automatic test equipment,
industrial controls and instrumentation. Relays, including their switch
components, provide two basic functions required by virtually all electronic and
electrical products: isolation and switching. Isolation separates the low
current signal circuit from the higher power circuit, while the switching
function controls the flow of current.
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Various types of switch and relay products based on semiconductor,
electromechanical and electromagnetic technologies have been developed to meet
these isolation and switching requirements. C.P. Clare designs, manufactures and
sells electromagnetic and semiconductor products for these and other
applications such as surge protection. These technologies and resulting products
are utilized for various applications based on a number of factors, including
performance, sensitivity, resistance, size, speed and cost.
STRATEGY
C.P. Clare's strategy is to leverage its technological leadership and
worldwide customer relationships in order to profitably expand its market share
for its semiconductor, electromagnetic, surge protection and specialized
electronic component products in existing and new markets. Key elements of this
strategy are:
Capitalize on Semiconductor Opportunities. C.P. Clare is a leader in
semiconductor relay technology, offering a broad line of semiconductor products
in a wide variety of package types and specifications. The Company seeks to
significantly expand the application of its semiconductor technology into
existing and new markets such as telecommunications and instrumentation through
the integration of more functions. From its new 5 inch wafer fabrication
facility in Beverly, Massachusetts, C.P. Clare plans to continue the development
of new products and new technologies. The Company anticipates that new products
and additional capacity from the new facility will better position it for
increased product demand resulting from new technological advances in the analog
modem market. The Company's semiconductor revenues represented a significant
portion of total revenues during the fiscal year. During fiscal year 1997, the
Company introduced several new products and maintained the construction schedule
of the new facility.
Focus on Communications Industry. The Company has focused primarily on
developing solutions for the computer telephony, datacommunications and
telecommunications industries due to their significant utilization of relays and
switches and the increased need for highly integrated semiconductor relays. The
Company's semiconductor products are an enabling technology in certain
applications such as modems and computer telephony. C.P. Clare's electromagnetic
products are integral components in other applications such as cellular
telephones, instrumentation and process control, and automated test equipment.
During the year, product sales to the communications industry represented a
significant portion of the Company's total sales. The Company is qualifying
processes and designs which can capitalize on its experience with optical
isolation, analog semiconductor processes, wafer technology and multi-chip
packaging.
Leverage Customer Relationships and Pursue New Market Opportunities. The
Company has established long standing customer relationships due to its strong
worldwide brand recognition, broad product offerings, and quality customer
service. The Company intends to further leverage its customer relationships by
offering complementary and new products to its existing customer base and by
pursuing new market opportunities. The Company is capitalizing on its worldwide
brand recognition to expand into new geographic markets and new industries. The
Company is seeking to increase sales in Japan, China, India and Southeast Asia,
where significant opportunities exist for sales of both semiconductor and
electromagnetic products. During fiscal year 1997 the Company acquired the surge
protection business from Wickmann, GmbH in Germany and entered into a cross
selling agreement with Harris Semiconductor for the Company's gas discharge tube
and Harris' metal oxide varistor product lines.
New Product Development. The Company has increased and intends to continue
to increase its investment in new product development and strengthen the
functionality of existing products in an effort to enter new markets and gain
share in existing markets. Product development also includes further integration
of new and existing components into single packages. Company sponsored research
and development expenses were $6.5 million (or 5.1% of total revenues) and $4.4
million (or 3.5% of total revenues), for fiscal years 1997 and 1996,
respectively. The Company's core competencies in semiconductor design, package
molding, coil winding and ceramic-to-metal sealing have allowed the Company to
introduce new products to existing and prospective customers. The Company
anticipates additional investment into its research and development activities.
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Reduce Complexity and Cost of Operations. The Company has successfully
completed a major portion of its restructuring activities announced September
17, 1996, with the sale of the Tongeren Manufacturing Company ("TMC") in
January, 1997 to Gunther, GmbH. This allowed the Company to exit a relatively
high cost manufacturing environment, while maintaining a strong European
presence. During fiscal year 1997, C.P. Clare closed its Lexington and North
Attleboro administrative facilities and moved its corporate headquarters,
administrative, sales and marketing departments into its new Beverly,
Massachusetts facility. The new facility also houses its 5 inch wafer
fabrication facility, research and development, engineering laboratories and
semiconductor testing and packaging functions. The Company anticipates that it
will use the remainder of the restructuring reserve in fiscal year 1998.
CUSTOMERS
C.P. Clare has established a broad base of approximately 700 customers
representing a wide range of industries and applications. The communications
industry represents the Company's largest customer due to the industry's
pervasive use of switch, relay and surge protection technology and the need for
more integrated solutions. The Company seeks to sell multiple products to its
customers in order to allow C.P. Clare to become more of a strategic supplier.
Sales to customers outside the United States comprised 38.0%, 42.6%, and 44.6%
of the Company's net sales for the fiscal years 1997, 1996 and 1995,
respectively. For fiscal years ended March 31, 1997, 1996 and 1995, net sales to
Motorola represented 17%, 16% and 10% of net sales, respectively.
PRODUCT APPLICATIONS
The Company's products are used in a wide variety of applications. Set
forth below is a representative sample of applications for the Company's
semiconductor and electromagnetic products.
COMMUNICATIONS
PCMCIA Card Modems. PCMCIA cards are thin, credit card size modems which
insert into a designated slot in mobile computer equipment, allowing the
portable computer to transmit data over telephone lines and function as a
facsimile machine. C.P. Clare was the first to introduce semiconductor products
in thin, small flat-pack packages that integrate the functionality previously
provided by a number of discrete components including relays, surge protection
devices and magnetics. This manufacturing capability has allowed C.P. Clare to
become a leading worldwide supplier of semiconductor components to the major
manufacturers of PCMCIA card modems.
Cellular Phones. Cellular telephones require a high degree of durability
and reliability. The Company's electromagnetic dry reed switches, an enabling
component of the Motorola flip phone, are surface-mountable switches which
maintain switch orientation and provide cost-effective, reliable and automated
assembly in small package sizes.
AUTOMATED PROCESS CONTROL/INSTRUMENTATION AND METERING
Metering and Remote Access. Water, gas, electricity meter reading systems
as well as vending machines and gas pumps have been developed to allow the
remote reading of such systems. Semiconductor relays have been incorporated into
these systems and provide a high speed interface between low level power signals
and the high power output signals required to enhance metering functionality.
Control Instrumentation. Operations such as power plants require multiple
processes to be monitored and controlled under a broad range of environmental
conditions. The Company's electromagnetic wetted reed relay, semiconductor and
surge protection devices are used to provide isolation and surge protection. If
the relay does not function properly, false readings and equipment damage may
result. Thus, a high degree of reliability is required in these applications.
Wetted reed products provide a high degree of reliability, sensitivity and
stability over a wide range of temperatures.
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SECURITY
The security industry requires low cost, high reliability relay and switch
products for use in proximity sensors, infrared detectors, smoke detectors,
carbon dioxide sensors and supervisory control panels. The Company's
electromagnetic dry reed switches provide a low cost, rugged and reliable switch
for use in proximity sensors which cause the switch to be activated by use of an
external magnet when a door or window is opened.
AUTOMATIC TEST EQUIPMENT
Electrical Testers. Semiconductor and printed circuit board testers
require precise measurement of smaller, complex products such as integrated
circuits, silicon wafers and printed circuit board assemblies. In each of these
pieces of equipment, test points are created by placing a dry reed relay on each
electrical path. If the test path is functioning correctly, the dry reed relay
is activated. C.P. Clare's dry reed relays feature low capacitance, a critical
feature for this application which requires sensitivity and precision.
PRODUCTS
The Company manufactures several hundred standard products and also
develops and manufactures custom products for specific customer applications.
The Company has two major product families: semiconductor products, which
include relays, optocouplers and integrated products; and electromagnetic
products, which include reed relays and switches and magnetic components. The
Company also produces a line of surge protection products which are often
complementary to the Company's relay products. Each product line builds on one
or more of the Company's core competencies in the areas of semiconductor design
and processing, package molding, coil winding, ceramic-to-metal sealing and
materials processing.
SEMICONDUCTOR PRODUCTS
The Company manufactures a wide variety of semiconductor products
consisting primarily of relays, optocouplers and integrated products which are
sold in a broad line of over 270 relay configurations. The Company's
semiconductor products are sold primarily to communications customers and are
also utilized in a number of applications in other industries such as automated
process control, remote access metering, aerospace and automotive. Semiconductor
relays achieve the required isolation and switching functions with no moving
parts, eliminating the mechanical wear typically associated with other types of
relays, thus improving reliability with low distortion. Semiconductor relays are
capable of integrating several additional functions into one small package,
thereby further reducing board size requirements and providing the user with
lower component and assembly costs. The Company has recently introduced its
Cybergate(TM) 2000 data access arrangement series to sell more of its components
into those analog modem applications where multiple discrete components are
typically used.
ELECTROMAGNETIC PRODUCTS
The Company manufactures a broad range of electromagnetic products
consisting of dry and wetted reed switches and relays and magnetic components,
used in applications such as transformers and lighting ballasts. The Company's
electromagnetic products are sold primarily to the communications industry and
are also sold to other industries such as industrial and automated process
control, transportation, home security, aerospace and automotive. The
electromagnetic switch consists of two flat metal blades which are encapsulated
in a glass tube and hermetically sealed in an inert atmosphere. Switches are
opened or closed by use of an external magnetic field. The switch is the basic
component of the electromagnetic relay which is formed by winding a wire coil
around the switch. When an electrical signal is applied to the coil, it creates
an electromagnetic field which causes the switch to open or close.
Dry Reed. The Company's dry reed switch, the DYAD(R), has electrical
contacts which have an extremely hard refractory metal applied to the contacts.
The DYAD(R)was the first commercially available switch to have surface mount
capabilities which maintain orientation between the pads and the switch. Surface
mounting allows for the automated placement of the switch onto circuit boards,
thus lowering manufacturing costs. The Company's DYAD(R) switch has a rugged
design which may increase product life and
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has lower bounce, which provides less electronic noise and is particularly
important for applications with a high degree of sensitivity. Dry reed products,
which can be manufactured in high volumes at low cost, can function through
millions of operations and have low resistance, which causes less heat
generation and power consumption.
The communications industry, with products such as cellular phones, modems
and facsimile machines, represents the largest market for dry reed switches and
relays. Dry reed switches are also widely used in automatic test equipment
applications, due to their high sensitivity and low resistance, and alarm
sensors for residential and commercial security applications.
Wetted Reed. The wetted reed high performance switch uses a liquid mercury
film which is applied or wetted to the electrical contacts. This
mercury-to-mercury connection when the switch is closed provides the lowest
contact resistance and the least distortion of all switch technologies. Wetted
reed products provide advantages similar to those of dry reed products but are
able to offer higher performance characteristics. The Company's wetted reed
products are primarily used in telecommunications applications such as central
office equipment, telephone switching gear, telephone test systems and PBXs.
Wetted reed products are also used in process control applications and the
instrumentation market in precision measuring and watt meter applications.
Advanced Magnetic Products. The Company provides application-specific
engineering, design and manufacturing subcontracting services for magnetic
components, ranging from small coil windings that may be attached to printed
circuit boards and to magnetic subassemblies, such as solenoids used by
customers in the computer, automotive, power supply and lighting markets. The
Company has developed a standard telecommunications transformer designed to
replace isolation transformers currently used in large volumes in communications
applications, and has begun to offer a modem isolation transformer in the
semiconductor DAA product.
SURGE PROTECTION PRODUCTS
The Company manufactures gas tube surge arresters which utilize the
ionization characteristics of certain gases to provide continual protection from
damaging electrical surges caused by events such as lightning strikes or heavy
equipment start ups. In addition, the Company produces small quantities of
special purpose, larger capacity, high energy surge arresters. The Company's
surge protection products have high insulation resistance, low capacitance and
high current handling capability, and are used for circuit protection in
telecommunications, data transmission lines, AC power lines, cable TV systems
and power supplies. Recently, the Company has begun offering other surge
protection technologies to its customers through an acquisition of the surge
protection business of Wickmann, GmbH and a cross selling agreement with Harris
Semiconductor.
PRODUCT DEVELOPMENT
The Company intends to build upon its history of innovation in both the
semiconductor and electromagnetic market segments. The Company's product
development strategy is driven by two objectives: meeting customer application
requirements and extending the Company's technical capabilities. The Company has
focused on utilizing its relationships with key OEMs and its applications
engineering capability to enhance existing products and develop new products.
Semiconductor Products. The Company has developed new semiconductor
integrated products which offer increased, integrated functionality in one
package. The Company is also developing relay chips designed to be smaller and
less expensive than other semiconductor relay chips and designed to replace the
electromechanical relay in certain applications. These new products are targeted
to datacommunications and portable telephone applications. Also under
development are products for certain data acquisition, medical electronics and
automated process control applications. The new wafer fabrication facility in
Beverly, Massachusetts will provide the Company with additional product
development opportunities.
Electromagnetic Products. The Company is engaged in a number of product
development projects for both dry reed switches and relays. Dry reed switch
product development is focusing on further miniaturizing a dry reed switch with
a design similar to that of the DYAD(R) in order to address the market trend
toward
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smaller products, especially in certain applications in the security and
automatic test equipment markets as well as for higher frequency switching
applications.
SALES AND DISTRIBUTION
C.P. Clare sells its products to its worldwide customers through a network
of direct salespeople, contract sales representatives and distributors in North
America, Europe, Japan and the Far East.
Sales through distributors represented 18% of the Company's overall sales
in fiscal 1997. In general, sales representatives and distributors have entered
into agreements that allow for termination by either party upon 30 days' notice
and return by distributors of some of the Company's products. These agreements
generally allow representatives and distributors to market and sell products
competitively with those of the Company and generally permit representatives and
distributors to return a small portion of products purchased by them during the
term of such agreements and to return all products (other than obsolete
products) purchased by them upon termination of such agreements.
BACKLOG
During fiscal 1997, the Company changed its method of calculating backlog
to include in backlog only those purchase orders scheduled for shipment within
six months following the order date. Previously, the Company included in
backlog, those purchase orders scheduled for shipment within 12 months. As of
March 31, 1997, six month order backlog was approximately $32.6 million compared
with a restated six month backlog of $37.8 million as of March 31, 1996. The
majority of the decrease in backlog was attributable to the reduced delivery
lead times for the Company's semiconductor products. Although the Company's
contract terms may vary from customer to customer, purchasers of standard
products may generally cancel or reschedule orders without significant penalty.
Since backlog can be canceled or rescheduled, the Company's backlog at any time
is not necessarily indicative of future revenue.
MANUFACTURING
Each of the Company's manufacturing facilities is ISO 9001 certified. ISO
9001 certification is an international certification for quality control
systems, the receipt of which emphasizes the Company's commitment to quality
control and assists the Company in becoming a qualified supplier for certain
customers. The Company's manufacturing and assembly facilities contain
approximately 354,400 square feet of floor space. The Company currently has a
program underway for relocation, consolidation and automation of its facilities,
and the Company expects to add capacity to its semiconductor operations at its
new semiconductor wafer fabrication facility in Beverly, Massachusetts. The
Company has expanded its operations in Mexico. There can be no assurance that
the Company will be successful in expanding its manufacturing facilities or
building new facilities to meet demand in a timely manner or within budget.
Semiconductor Products. The manufacturing of semiconductor products
involves two general phases of production: the wafer fabrication (chip
manufacturing) process, and the relay assembly (chip packaging) process. The
Company's Massachusetts wafer fabrication facilities design relays and chips and
manufacture and test chips. Most fabricated chips are shipped for assembly to a
subcontractor in the Philippines, although some are sent to the Company's
facility in Guadalajara, Mexico. Certain assembled relays are returned to
Massachusetts for testing, packaging, and shipment to the customer.
Electromagnetic Products. The Company manufactures dry reed switches in
St. Louis, Missouri and assembles relays in Chitu, Taiwan and Guadalajara,
Mexico. In January, 1997 the Company sold TMC to Gunther, GmbH. This allowed the
exit from a relatively high cost wetted reed manufacturing environment, while
maintaining a strong European presence. Wetted reed switches and certain wetted
reed relays are purchased from the new owners of TMC in Tongeren, Belgium under
a long-term supply agreement. Magnetic components are designed and assembled in
Guadalajara, Mexico.
The Company's Mexican facilities perform assembly operations for most
product lines and account for a significant portion of the Company's overall
manufacturing output. These facilities were established and are operated under
the Maquiladora program. In general, a company that operates under the program
is required
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to export at least 80% of its production from Mexico and is afforded certain
duty and tax preferences and incentives on products brought back into the United
States.
COMPETITION
The markets in which the Company operates are highly competitive, and the
Company faces competition from a number of different manufacturers in each of
its product areas and geographic markets. The principal competitive factors
affecting the market for the Company's products include performance,
functionality, price, brand recognition, product size, customer service and
support and reliability.
Many of the Company's competitors have substantially greater financial,
marketing, technical, manufacturing and distribution resources than those of the
Company. While the Company believes that its broad product offerings, worldwide
sales coverage, customer service and brand recognition enable the Company to
compete effectively, there can be no assurance that the Company will be able to
continue to do so.
EMPLOYEES
As of March 31, 1997, the Company had 1,474 total employees including 1,304
in manufacturing, 77 in sales and marketing, 44 in research and development and
49 in administration. While none of the Company's United States employees are
unionized, the Company's employees in Mexico and Taiwan are represented by
government mandated collective bargaining agreements. The Company believes that
its relations with employees are generally good. See "Certain Factors Affecting
Future Operating Results."
PROPRIETARY RIGHTS
At March 31, 1997, the Company held four United States patents, ten foreign
patents, fourteen United States trademarks or trademark applications and two
foreign trademarks. The Company has a number of patent applications pending. The
Company intends to continue to seek patents on its products, as appropriate. The
Company believes that although these patents may have value, given the rapidly
changing nature of the industries in which the Company competes, the Company
depends primarily on the technical competence and creativity of its technical
work force and its ability to continue to introduce product improvements
rapidly. The Company does not believe that the success of its business is
materially dependent on the existence, validity or duration of any patent,
license or trademark.
The Company attempts to protect its trade secrets and other proprietary
rights through formal agreements with employees, customers, suppliers and
consultants. Most employees are required to sign an agreement regarding
ownership of proprietary rights and trade secrets. Although the Company intends
to protect its intellectual property rights vigorously, there can be no
assurance that these and other security arrangements will be successful. The
process of seeking patent protection can be long and expensive, and there can be
no assurance that existing patents or any new patents that may be issued will be
of sufficient scope or strength to provide meaningful protection or any
commercial advantage to the Company. The Company may be subject to or may
initiate interference proceedings in the patent office, which can demand
significant financial and management resources. The Company has from time to
time received, and may in the future receive, communications from third parties
asserting patents on certain of the Company's products and technologies.
Although the Company has not been a party to any material intellectual property
litigation other than that described herein, in the event any third party were
to make a valid claim and a license were not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation, which could result in substantial cost to and
diversion of resources of the Company, may also be necessary to enforce patents
or other intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. The failure to obtain
necessary licenses or the occurrence of litigation relating to patent
infringement or other intellectual property matters could have a material
adverse affect on the Company's business and operating results.
ENVIRONMENTAL
The Company's facilities are regulated pursuant to foreign, state and
federal statutes, including those addressing hazardous waste, clean water and
clean air. The Comprehensive Environmental Response,
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Compensation and Liabilities Act of 1980, as amended (the "Superfund Act"),
imposes retroactive, strict and, in certain cases, joint and several liability
upon certain persons in connection with the cleanup of sites at which there has
been a release or threatened release of hazardous substances into the
environment. The Superfund Act provides for immediate response and removal
actions coordinated by the Environmental Protection Agency to releases of
hazardous substances into the environment, and authorizes the government to
respond to the release or threatened release of hazardous substances or to order
persons responsible for any such release to perform any necessary cleanup. The
statute imposes liability for these responses and other related costs, including
the cost of damages to natural resources, to the parties involved in the
generation, transportation and disposal of such hazardous substances and to
those who currently own or operate or who previously owned or operated the
property upon which such releases occurred. Under the statute, and given the
manufacturing processes used by the Company, the Company may be deemed liable as
a generator or transporter of a hazardous substance which is released into the
environment, or as the current or former owner or operator of a facility from
which there is a release of a hazardous substance into the environment. The
Company has not to date had any action brought against it under the Superfund
Act, but there can be no assurance that there will be no action brought against
the Company in the future. Local sewer discharge requirements are applicable to
certain of the Company's facilities. The Company's facilities are subject to
local siting, zoning and land use restrictions. The Company believes it is in
compliance with all foreign, federal, state and local laws regulating its
business. The Company however has not undertaken a comprehensive review of its
properties to determine whether or not hazardous materials have been discharged
at any time in the past, whether by the Company or a previous occupant of the
facility. Any failure by the Company to control the use of, or to restrict
adequately the discharge of, hazardous materials under present or future
regulations could subject the Company to fines or substantial liability. In
addition, the Company could be held financially responsible for remedial
measures if its properties were found to be contaminated whether or not the
Company was responsible for such contamination.
An environmental site investigation commissioned in 1992, by the Company on
its West Pratt Avenue facility in Chicago, Illinois (the "Facility"), reported
evidence of contamination at the Facility. The Company voluntarily reported the
discovery to the Illinois Environmental Protection Agency ("IEPA"), and has
since been involved in discussions with IEPA and the U.S. Environmental
Protection Agency regarding the implications of the investigation and the need
for further investigation and remedial work. Although prior environmental site
investigations conducted in October 1988 and January 1989, did not reveal the
contamination, the Company believes the contamination predates the Company's
acquisition of the Facility from General Instrument in 1989. The Company has
apprised General Instrument of its responsibility for the contamination and the
Company and General Instrument have conducted jointly an assessment of the
Facility which resulted in a cleanup and demolition plan for the Facility.
The Company and General Instrument have agreed to share the costs of
implementing the proposed cleanup plan at both the Facility and the adjacent
properties. Pursuant to that agreement, General Instrument will pay for 75% of
the costs of the soil remediation and related environmental cleanup costs, and
the Company will bear 25% of such costs and the complete cost of removing
asbestos from the building structure and building demolition. The agreement is
subject to a reservation of both parties' rights to reallocate these costs or
litigate concerning final liability at the site. When cleanup is completed, the
parties will attempt to reach agreement on a final accounting for the cleanup
costs. If a final accounting acceptable to C.P. Clare cannot be attained, C.P.
Clare may commence litigation against General Instrument to recover its fair
share of such costs.
During fiscal 1997, the Company and General Instrument began the
remediation at the site. The approved clean-up method produced conditions that
were not acceptable to the community. As a result, the Company has determined
the most likely scenario will be to remediate the property to make it useable as
industrial/commercial, rather than residential property, as originally planned.
On March 31, 1995, the Company signed a purchase and sale agreement to sell this
property to a developer for $3,150, subject to certain conditions, principally
the Company's successful remediation of the property and the attainment of the
required zoning ordinances to permit residential development of this property.
Based on the anticipated industrial/commercial remediation plan, the Company has
terminated this purchase and sale agreement and
8
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has recorded an additional expense amount to reflect an anticipated lower net
realizable value for the site. See Note 8 of Notes to Consolidated Financial
Statements.
Further testing has confirmed that some of the contamination has migrated
onto two adjacent properties. The Company is working with those parties and its
environmental consultants to establish the procedures and costs for remediating
these properties. The Facility has been entered into the voluntary cleanup
program administered by IEPA called the Illinois Pre-Notice Site Assessment
Program. Once the cleanup is completed, the Company expects the IEPA to issue a
letter stating no further action is required at the Facility.
As the remediation progresses, the Company and General Instrument will
address contamination that has been found on adjacent sites. Management
continues to analyze the estimated environmental remediation liability and has
accrued additional amounts when known events have required revised estimates.
However, given the current stage of the remediation process and the magnitude of
contamination found at the site and adjacent sites, the ultimate disposition of
this environmental matter could have a significant negative impact on the
Company's consolidated financial results for a future reporting period.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The information contained in and incorporated by reference in this Form
10-K contains forward-looking statements with 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. Factors that may affect
future operating results include the ability to develop and market new products
in a timely fashion, competitive pricing pressures, manufacturing capacity, the
continued growth of the telecommmications industry, and the ability to
effectively manage operational changes.
On September 17, 1996, the Company announced a restructuring of its
operations in order to reduce operating costs, primarily in its reed relay
business operations. The restructuring involved many of the Company's worldwide
operations and involved workforce reduction and facility consolidation. These
actions may lead to worker unrest and/or other action by the Company's unionized
employees in Mexico and Taiwan. The Company's future results are dependent on
the successful implementation and completion of the announced restructuring.
Delays in such implementation or the inability to complete the restructuring in
a timely manner would have a material adverse effect on the Company's future
operating results.
The Company's sale of TMC to Gunther GmbH and the signing of a long-term
supply agreement with the newly formed Gunther Belgium N.V. may affect the
Company's sales of wetted relay switches and relays. Employees at this facility
have in the past initiated work stoppages and strikes. Future actions taken by
the employees of Gunther Belgium N.V. and the ongoing ability of Gunther Belgium
N.V. to produce quality product in an efficient manner may also have a material
adverse effect on the Company's future operating results.
The markets for the Company's products are characterized by technological
change and new product introductions. 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 computer-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 its
new products. Slower than expected acceptance of these new products will have
the effect of adversely affecting 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 performance. If the Company is unable to develop such new
capabilities or is unable to design, develop and introduce competitive new
products, its operating results would be adversely affected.
The Company is in the process of constructing a larger, more advanced
semiconductor facility in Beverly, Massachusetts to address current capacity
constraints and operating efficiencies in the production of its
9
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semiconductor products. The construction of this facility while the existing
facility is operating near full capacity could have an impact on production and
associated costs. In addition, delays in the delivery of equipment or
qualification of the new facility could delay the full operation of the new
facility. Any such delay would have a material, adverse effect on the Company's
future operating results. Once complete, the new facility must be effectively
and fully utilized in order for the Company's projected efficiencies to be fully
realized. Delays in full and effective utilization will have a material, adverse
effect on the Company's future operating results.
The Company has experienced fluctuation in its operating results in the
past and its operating results may fluctuate in the future. The Company has
increased the scope and geographic area of its operations. This expansion has
resulted in new and increased responsibilities for management personnel and has
placed pressures on the Company's operating systems. These operating systems are
in the process of being updated and centralized, while the existing operating
systems are being 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.
ITEM 2. PROPERTIES
C.P. Clare, headquartered in Beverly, Massachusetts, operates the following
manufacturing facilities worldwide:
LOCATION SQUARE FOOTAGE INTEREST USE
- ------------------------------- -------------- ------- --------------------------------------
Beverly, Massachusetts......... 83,000 Leased Corporate Headquarters
Semiconductor Products;
Wakefield, Massachusetts....... 32,400 Leased Semiconductor Products
St. Louis, Missouri (1)........ 20,000 Leased Dry Reed Products and Surge Arresters
Guadalajara, Mexico (1)........ 194,000 Leased All products
Chitu, Taiwan.................. 25,000 Leased Dry Reed Products
- ---------------
(1) Multiple locations.
The Company also leases additional sales offices in Illinois, Florida and
California in the United States, and also in Belgium, Canada, France, Germany,
Japan, and Taiwan. The Company believes its office facilities are adequate for
its current needs.
The Company also has a facility located at 3101 West Pratt Avenue, Chicago,
Illinois which the Company does not use and is being marketed to a commercial
buyer. See "Business - Environmental."
ITEM 3. 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.
In June 1992, the Company initiated a lawsuit against Toshiba in the
district court in Munich, Germany alleging infringement of a Company patent. In
April 1996, the Company learned that the district court had ruled against C.P.
Clare in this action. The Company filed an appeal of this decision. In 1995,
Toshiba filed an action seeking a declaration that such patent is invalid. The
court held that the patent was valid, and Toshiba appealed this decision. The
parties recently settled these actions resulting in the Company granting Toshiba
a limited license under certain of its European patents and Toshiba paying a
fixed royalty amount. All appeals have been dismissed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on the Nasdaq National Market
System (the "Nasdaq") on June 21, 1995, under the symbol "CPCL". The following
table sets forth the quarterly high and low closing sales prices per share
reported on the Nasdaq.
PERIOD OR QUARTER ENDED HIGH LOW
--------------------------------------------------------------------- ---- ----
June 21, 1995 - June 30, 1995........................................ $21 1/2 $19 1/4
July 1, 1995 - September 30, 1995.................................... 27 7/8 19 1/4
October 1, 1995 - December 31, 1995.................................. 27 3/8 16 9/16
January 1, 1996 - March 31, 1996..................................... 21 3/8 13 1/4
April 1, 1996 - June 30, 1996........................................ 25 3/4 16 1/8
July 1, 1996 - September 30, 1996.................................... 25 9
October 1, 1996 - December 31, 1996.................................. 11 1/8 7 7/8
January 1, 1997 - March 31, 1997..................................... 11 8 1/16
On June 5, 1997, the last reported sale price of the Common Stock on the
Nasdaq was $15 1/4
On June 5, 1997, there were 180 holders of record of the Company's Common
Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements and earnings of the Company, as well
as other factors the Board of Directors may deem relevant. In addition, the
Company is currently restricted under the terms of certain credit agreements
from paying dividends in certain circumstances to stockholders.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
information on a consolidated historical basis for the Company and its
subsidiaries as of and for each of the years in the five-year period ended March
31, 1997. This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere in
this Form 10-K.
FISCAL YEAR ENDED MARCH 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................... $75,699 $75,970 $95,992 $127,928 $128,161
Cost of sales.................................. 59,205 58,425 69,546 86,464 85,603
------- ------- ------- -------- --------
Gross profit................................. 16,494 17,545 26,446 41,464 42,558
Operating expenses:
Selling, general and administrative.......... 11,854 12,155 17,143 23,857 28,330
Research and development..................... 2,148 2,489 3,532 4,447 6,543
Restructuring costs (1)...................... 1,509 730 727 -- 14,250
------- ------- ------- -------- --------
Operating income (loss)...................... 983 2,171 5,044 13,160 (6,565)
Interest income.............................. -- -- -- 1,052 1,578
Interest expense............................. (3,455) (2,942) (2,841) (1,300) (452)
Other income (expense), net.................. 2,489 190 476 (20) (8)
------- ------- ------- -------- --------
Income (loss) before provision for income
taxes and extraordinary gain.............. 17 (581) 2,679 12,892 (5,447)
Provision for income taxes................... 83 44 1,342 5,158 1,464
------- ------- ------- -------- --------
Income (loss) before extraordinary gain...... (66) (625) 1,337 7,734 (6,911)
Extraordinary gain on early retirement of debt
(2).......................................... 755 1,340 1,742 -- --
------- ------- ------- -------- --------
Net income (loss).................... $ 689 $ 715 $ 3,079 $ 7,734 $ (6,911)
======= ======= ======= ======== ========
Earnings (loss) per common and common share
equivalent (3):
Income (loss) before extraordinary gain...... $ 0.03 $ (0.05) $ 0.23 $ 0.95 $ (0.77)
Extraordinary gain........................... 0.12 0.20 0.27 -- --
------- ------- ------- -------- --------
Net income (loss)............................ $ 0.15 $ 0.15 $ 0.50 $ 0.95 $ (0.77)
======= ======= ======= ======== ========
Weighted average number of common share and
common share equivalents outstanding(3)...... 6,654 6,386 6,473 8,176 8,992
======= ======= ======= ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Total Assets................................... $42,910 $42,883 $55,271 $115,208 $111,170
Long-term debt, net of current portion......... 17,778 16,682 15,969 4,034 550
- ---------------
(1) See Note 8 of the Notes to Consolidated Financial Statements for more
information on the fiscal 1997 restructuring costs.
(2) See Note 7 of the Notes to Consolidated Financial Statements for more
information on the extraordinary gain.
(3) See Note 2(f) of the Notes to Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
C.P. Clare Corporation (the "Company") is a leading provider of high
voltage analog semiconductor components, electromagnetic relays and switches,
surge protection products and specialized electronic components. Customers
include the foremost worldwide manufacturers of electronic communications
equipment.
RESULTS OF OPERATIONS
The following table sets forth the relative percentages that certain income
and expense items bear to net sales for the periods indicated:
FISCAL YEAR ENDED
MARCH 31,
-------------------------
1995 1996 1997
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 72.4 67.6 66.8
----- ----- -----
Gross profit........................................... 27.6 32.4 33.2
Operating expenses:
Selling, general and administrative.................... 17.9 18.6 22.1
Research and development............................... 3.7 3.5 5.1
Restructuring costs.................................... 0.8 -- 11.1
----- ----- -----
Operating income (loss)..................................... 5.2 10.3 (5.1)
Interest income............................................. -- 0.8 1.2
Interest expense............................................ (2.9) (1.0) (0.4)
Other income (expense), net................................. 0.5 -- --
----- ----- -----
Income (loss) before provision for income taxes and
extraordinary gain........................................ 2.8 10.1 (4.3)
Provision for income taxes.................................. 1.4 4.1 1.1
----- ----- -----
Income (loss) before extraordinary gain..................... 1.4 6.0 (5.4)
Extraordinary gain on early retirement of debt.............. 1.8 -- --
----- ----- -----
Net income (loss)................................. 3.2% 6.0% (5.4)%
===== ===== =====
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
Net Sales. In fiscal 1997, net sales remained consistent at $128.2 million
compared to $127.9 million in fiscal 1996. Sales volume of the Company's
semiconductor products increased by 28%, which increase was offset by
significantly lower sales volume of reed relay and surge protection products. In
fiscal 1997, the Company's electromagnetic and other products sales decreased to
$68.2 from $81.0 or 15.8%, primarily due to lower demand of the Company's reed
relays and surge arrester products. The lower demand for reed relay products led
the Company to undertake a restructuring of its operations, in order to gain
efficiencies in this declining market. See Note 8 of Notes to Consolidated
Financial Statements.
Net sales by major product category were as follows:
FISCAL YEAR
ENDED
MARCH 31,
---------------
1996 1997
----- -----
(IN MILLIONS)
Semiconductor products............................................... $46.9 $60.0
Electromagnetic and other products................................... 81.0 68.2
Net sales to customers located outside the United States (primarily Europe
and Asia) decreased 10.6% in fiscal 1997 to $48.7 million from $54.5 million in
fiscal 1996, primarily due to decreased sales volume in Europe as a result of
decreased demand for the Company's reed relay products and unfavorable foreign
exchange translation. This decrease was partially offset by increased sales in
Asia.
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Gross Profit. The Company's gross profit as a percentage of net sales
improved to 33.2% in fiscal 1997 from 32.4% in fiscal 1996. The increase in
gross profit was primarily attributable to a more favorable product mix, which
included increased sales of the Company's higher margin semiconductor products,
which was partially offset by the growth in sales of the Company's lower margin
advanced magnetics products.
Selling, General and Administrative Expense (SG&A). SG&A expense increased
in fiscal 1997 to $28.3 million from $23.9 million in fiscal 1996, and increased
as a percentage of net sales to 22.1% in fiscal 1997 from 18.6% in fiscal 1996.
The largest single component of the dollar and percentage increase was the
result of a $2.1 million non-recurring environmental charge. See Note 8 of Notes
to Consolidated Financial Statements. Excluding this non-recurring environmental
charge, SG&A expense would have increased in fiscal 1997 to $26.2 million from
$23.9 million in fiscal 1996, and increased as a percentage of net sales to
20.4% in fiscal 1997 from 18.6% in fiscal 1996. This portion of the increase in
SG&A expenses primarily relates to increased marketing expenditures, additional
sales office locations and increased communication costs compared to fiscal
1996.
Research and Development Expense. Research and development expense
increased in fiscal 1997 to $6.5 million from $4.4 million in fiscal 1996 and
increased as a percentage of net sales to 5.1% in fiscal 1997 from 3.5% in
fiscal 1996, as a result of increased investments in new product development
programs, primarily for semiconductor products. The Company expects to increase
its current rate of research and development spending as current R&D programs
are continued, especially at the Company's new semiconductor facility in
Beverly, Massachusetts.
Restructuring Costs. In fiscal 1997, the Company recorded a restructuring
charge of $14.3 million, or $1.42 per share after income taxes, to restructure
operations primarily in the Company's reed relay business. Restructuring costs
include costs associated with the sale of the Tongeren Manufacturing Company
(TMC), workforce reductions and worldwide facilities realignments. The sale of
TMC was consummated in January, 1997. The costs associated with the sale of TMC
were primarily the write-down of the Company's investment in its foreign
subsidiary and included other Company costs associated with transfer of the
facility. Workforce reduction costs include severance costs related to
involuntary terminations. See Note 8 of Notes to Consolidated Financial
Statements.
Interest Income. Interest income increased in fiscal 1997 to $1.6 million
from $1.1 million in fiscal 1996. Interest income was related to the short-term
investment of the Company's cash in both commercial paper and tax exempt
variable rate municipal bonds. In fiscal 1997, the increase in interest income
was caused by the full year of investment of excess cash compared to fiscal
1996.
Interest Expense. Interest expense decreased in fiscal 1997 to $0.5
million from $1.3 million in fiscal 1996. This decrease was primarily the result
of the Company's reduced debt load following the repayment of the $7.5 million
in subordinated notes and the pay down of the Company's domestic lines of credit
during the first quarter of fiscal 1996. Also, in the fourth quarter of fiscal
1997, the Company's European credit facilities were assumed by the buyer of TMC.
Other Income (Expense), net. Other income (expense), net in fiscal 1997
was primarily comprised of net foreign currency exchange transaction losses. In
fiscal 1996, other income (expense), net was primarily comprised of a foreign
currency exchange transaction loss which was partially offset by a gain on the
sale of certain equipment.
Income Taxes. Income taxes expense decreased to $1.5 million in fiscal
1997 from $5.2 million in fiscal 1996. While the Company incurred a loss before
income taxes in 1997, the Company did not record a benefit for income taxes
because the Company anticipates it will not be able to fully utilize the losses
associated with the restructuring. See Note 11 of Notes to Consolidated
Financial Statements.
At March 31, 1997, the Company had net operating loss carryforwards in the
United States and Taiwan of approximately $11.1 million. The Company also had
capital loss carryforwards of approximately $24.8 million in the United States.
The Company's ability to use its United States net operating loss carryforwards
against taxable income is subject to limitations under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), due to the change in
ownership of the Company in 1989. The Company's ability to use its capital loss
carryforwards is subject to its ability to generate future capital gains to
offset these losses. Accordingly, the Company has not benefited all of its net
operating and capital loss carryforwards. See Note 11 of Notes to Consolidated
Financial Statements.
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FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
Net Sales. Net sales increased 33.3% in fiscal 1996 to $127.9 million from
$96.0 million in fiscal 1995. The increase was attributable to (i) higher unit
sales volume of semiconductor products due to greater demand for these products,
(ii) continued expansion of the advanced magnetics products business, and (iii)
increased sales of the Company's reed relays and switches. Net sales by major
product category were as follows:
FISCAL YEAR ENDED
MARCH 31,
-------------------
1995 1996
------- -------
(IN MILLIONS)
Semiconductor products......................................... $25.2 $46.9
Electromagnetic and other products............................. 70.8 81.0
Net sales to customers located outside the United States (primarily Europe
and Asia) increased 27.0% in fiscal 1996 to $54.5 million from $42.9 million in
fiscal 1995, primarily due to increased worldwide demand for the Company's
products, expansion in the size of the worldwide sales force and increased
corporate focus on existing and new international markets.
Gross Profit. The Company's gross profit as a percentage of net sales
improved to 32.4% in fiscal 1996 from 27.6% in fiscal 1995. The increase in
gross profit was primarily attributable to a more favorable product mix, which
included increased sales of the Company's higher margin semiconductor and wetted
reed switch products, and decreased unit production costs due to higher sales
volumes and manufacturing efficiencies associated with increased automation.
Selling, General and Administrative Expense (SG&A). SG&A expense increased
in fiscal 1996 to $23.9 million from $17.1 million in fiscal 1995 and increased
as a percentage of net sales to 18.6% in fiscal 1996 as compared with 17.9% in
fiscal 1995. The dollar and percentage increases were primarily the result of
the continued expansion of the worldwide sales and marketing organization,
increased commissions associated with increased sales, additions to the
management team, and enhancement of the communication and information system
infrastructures.
Research and Development Expense. Research and development expense
increased in fiscal 1996 to $4.4 million from $3.5 million in fiscal 1995 as a
result of increased investments in new product and process development programs,
primarily for semiconductor and electromagnetic products.
Interest Income. Interest income in fiscal 1996 of $1.1 million was
related to the short-term investment of certain of the net proceeds of the
Company's public offerings. The interest income was derived from investments in
commercial paper and tax exempt variable rate municipal bonds.
Interest Expense. Interest expense decreased in fiscal 1996 to $1.3
million from $2.8 million in fiscal 1995, primarily as a result of the Company's
repayment of the $7.5 million of notes payable and the repayment of the
Company's domestic revolving line of credit in June 1995. The Company's
remaining interest expense was primarily attributable to European credit
facilities and subordinated notes.
Other Income (Expense), net. Other income (expense), net in fiscal 1996
was primarily composed of a foreign currency exchange transaction loss which was
partially offset by a gain on the sale of certain equipment. In fiscal 1995,
other income (expense), net was primarily comprised of a foreign currency
exchange transaction gain due to the strengthening of the U.S. dollar relative
to the Mexican peso.
Income Taxes. The Company's effective income tax rate increased to 40.0%
in fiscal 1996 from 30.3% in fiscal 1995 primarily due to earnings being taxed
at the appropriate federal, state and foreign statutory rates. At March 31,
1996, the Company had net operating loss carryforwards in the United States,
Europe and Taiwan of approximately $11.7 million. The Company's ability to use
its United States net operating loss carryforwards against taxable income is
subject to limitations under Section 382 of the Code, due to the change in
ownership of the Company in 1989. Accordingly, the Company has not benefited all
of its net operating loss carryforwards. See Note 11 of Notes to Consolidated
Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1997, the Company funded its operations from cash flows generated
from operations and from the use of cash, cash equivalents and investments. In
fiscal 1996, the Company funded its operations from cash flows generated from
operations and the proceeds of the public offerings of common stock.
During the year ended March 31, 1997, the Company's cash, cash equivalents
and investments decreased by $11.7 million. Operations provided $4.0 million of
cash during this period, primarily through improved working capital management.
The Company made capital expenditures of $15.0 million during the year ended
March 31, 1997. Financing activities used $0.7 million of cash during the period
to pay down outstanding borrowings under foreign lines of credit and payments of
principal on long-term debt, (See Note 7 of Notes to Consolidated Financial
Statements), which was partially offset by proceeds from the exercise of stock
options and warrants.
At March 31, 1997, the Company had $1.1 million of outstanding debt which
consisted of subordinated notes outstanding which are due in January, 1999 and
were issued in connection with the acquisition of a product line. These notes
bear an implicit annual interest rate of 12% and require total annual payments
of approximately $0.5 million. In fiscal years 1997 and 1996, the Company had a
$20 million unsecured, committed revolving multicurrency credit facility (the
"Credit Facility"). Interest on loans is based on either the London Interbank
Offered Rate (LIBOR) plus a spread ranging from 0.75% to 1.5%, based on Company
performance; or the higher of the latest Federal Funds rate plus 0.50% or the
bank's reference rate. Although the Company has had no borrowings under this
Credit Facility to date, the interest rate on borrowings would have been 7.31%
or 8.50%, respectively at March 31, 1997.
In fiscal 1996, the Company entered into a facility operating lease
agreement for the Beverly facility, which now includes the corporate
headquarters and the semiconductor wafer fabrication facility. Also in fiscal
year 1996, the Company entered into an equipment operating lease line of credit
with its banks, which would provide up to $17 million of financing. Availability
of $5 million of this line of credit expired on May 31, 1996. In fiscal 1996 and
1997, there were $1.9 million of operating lease financing utilized under this
facility. At March 31, 1997, the remainder of the line was retired by the
Company.
In fiscal 1997, the Company obtained $6.7 million of operating lease
financing for equipment for the new wafer fabrication facility.
The Company has discovered evidence of contamination at its vacant Chicago,
Illinois facility. See "Business -- Environmental" and Note 8 of Notes to
Consolidated Financial Statements. The Company expects to fund the remaining
estimated remediation costs through a negotiated agreement with General
Instrument and from existing cash, cash equivalents and investments and from
funds generated from operations.
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 as needed. There
can be no assurance that this policy will eliminate all currency exposure.
During the year ended March 31, 1997 and 1996, the Company entered into several
forward contracts to cover its exposure under trade transactions.
During the next year the Company intends to spend the remaining $2.0
million, of the planned amount of $16.5 million, to complete the semiconductor
wafer fabrication facility. See "Business -- Properties." The Company believes
that cash generated from operations, cash, cash equivalents and investments and
amounts available under its credit agreements will be sufficient to satisfy its
working capital needs and planned capital expenditures for the foreseeable
future. 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.
EFFECT OF INFLATION
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
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NEW ACCOUNTING STANDARD
In March 1997, Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" was issued, which supersedes Accounting Principles Board
Opinion No. 15 and establishes new standards for calculating and presenting
earnings per share. SFAS No. 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997 and requires
restatement of all prior-period earnings per share data presented. The new
statement modifies the calculations of primary and fully diluted earnings per
share and replaces them with basic and diluted earnings per share. Basic
earnings per share includes no dilution and is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of stock
equivalents that could share in the earnings of the entity, similar to fully
diluted earnings per share. The Company has not yet determined the impact of
adopting this statement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth at the end of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 16, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 16, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 16, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 16, 1997.
17
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The combined financial statements and financial statement schedule of the
Company and its subsidiaries are set forth at the end of this Form 10-K.
(b) Reports on Form 8-K
None.
(c) Exhibits
EXHIBIT NO. TITLE
------------ -------------------------------------------------------------------------
2.1 Certificate of Ownership and Merger merging Clare Overseas Europe I, Inc.
into C.P. Clare Corporation (5)
2.2 Certificate of Ownership and Merger merging Clare Overseas Europe II,
Inc. into C.P. Clare Corporation (5)
2.3 Certificate of Ownership and Merger merging Clare Overseas Europe III,
Inc. into C.P. Clare Corporation (5)
2.4 Certificate of Ownership and Merger merging Clare Overseas America, Inc.
into C.P. Clare Corporation (5)
3.1 Amended and Restated Articles of Organization of the Registrant (2)
3.2 Certificate of Vote of Directors Establishing a Series of A Class of
Stock (5)
3.3 Amended and Restated By-laws of the Registrant (1)
4.1 Specimen Certificate for shares of Common Stock, $.01 par value, of the
Registrant (1)
4.2 Shareholder Rights Agreement, dated April 29, 1996, between C.P. Clare
Corporation and State Street Bank and Trust Company, as Rights Agent (3)
10.1 Termination Agreement dated April 1, 1995 (1)
10.2 Multicurrency Credit Agreement by and among the Registrant, C.P. Clare
International N.V., Bank of America National Trust and Savings
Association, as Agent and the Other Financial Institutions Party thereto
dated September 11,
1995 (2)
10.3 Revolving Note in the amount of $10,000,000 made by the Registrant and
C.P. Clare International N.V. in favor of the Bank of America Illinois
dated September 11, 1995 pursuant to that certain Multicurrency Credit
Agreement of even date (2)
10.4 Revolving Note in the amount of $10,000,000 made by the Registrant and
C.P. Clare International N.V. in favor of The First National Bank of
Boston dated September 11, 1995 pursuant to that certain Multicurrency
Credit Agreement of even date (2)
10.6 Negative Pledge Agreement by certain subsidiaries to Bank of America
National Trust and Savings Association dated September 11, 1995 pursuant
to that certain Multicurrency Credit Agreement of even date (2)
10.12 Lease Agreement by and between Fleet Credit Corporation and Registrant
dated July 18, 1995, as amended October 10, 1995 (2)
10.13 Distributor Agreement between the Registrant and Bell Industries, Inc.
dated July 17, 1978 (1)
10.14 Authorized Distributor Agreement between the Registrant and Future
Electronics, Inc. dated October 6, 1989 (1)
10.15 Authorized Distributor Agreement between the Registrant and Marshall
Industries dated September 15, 1989 (1)
18
21
EXHIBIT NO. TITLE
------------ -------------------------------------------------------------------------
10.16 Authorized Distributor Agreement between the Registrant and Newark
Electronics dated July 14, 1989 (1)
10.17 Authorized Distributor Agreement between the Registrant and Pioneer
Technologies Group dated November 16, 1989 (1)
10.18 Authorized Distributor Agreement between the Registrant and Powell
Electronics, Inc. dated June 28, 1989 (1)
10.19 Agreement between the Registrant and American Telephone & Telegraph
Company dated November 1, 1994 (1)
10.20 Amendment and Reaffirmation of Subordination Agreement by and among AT&T
Microelectronics, the Registrant and C.P. Clare International N.V. dated
September 5, 1995 (2)
10.32 Technology and Equipment Transfer and Supply Agreement between the
Registrant, Clare Europe, N.V. and American Telephone and Telegraph
Company dated January 23, 1989 as supplemented by Supplemental Agreement
effective June 1, 1990, Second Supplemental Agreement effective January
23, 1991, Technical Assistance Agreement effective January 23, 1989,
Supply Contract between the Registrant and AT&T Technologies, Inc.
effective June 1, 1989, as amended by revised Attachment A dated March 1,
1993, and Subordination Agreement between the Registrant, American
Telephone and Telegraph Company, Continental Bank N.A., Massachusetts
Mutual Life Insurance Company, MassMutual Corporate Investors and
MassMutual Participation Investors effective May 26, 1989 (1)
10.32.1 Letter of Assignment and Promissory Note dated as of January 17, 1997
with respect to that certain Technology and Equipment Transfer and Supply
Agreement between the Registrant, Clare Europe, N.V. and American
Telephone and Telegraph Company dated January 23, 1989 (6)
10.34 Asset Purchase Agreement between C.P. Clare International N.V. and
Hamlin, Incorporated dated November 14, 1994 (1)
10.35 Commercial Lease between the Registrant and Rosner and Associates for 45
Progress Parkway, St. Louis, Missouri dated September 23, 1991, as
amended November 25, 1992 (1)
10.36 Standard Industrial Lease between General Instrument Corporation and
Davis Properties for 48 Progress Parkway, St. Louis, Missouri dated
December 15, 1987 (1)
10.37 Lease between the Registrant and the Trustees of Elandzee Trust for 430
Bedford Street, Lexington, MA dated December 1, 1994 (1)
10.37.1 First Amendment to Lease between the Registrant and the Trustees of
Elandzee Trust for 430 Bedford Street, Lexington, MA dated July 18, 1995
(2)
10.38 Subordination, Nondisturbance and Attornment Agreement between the
Registrant, Mortimer B. Zuckerman and Edward H. Linde, Trustees of the
Elandzee Trust and The Sakura Bank, Limited, New York Branch dated
December 1, 1994 (1)
10.39 Lease Agreement between Theta-J Corporation and Richard J. Kelly, Trustee
of Commercial Realty Trust of Burlington, for 107 Audubon Road,
Wakefield, MA dated September 26, 1987, modification dated May 6, 1991
and second modification dated March 10, 1993 (1)
10.40 Form of Third Modification to Lease and Expansion Agreement to that
certain Lease Agreement dated September 26, 1988 and modified thereafter,
by and between Teachers Insurance and Annuity Association of America (as
successor to Richard J. Kelly, Trustee of Commercial Realty Trust of
Burlington) and Registrant dated October 1, 1995 (2)
10.41 Form of Sublease Agreement by and between Implant Sciences Corporation
and Registrant for approximately 432 square feet of space on the 1st
floor of the building at #5 Corporate Place, 107 Audubon Road, Wakefield,
Massachusetts dated April 10, 1995 (2)
19
22
EXHIBIT NO. TITLE
------------ -------------------------------------------------------------------------
10.42 Office Lease between the Registrant and Great Lakes REIT, Inc. for 601
Campus Drive, Suite B, Arlington Heights, Illinois dated December 27,
1993 (1)
10.42.1 First Amendment to Lease Agreement between the Registrant and Great Lakes
REIT, Inc. for 601 Campus Drive, Suite B, Arlington Heights, Illinois
dated August 3, 1995 (2)
10.43 Lease Agreement between C.P. Clare Mexicana S.A. de C.V. and Jose Maria
Gonzalez Martin for 1610 Tlaquepaque Boulevard, Guadalajara, Mexico dated
August 25, 1990 (in Spanish with English summary) (1)
10.44 Lease Agreement between the C.P. Clare (Taiwan) Incorporated and
Ming-Shin Lin and Ming-Ging Lin for 91 Tung Hain Street, Chitu, Taiwan
dated March 31, 1995, (in Taiwanese with English summary) (1)
10.47 Cleanup Agreement between the Registrant and General Instrument
Corporation dated May 1, 1995 (1)
10.49 Employment Agreement between the Registrant and Arthur R. Buckland dated
September 15, 1993, as amended by Amendment dated March 20, 1995 (1)
10.50 Employment Agreement between the Registrant and Jacqueline D. Arthur
dated September 5, 1994 (1)
10.54 Amended and Restated Employment Agreement between the Company and Michael
J. Ferrantino dated as of January 31, 1997 (7)
10.56 Amended and Restated Employment Agreement between the Company and Harsh
Koppula dated as of January 31, 1997 (7)
10.58 Termination Agreement between the Registrant and Andrew S. Kariotis dated
April 26, 1995 (1)
10.59 1995 Stock Option and Incentive Plan, as amended and restated as of
September 29, 1996 (2)
10.60 1995 Employee Stock Purchase Plan, as amended and restated as of October
23, 1995 (2)
10.61 C.P. Clare Corporation Key Employee Incentive Plan effective April 1,
1995, as amended and restated as of October 2, 1995 (2)
10.62 Amended and Restated Registration Agreement dated April 21, 1995 (1)
10.63 The C.P. Clare Corporation Savings Plan (1)
10.64 Lease Agreement between C.P. Clare Mexicana S.A. de C.V. and Sra. Ma.
Teresa Aranguren dated November, 1995 (5)
10.65 Form of Letter Agreement by and between the Registrant and James Shiring
dated October 25, 1995 (2)
10.66 Lease Agreement dated as of October 31, 1995, by and between Thomas J.
Flatley, d/b/a The Flatley Company and C.P. Clare Corporation (4)
10.67 Employment Agreement between the Company and Richard Morgan dated as of
April 8, 1996 (7)
10.68 Employment Agreement between the Company and William Reed dated as of
August 26, 1996 (7)
10.69 Stock Purchase Agreement dated as of December 19, 1996, among the
Company, Gunther GmbH, Tongeren Manufacturing Company, and W. Gunther,
GmbH**(7)
10.70 Supply Agreement dated as of January 17, 1997 among the Company, Gunther
GmbH, W. Gunther GmbH , and Robert Romano**(7)
11.1 Computation of Net (Loss) Income Per Share*
21 Subsidiaries of the Registrant*
20
23
EXHIBIT NO. TITLE
------------ -------------------------------------------------------------------------
23.2 Consent of Arthur Andersen LLP relating to the Company's Registration
Statements on Form S-8 relating to shares of common stock to be issued
pursuant to the 1995 Stock Option and Incentive Plan and the 1995
Employee Stock Purchase Plan*
27 Financial Data Schedule(Edgar)*
- ---------------
* Filed herewith
** Confidential treatment requested for portions of these documents
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(File No. 33-91972) and incorporated herein by reference thereto.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(File No. 33-98646) and incorporated herein by reference thereto.
(3) Incorporated by reference to Current Report on Form 8-K (File No. 333-15097)
filed with the Commission on April 30, 1996.
(4) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended December 31, 1995 and incorporated herein by
reference thereto.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by reference thereto.
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 29, 1996 and incorporated herein by
reference thereto.
(7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended December 29, 1996 and incorporated herein by
reference thereto.
21
24
C.P. CLARE CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULE
FORM 10-K
PAGE NO.
---------
Report of Independent Public Accountants.......................................... 23
Consolidated Balance Sheets -- March 31, 1996 and 1997............................ 24
Consolidated Statements of Operations for the years ended March 31, 1995, 1996 and
1997............................................................................ 25
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
March 31, 1995, 1996 and 1997................................................... 26
Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1996 and
1997............................................................................ 27
Notes to Consolidated Financial Statements........................................ 28
Report of Independent Public Accountants on Schedule II........................... 47
Schedule II -- Valuation and Qualifying Accounts.................................. 48
22
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.P. Clare Corporation:
We have audited the accompanying consolidated balance sheets of C.P. Clare
Corporation (a Massachusetts corporation) and subsidiaries as of March 31, 1996
and 1997, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C.P. Clare Corporation and
subsidiaries as of March 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 25, 1997
23
26
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31,
-----------------------
1996 1997
-------- --------
ASSETS
Current assets:
Cash, cash equivalents and investments............................. $ 49,082 $ 37,430
Accounts receivable, less allowance for doubtful accounts of $535
and $675, respectively.......................................... 19,471 17,412
Inventories........................................................ 16,972 20,116
Other current assets............................................... 1,491 697
Deferred income taxes.............................................. 1,447 3,135
-------- --------
Total current assets.......................................... 88,463 78,790
Property, plant and equipment, net................................... 24,232 28,976
Other assets:
Intangibles, net of accumulated amortization of $1,731 and $495,
respectively ................................................... 2,042 150
Deferred income taxes.............................................. 35 945
Other.............................................................. 436 2,309
-------- --------
$115,208 $111,170
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................................. $ 1,340 $ --
Current portion of long-term debt.................................. 851 511
Accounts payable................................................... 7,929 12,620
Income taxes payable............................................... 930 758
Accrued expenses................................................... 11,376 13,676
-------- --------
Total current liabilities..................................... 22,426 27,565
Long-term debt, net of current portion............................... 4,034 550
Pension liability, net of current portion............................ 2,136 1,789
-------- --------
Total liabilities.......................................... 28,596 29,904
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: 8,707,399 shares and 9,176,657 shares,
respectively.................................................... 87 92
Additional paid-in capital......................................... 91,540 94,115
Deferred compensation.............................................. (607) (409)
Accumulated deficit................................................ (4,791) (11,702)
Cumulative translation adjustment.................................. 383 (830)
-------- --------
Total stockholders' equity................................. 86,612 81,266
-------- --------
$115,208 $111,170
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
24
27
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED MARCH 31,
-------------------------------------
1995 1996 1997
--------- --------- ---------
Net sales................................................. $ 95,992 $ 127,928 $ 128,161
Cost of sales............................................. 69,546 86,464 85,603
--------- --------- ---------
Gross profit............................................ 26,446 41,464 42,558
Operating expenses:
Selling, general and administrative..................... 17,143 23,857 28,330
Research and development................................ 3,532 4,447 6,543
Restructuring costs..................................... 727 -- 14,250
--------- --------- ---------
Operating income (loss)................................... 5,044 13,160 (6,565)
Interest income........................................... -- 1,052 1,578
Interest expense.......................................... (2,841) (1,300) (452)
Other income (expense), net............................... 476 (20) (8)
--------- --------- ---------
Income (loss) before provision for income taxes and
extraordinary gain...................................... 2,679 12,892 (5,447)
Provision for income taxes................................ 1,342 5,158 1,464
--------- --------- ---------
Income (loss) before extraordinary gain................... 1,337 7,734 (6,911)
Extraordinary gain on early retirement of debt............ 1,742 -- --
--------- --------- ---------
Net income (loss)....................................... $ 3,079 $ 7,734 $ (6,911)
========= ========= =========
Earnings (loss) per common and common share equivalent
(Note 2):
Income (loss) before extraordinary gain................. $ 0.23 $ 0.95 $ (0.77)
Extraordinary gain...................................... 0.27 -- --
--------- --------- ---------
Net income (loss)....................................... $ 0.50 $ 0.95 $ (0.77)
========= ========= =========
Weighted average number of common shares and common share
equivalents outstanding................................. 6,473,075 8,175,667 8,991,520
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
25
28
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1995, 1996, 1997
(DOLLARS IN THOUSANDS)
COMMON STOCK
---------------------------------
NUMBER ADDITIONAL CUMULATIVE TOTAL
OF $.01 PAR PAID-IN DEFERRED ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL WARRANTS COMPENSATION DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------- -------- ---------- -------- ------------ ----------- ---------- ----------------
Balance, March 31,
1994................... 2,947,783 $ 29 $ 14,056 $ 539 -- $ (15,604) $ 293 $ (687)
Exercise of stock
options................ 1,644 -- -- -- -- -- -- --
Issuance of stock
options................ -- -- 396 -- (396) -- -- --
Surrender of warrants.... -- -- 161 (161) -- -- -- --
Net income............... -- -- -- -- -- 3,079 -- 3,079
Translation adjustment... -- -- -- -- -- -- 441 441
Amortization of deferred
compensation........... -- -- -- -- 119 -- -- 119
--------- --- ------- ----- ----- -------- ------- -------
Balance, March 31,
1995................... 2,949,427 $ 29 $ 14,613 $ 378 $ (277) $ (12,525) $ 734 $ 2,952
Exercise of stock
options................ 985,155 10 605 -- -- -- -- 615
Issuance of stock
options................ -- -- 651 -- (651) -- -- --
Issuance of common stock
under the Employee
Stock Purchase Plan.... 9,085 127 127
Issuance of common stock,
net of issuance costs
of $2,146.............. 4,292,070 43 76,208 -- -- -- -- 76,251
Exercise of warrants..... 471,662 5 750 -- -- -- -- 755
Repurchase of warrants... -- -- (3,547) (378) -- -- -- (3,925)
Tax benefit of
disqualifying
disposition of
incentive stock
options................ -- -- 2,133 -- -- -- -- 2,133
Net income............... -- -- -- -- -- 7,734 -- 7,734
Translation adjustment... -- -- -- -- -- -- (351) (351)
Amortization of deferred
compensation........... -- -- -- -- 321 -- -- 321
--------- --- ------- ----- ----- -------- ------- -------
Balance, March 31,
1996................... 8,707,399 $ 87 $ 91,540 $ -- $ (607) $ (4,791) $ 383 $ 86,612
Exercise of stock
options................ 369,829 4 1,336 -- -- -- -- 1,340
Issuance of common stock
under the Employee
Stock Purchase Plan.... 32,276 -- 468 -- -- -- -- 468
Exercise of warrants..... 67,153 1 44 -- -- -- -- 45
Tax benefit of
disqualifying
disposition of
incentive stock
options................ -- -- 727 -- -- -- -- 727
Net loss................. -- -- -- -- -- (6,911) -- (6,911)
Translation adjustment... -- -- -- -- -- -- (1,213) (1,213)
Amortization of deferred
compensation........... -- -- -- -- 198 -- -- 198
--------- --- ------- ----- ----- -------- ------- -------
Balance, March 31,
1997................... 9,176,657 $ 92 $ 94,115 $ -- $ (409) $ (11,702) $ (830) $ 81,266
========= === ======= ===== ===== ======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
26
29
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED MARCH 31,
--------------------------------
1995 1996 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $ 3,079 $ 7,734 $ (6,911)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Loss on sale of Tongeren Manufacturing Company (Note
13)................................................... -- -- 5,069
Depreciation and amortization........................... 4,250 4,349 4,805
Extraordinary gain from early retirement of debt........ (1,742) -- --
(Gain) loss on sale of property, plant and equipment.... 113 (55) --
Provision for deferred income taxes..................... (167) (1,376) (1,587)
Compensation expense associated with stock options...... 119 321 198
Provision for environmental remediation costs........... 900 -- 2,050
Changes in assets and liabilities, net of effect from
disposition:
Accounts receivable................................ (2,187) (4,358) 2,059
Inventories........................................ (2,199) (5,403) (4,872)
Other current assets............................... (472) 288 750
Accounts payable................................... 2,330 (1,031) 5,617
Accrued expenses and income taxes payable.......... 1,238 (784) (3,150)
-------- -------- --------
Net cash provided by (used in) operating
activities.................................. 5,262 (315) 4,028
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.................... (6,477) (9,135) (15,047)
Proceeds from sale of property, plant and equipment.......... 49 55 --
-------- -------- --------
Net cash used in investing activities......... (6,428) (9,080) (15,047)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments of) borrowings from lines of credit............ 3,742 (7,065) (1,199)
Net proceeds from issuance of common stock................... -- 76,378 468
Proceeds from exercise of options and warrants............... -- 1,370 1,385
Repurchase of warrants....................................... -- (3,925) --
Payments of principal on long-term debt...................... (381) (11,627) (2,040)
Tax benefit of disqualifying disposition of incentive stock
options.................................................... -- 2,133 727
Repayment of obligations to investors........................ (2,196) -- --
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 1,165 57,264 (659)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS........ 312 32 26
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 311 47,901 (11,652)
Cash, cash equivalents and investments, beginning of year.... 870 1,181 49,082
-------- -------- --------
Cash, cash equivalents and investments, end of year.......... $ 1,181 $ 49,082 $ 37,430
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
27
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF OPERATIONS
C.P. Clare Corporation (the "Company") is a leading provider of high
voltage analog semiconductor components, electromagnetic relays and switches,
surge protection products, and specialized electronic components for the world's
foremost manufacturers of electronic communications equipment.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies:
(a) Fiscal Periods
The Company's fiscal year is comprised of either 52 or 53 weeks and ends on
the Sunday closest to March 31st each year. Fiscal years 1997, 1996 and 1995
were each 52 weeks. For convenience, the Company's fiscal year end has been
presented as March 31.
(b) Public Offerings
Effective June 20, 1995, the Company completed its initial public offering
("the IPO") of 2,400,000 shares of common stock for $16.00 per share. The sale
of common stock resulted in net proceeds to the Company of $34,166, after
deducting all expenses related to the IPO.
Effective November 9, 1995, the Company completed a public offering ("the
PO") of 1,892,070 shares of common stock for $23.75 per share. The sale of
common stock resulted in net proceeds to the Company of $42,085, after deducting
all expenses related to the PO.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(d) Cash, Cash Equivalents and Investments
The Company considers all highly liquid investment instruments with
maturities of three months or less to be cash equivalents. Short-term
investments are instruments with maturities less than one year. The Company
carries its investments in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Investments at March 31, 1996 and 1997 consists principally
of overnight and short-term tax exempt commercial paper and tax exempt variable
rate municipal bonds. The Company has the option to require the issuers of the
tax exempt variable rate municipal bonds to purchase these investments upon 7
days notice. The Company has deemed these investments to be available-for-sale
at both March 31, 1996 and 1997 and they are carried at cost which approximates
market value.
(e) Revenue Recognition
Revenues from product sales are recognized when the products are shipped.
Certain shipments to distributors are subject to limited right-of-return
provisions. The Company provides for estimated returns when material.
28
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Earnings (Loss) Per Common and Common Share Equivalent
Earnings (loss) per common and common share equivalent was computed using
the weighted average number of common shares and, if dilutive, common share
equivalents outstanding during each period. Dilutive common share equivalents
consist of stock options and warrants using the modified treasury stock method
in 1995. As required by the modified treasury stock method, net income increased
by $166 for the year ended March 31, 1995, as a result of the assumed reduction
in interest expense net of income taxes. Loss per common and common share
equivalent was computed using the weighted average number of common shares
outstanding during 1997. Pursuant to Securities and Exchange Commission ("SEC")
regulations, stock issued after June 9, 1994, and common stock issuable pursuant
to stock options or warrants granted after June 9, 1994, have been reflected as
outstanding the year ended March 31, 1995, using the treasury stock method.
Other shares of stock issuable pursuant to stock options and warrants have been
included when their effect is dilutive. Fully diluted earnings per common share
are not presented as they are not materially different from primary earnings per
share.
(g) Foreign Currency Translation and Transactions
The Company translates the assets and liabilities of its foreign
subsidiaries at the exchange rates in effect at fiscal year-end in accordance
with SFAS No. 52, "Foreign Currency Translation." Revenues and expenses are
translated using exchange rates in effect during each period. Because Mexico and
Taiwan are considered extensions of domestic operations, the translation gain
(loss) of $230, ($104) and ($49) recognized in fiscal years 1995, 1996 and 1997,
respectively, have been included in the accompanying consolidated statements of
operations and, accordingly, are classified as other income (expense), net. See
Note 12. The cumulative translation adjustment component of stockholders' equity
relates primarily to the Company's European operations.
(h) Research and Development Expense
Expenditures for research and development of products and manufacturing
processes are expensed as incurred.
(i) Recapitalization
On June 16, 1995, the Company amended its articles of organization to
authorize 2,500,000 shares of preferred stock and a one-for-five reverse stock
split of the Company's common stock. All share and per share amounts of common
stock for all periods presented have been retroactively adjusted to reflect the
reverse stock split.
(j) Derivative Financial Instruments and Fair Value of 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). The hedged intercompany balance
relates to trade sales to third party customers in the ordinary course of
business. At March 31, 1997, the Company had five outstanding forward contracts
amounting to 170,000 Belgian francs ("BF") or $4,923 with a gross deferred loss
of $28 from the rollover of such contracts to the planned settlement date. At
March 31, 1996, the Company had two outstanding forward contracts amounting to
45,000 BF or $1,483 with a gross deferred loss of $2 from the rollover of such
contracts to the planned settlement date. The forward contracts hedge currency
transaction exposure resulting from intercompany trade transactions and the
March 31, 1997 hedges are planned to be settled by the end of the first quarter
of fiscal 1998.
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments"
requires disclosure of an estimate of the fair value of certain financial
instruments. The fair value of financial instruments pursuant to
29
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 107 approximated their carrying values at March 31, 1996 and 1997. Fair
values have been determined through information obtained from market sources and
management estimates.
(k) Concentration of Credit Risk
SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk," requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company's accounts receivable credit risk is not
concentrated within any geographic area, and does not represent a significant
credit risk to the Company. During fiscal 1995, 1996 and 1997 one customer
accounted for 10%, 16% and 17%, respectively, of the Company's net sales.
(l) Stock-Based Compensation
The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees". In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation", which is effective for
fiscal 1997. SFAS No. 123 establishes a fair value method of accounting for
stock-based compensation plans. The Company has adopted the disclosure only
alternative under SFAS No. 123, which requires disclosures of the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been adopted
as well as certain other information. See Note 9 for additional disclosures.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(n) Reclassification
Certain amounts in the prior years' financial statements have been
reclassified to conform with the current year's presentation.
(o) New Accounting Standard
In March 1997, SFAS No. 128 "Earnings Per Share" was issued, which
supercedes APB Opinion No. 15 and establishes new standards for calculating and
presenting earnings per share. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997
and requires restatement of all prior-period earnings per share data presented.
The new statement modifies the calculations of primary and fully diluted per
share and replaces them with basic and diluted earnings per share. Basic
earnings per share includes no dilutive securities and is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
stock equivalents that could share in the earnings of the entity, similar to
fully diluted earnings per share. The Company has not yet determined the impact
of adopting this statement.
30
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. 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 March 31, 1996 and 1997:
MARCH 31,
-------------------
1996 1997
------- -------
Raw material......................................... $ 7,675 $ 8,905
Work in process...................................... 3,794 6,117
Finished goods....................................... 5,503 5,094
------- -------
$16,972 $20,116
======= =======
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following at March 31, 1996 and 1997:
MARCH 31,
-------------------
DESCRIPTION 1996 1997 ESTIMATED USEFUL LIFE
-------------------------------------------- ------- ------- ---------------------
Land........................................ $ 365 $ --
Buildings and improvements.................. 4,831 -- 7 to 31.5 years
Machinery and equipment..................... 41,091 43,974 3 to 7 years
Equipment under capital leases.............. 106 103 Life of lease
Furniture and fixtures...................... 4,089 2,212 5 to 10 years
Leasehold improvements...................... 2,219 3,165 Life of lease
Property held for sale (Note 8)............. 3,150 1,500
------- -------
55,851 50,954
Less: Accumulated depreciation and
amortization.............................. 31,619 21,978
------- -------
$24,232 $28,976
======= =======
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the cost
of property, plant and equipment over their estimated useful lives as noted
above.
Certain amounts of plant, property and equipment were purchased by Gunther
Belgium N.V. as part of the sale of the Tongeren Manufacturing Company ("TMC")
in January, 1997. See Note 13.
NOTE 5. OTHER ASSETS
Other assets consist of the following at March 31, 1996 and 1997:
MARCH 31,
-------------
1996 1997
---- ------
Long-term equipment deposit................................ $ -- $ 750
Long-term receivable....................................... -- 946
Other...................................................... 436 613
---- ----
$436 $2,309
==== ====
The Company's long-term equipment deposit relates to reed relay equipment
being purchased from Gunther Belgium N.V.
The long-term receivable relates to the initial payment under an asset
purchase agreement with another party. This transaction will be completed upon
receipt of equipment which requires an additional payment of approximately $950.
Management expects the transaction to be completed during the first quarter of
fiscal 1998.
31
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company assesses the realizability of its intangible assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of".
Intangible assets consists primarily of goodwill acquired in connection
with the acquisition of the Clare Division from General Instrument Corporation
in 1989. Goodwill is amortized on a straight-line basis over 30 years. In fiscal
1997, approximately $1,500 of the unamortized balance of goodwill costs was
charged to the Company's restructuring reserve as part of the disposition of TMC
and the restructuring of operations, primarily in the Company's reed relay
business. See Note 8.
NOTE 6. ACCRUED EXPENSES
Accrued expenses consist of the following at March 31, 1996 and 1997:
MARCH 31,
-------------------
1996 1997
------- -------
Payroll and benefits................................. $ 5,973 $ 3,768
Restructuring (Note 8)............................... -- 5,884
Environmental remediation (Note 8)................... 2,373 1,017
Other................................................ 3,030 3,007
------ ------
$11,376 $13,676
====== ======
NOTE 7. BORROWINGS AND CREDIT FACILITIES
(a) Lines of Credit
Europe
In 1996, short-term borrowings represented amounts outstanding under the
Company's European Credit Facility, which was terminated and assumed by Gunther
Belgium N.V. as part of the sale of TMC in January, 1997.
Multicurrency Credit Facility
The Company has a $20,000 unsecured revolving multicurrency credit facility
(the "Credit Facility"). Interest on loans is based on either LIBOR plus a
spread ranging from 0.75% to 1.5%, based on Company performance (7.31% at March
31, 1997); or the higher of latest Federal Funds rate plus 0.50% or the bank's
reference rate (8.50% at March 31, 1997). There have been no borrowings since
the inception of the Credit Facility.
The Credit Facility contains certain financial covenants that require the
Company to maintain minimum tangible net worth, maintain an interest coverage
ratio, limit the amount of capital expenditures, maintain a ratio of liabilities
to tangible net worth, and limit the payment of cash dividends. The Credit
Facility also contains certain non-financial covenants. The Credit Facility
expires on July 31, 1998.
32
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Long-term Debt
At March 31, 1996 and 1997, long-term debt consists of the following:
MARCH 31,
--------------
1996 1997
------ ------
8.5% Secured senior term debt (BF 80,000)............................ $2,637 $ --
Non-interest bearing note payable due to Lucent Technologies in
annual payments of $480 through 1998 and a final payment of $720 in
1999 with interest imputed at 12%.................................. 1,771 976
8.5% Note payable.................................................... 191 --
Long-term portion of revolving lines of credit....................... 230 --
Obligations under capital leases and other........................... 56 85
------ ------
4,885 1,061
Less current portion................................................. 851 511
------ ------
$4,034 $ 550
====== ======
In the first quarter of fiscal year 1996, the Company used $7.7 million of
the net proceeds from its IPO to repay subordinated notes, including accrued
interest and approximately $3.9 million of the net proceeds of the IPO to
repurchase warrants held by the subordinated note holder. See Note 9.
The 8.5% Secured senior term debt was assumed by Gunther Belgium N.V. as
part of the sale of TMC in January, 1997.
Aggregate maturities of long-term debt are as follows as of March 31, 1997:
MARCH 31, AMOUNT
--------------------------------------------------------------- -------
1998........................................................... $ 511
1999........................................................... 529
2000........................................................... 13
2001........................................................... 6
2002........................................................... 2
Total..................................................... $1,061
(c) Obligations to Investors
In connection with the shares of common stock of C.P. Clare International
N.V. purchased by several banks, the Company and the banks entered into an
agreement whereby, beginning in January 1991, the Company had the right to
repurchase the shares and, beginning in January 1997, the banks had the right to
require the Company to purchase the shares. In fiscal 1995, the Company
refinanced the final part of this obligation, which resulted in a gain of $1,742
and was classified as an extraordinary gain in the consolidated statements of
operations.
NOTE 8. COMMITMENTS AND CONTINGENCIES
(a) Commitments
(i) Leases
In fiscal 1996, the Company entered into a facility operating lease
agreement for the Beverly facility, which now includes corporate headquarters,
administrative, sales and marketing, the semiconductor wafer fabrication
facility, research and development, engineering laboratories and semiconductor
testing and packaging functions. Also in fiscal year 1996, the Company entered
into an equipment operating lease line of credit with its banks, which would
provide up to $17,000 of financing. Availability of $5,000 of this line of
credit expired on May 31, 1996. In fiscal 1996 and 1997, there were $1,867 of
operating lease financing utilized under this facility. At March 31, 1997, the
remainder of the line was retired by the Company.
33
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1997, the Company obtained equipment for the new wafer
fabrication facility costing $6,732 under an operating lease. The Company also
leases certain office and production facilities and various office and other
equipment under operating leases expiring at various dates through June 2011.
Future minimum rent payments under these leases are as follows as of March
31, 1997:
MARCH 31, AMOUNT
-------------------------------------------------------------- -------
1998.......................................................... $ 4,752
1999.......................................................... 3,917
2000.......................................................... 2,964
2001.......................................................... 2,488
2002.......................................................... 2,385
Thereafter.................................................... 8,318
-------
Total.................................................... $24,824
=======
Total rent expense for fiscal years 1995, 1996 and 1997 was $1,270, $2,194
and $3,401, respectively.
(ii) Purchase Commitment
In connection with the sale of TMC, the Company entered into a three year
purchase agreement pursuant to which the Company is required to purchase $9.0
million of products from Gunther Belgium N.V. over a one year period. Purchase
terms in subsequent years are subject to negotiation.
(b) Contingencies
(i) Restructurings
In fiscal 1995, the Company announced a restructuring plan to reduce
production costs and eliminate certain management, indirect and direct
positions. This restructuring met the criteria set forth in 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)" and the Company recorded a liability of
$1,589 as of March 31, 1995, for the costs of this restructuring. The recorded
liability related exclusively to severance and other payroll-related costs. In
fiscal 1996, the Company paid all severance costs previously accrued.
In fiscal 1997, the Company announced a restructuring of its operations,
primarily in the Company's reed relay business, and recorded a restructuring
charge of $14,750, which was subsequently reduced by $500 based on the sale of
Tongeren Manufacturing Company (TMC). This restructuring also met the criteria
set forth in EITF 94-3. Restructuring costs included costs associated with the
sale of the TMC, workforce reductions and worldwide facilities realignments. The
components of the restructuring costs are as follows:
AMOUNT
-------
Loss on disposition of assets, including TMC.................... $ 7,600
Severance benefits and associated legal costs................... 4,550
Lease termination and relocation costs.......................... 1,100
Other........................................................... 1,000
-------
Total...................................................... $14,250
=======
The sale of TMC was consummated in January, 1997. The Company sold for
nominal value all of the stock of TMC. Pro forma information reflecting the sale
of TMC has not been presented as TMC was not material. The costs associated with
the sale of TMC were primarily the write-down of the Company's investment in its
foreign subsidiary and included other Company costs associated with transfer of
the facility. As part of the sale, the Company entered into a long-term supply
agreement with the newly formed Gunther Belgium N.V. Workforce reduction costs
include severance costs related to involuntary terminations of
34
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately 75 persons on a worldwide basis, primarily in manufacturing, and
the severance obligations relating to the workforce reductions effected by
Gunther Belgium N.V.
Through the end of fiscal 1997, the Company incurred approximately $8,366
of the restructuring costs. As of March 31, 1997, the Company has remaining
accrued restructuring costs of $5,884, which will be utilized to complete the
Company's restructuring activities. See Note 6.
(ii) 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 remediations 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.
(a) United States
In connection with the acquisition of the Clare Division of General
Instrument Corporation in 1989, the Company purchased a manufacturing facility
located in Chicago. From the acquisition date until January, 1994 the Company
used this facility primarily as office space. During fiscal 1993, the Company
discovered environmental contamination at this facility and voluntarily reported
this discovery to the Illinois Environmental Protection Agency ("IEPA") and has
since been involved in discussions with the IEPA and the U.S. Environmental
Protection Agency regarding the need for remediation. The Company believes that
any environmental contamination predates the Company's acquisition of the
facility from General Instrument. The Company and General Instrument jointly
retained an independent environmental consulting firm to assess the remediation
requirements and develop a plan to voluntarily remediate this property in
accordance with federal and state law such that the property could be used for
residential purposes. Prior to commencing such voluntary remediation, the
Company and General Instrument entered into a cost-sharing agreement. However,
both parties have reserved their rights to litigate concerning the final
cost-sharing arrangement.
As of March 31, 1996, the Company had an environmental remediation
liability of $2,373 and receivable from General Instrument of $1,266 related to
the remediation of environmental contamination discovered at the Chicago
facility. In September 1996, an independent environmental consulting firm
retained by the Company completed their reassessment of the remediation
requirements. Based on the consultant's report and plan of remediation, the
Company accrued an additional $750 for related remediation expenses. The Company
also accrued an additional $700 receivable related to General Instrument's
portion of the remediation expenses.
During the quarter ended December 29, 1996, the Company and General
Instrument began the remediation at the site. The approved clean-up method
produced conditions that were not acceptable to the community. As a result, the
Company has determined the most likely scenario will be to remediate the
property to make it useable as industrial/commercial, rather than residential
property, as originally planned. On March 31, 1995, the Company signed a
purchase and sale agreement to sell this property to a developer for $3,150,
subject to certain conditions, principally the Company's successful remediation
of the property and the attainment of the required zoning ordinances to permit
residential development of this property. Based on the anticipated
industrial/commercial property remediation plan, the Company has terminated this
purchase and sale agreement. The Company has accrued an additional $800 and
decreased the carrying value of the property by $1,650, reflecting an
anticipated lower net realizable value of $1,500.
During the year ended March 31, 1997, the Company incurred approximately
$2,567 of remediation costs and related expenses including the write-down of the
facility to net realizable value. At March 31, 1997, the Company has an
environmental remediation liability of $517. During the year ended March 31,
1997, General
35
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Instrument incurred approximately $1,539 of remediation costs. As of March 31,
1997, the receivable from General Instrument is $427. Management of the Company,
after consultation with its legal counsel, believes that the realization of this
amount from General Instrument is probable.
As the remediation progresses, the Company and General Instrument will
address contamination that has been found on adjacent sites. Management
continues to analyze the estimated environmental remediation liability and has
accrued additional amounts when known events have required revised estimates.
However, given the current stage of the remediation process and the magnitude of
contamination found at the site and adjacent sites, the ultimate disposition of
this environmental matter could have a significant negative impact on the
Company's consolidated financial results for a future reporting period.
(b) Belgium
During fiscal 1997, the Company retained an independent environmental
consulting firm to assess the environmental condition of its facility located in
Tongeren, Belgium. The scope of their work was to assess potential contamination
in light of newly adopted Belgium legal requirements and develop a plan to
remediate the property if necessary. Preliminary results show certain
groundwater contamination that may have resulted from the Company's past
operations or from neighboring manufacturing companies. However, Belgium
environmental authorities have the ability to comment on the remediation plan.
In January 1997, the Company completed the sale of the TMC. Upon the sale
of TMC, the Company agreed to indemnify Gunther Belgium N.V. for up to $500 for
established environmental remediation costs, subject to certain condition and
limitations. The Company has accrued this environmental remediation
indemnification as of March 31, 1997.
(iii) Legal Proceedings
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all claims,
and, in its opinion, all litigation currently pending or threatened will not
have a material effect on the Company's financial position or results of
operations.
NOTE 9. STOCKHOLDERS' EQUITY
(a) Shares Reserved
As of March 31, 1997, the shares of common stock reserved for issuance were
as follows:
MARCH 31,
1997
---------
Exercise of stock options......................... 2,325,016
Exercise of warrants.............................. 80,844
Employee Stock Purchase Plan...................... 258,639
---------
2,664,499
========
(b) Stock Options
The Company maintains an equity incentive plan, the C.P. Clare Corporation
Amended and Restated 1995 Stock Option and Incentive Plan (the "1995 Plan"). The
1995 Plan was adopted in March 1995 and supersedes, amends and restates the
1987, 1988 and 1994 employee equity incentive plans. The 1995 Plan provides for
the issuance of options to purchase up to 3,680,000 shares of the Company's
common stock. Additionally, the 1995 Plan permits the issuance of both incentive
stock options and non-qualified stock options. All options, grants, pricing,
expiration periods and vesting periods are determined by the Board of Directors
and must be granted at a price not less than 100% of the fair market value at
the date of grant in the case of incentive stock options or 85% of the fair
market value in the case of a non-qualified stock option. The Company recognizes
the difference, if any, between the fair market value of the Company's stock on
the date of grant and the exercise price of the options as deferred compensation
and recognize any compensation expense over the applicable vesting periods.
36
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the years ended March 31, 1995 and 1996, the Company recorded $396
and $651, respectively, of deferred compensation related to the issuance of
304,000 and 605,600 options during those periods. The Company is amortizing the
deferred compensation over the vesting period of the related options of one to
five years. During fiscal year 1995, 1996 and 1997, the Company recognized $119,
$321 and $198, respectively, of compensation expense in the consolidated
statements of operations related to the grant of these options.
The 1995 Plan also provided for an automatic grant of non-qualified stock
options to purchase 10,000 shares of Common Stock to each independent director
as of the effective date of the Company's initial public offering. Each new
director elected after the effective date of the initial public offering will be
granted a non-qualified stock option to purchase 10,000 shares of common stock.
Thereafter, each independent director serving as a Director five days after the
Company's annual stockholders meeting shall automatically be granted a
non-qualified stock option to purchase 5,000 shares of common stock.
The 1995 Plan also provides for stock appreciation awards, stock awards,
performance share awards and dividend equivalent rights. The stock appreciation
rights may be granted in tandem with or independent of stock options. The
Company has not granted any stock awards or rights as of March 31, 1997.
The following table summarizes incentive and non-qualified stock option
activity under the 1995 Plan for the fiscal years ended March 31, 1995, 1996 and
1997:
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
OPTIONS PER SHARE PRICE PER SHARE
--------- ----------------- ----------------
Outstanding at March 31, 1994.......... 1,132,082 $0.25 - $ 1.87 $ 0.66
Granted................................ 497,244 $0.50 0.50
Exercised.............................. (1,644) $0.25 - $ 1.87 1.67
Canceled............................... (75,056) $0.50 - $ 1.87 1.41
----------
Outstanding at March 31, 1995.......... 1,552,626 $0.25 - $ 1.87 $ 0.63
Granted................................ 970,400 $8.97 - $25.88 13.27
Exercised.............................. (985,155) $0.25 - $ 8.97 0.62
Canceled............................... (36,000) $0.50 - $ 8.97 3.32
----------
Outstanding at March 31, 1996.......... 1,501,871 $0.50 - $25.88 $ 8.74
Granted................................ 1,065,100 $8.125 - $24.75 9.94
Exercised.............................. (369,829) $0.50 - $ 8.97 2.48
Canceled............................... (500,360) $0.50 - $25.88 14.81
----------
Outstanding at March 31, 1997.......... 1,696,782 $0.50 - $24.63 $ 9.06
==========
Exercisable at March 31, 1997.......... 202,441 $0.50 - $24.63 $10.72
==========
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which is effective for fiscal
1997. SFAS No. 123 requires the measurement of the fair value of stock options
or warrants to be included in the statement of operations or disclosed in the
notes to the financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under APB Opinion
No. 25 and has elected the disclosure-only alternative under SFAS No. 123.
37
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options granted in 1996 and 1997 have been valued using the Black-Scholes
option-pricing model prescribed by SFAS No. 123. The weighted-average
assumptions used for the years ended March 31, 1996 and 1997 are as follows:
MARCH 31,
-----------------------
1996 1997
---------- ----------
Risk free interest rate...................................... 6.4% 6.2%
Expected dividend yield...................................... -- --
Expected lives............................................... 6 years 6 years
Expected volatility.......................................... 80% 80%
Weighted average grant-date fair value of options granted at
fair market value during the period........................ $ 14.05 $ 4.75
Weighted average grant-date fair value of options granted
below fair market value during the period.................. $ 6.88 --
Weighted average exercise price of options granted at
fair market value during the period........................ $ 22.29 $ 9.94
Weighted average exercise price of options granted below
fair market value during the period........................ $ 9.19 --
Weighted average remaining contractual life of options
outstanding................................................ 8.41 years 8.16 years
Weighted average exercise price for 146,229 and 202,441
options
exercisable at March 31, 1996 and 1997..................... $ 1.58 $ 10.72
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the 1995 Plan been determined consistent with
SFAS No. 123, the Company's net income (loss) and pro forma net income (loss)
per common and common share equivalent would have been as follows:
1996 1997
------ -------
Net income (loss):
As Reported................................................ $7,734 $(6,911)
====== =======
Pro Forma.................................................. $6,851 $(8,169)
====== =======
Earnings (loss)
Per common and common share equivalents:
As Reported................................................ $ 0.95 $ (0.77)
====== =======
Pro Forma.................................................. $ 0.83 $ (0.92)
====== =======
(c) Warrants
In fiscal 1989 and fiscal 1991, the Company issued warrants to employees
and others to purchase 626,617 shares of common stock at $1.87 per share. In the
year ended March 31, 1996 and 1997, 471,662 and 67,153 warrants were exercised,
respectively, resulting in 80,844 exercisable warrants outstanding at March 31,
1997, which expire on December 31, 1998. The warrants are subject to certain
provisions as described in the stockholders' agreement that grants certain
rights to the Company and certain other stockholders to repurchase warrants for
$0.05 upon the occurrence of certain events. Certain of these warrants enable
the
38
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrantholder to exercise the warrant by surrendering shares of common stock
also held by the warrantholder for over six months.
Warrants to purchase 916,425 shares of common stock at $0.80 per share were
issued to subordinated noteholders (see Note 7b) in connection with the original
issuance of the debt in 1989 and through additional provisions of the agreement.
In the first quarter of fiscal year 1996, the Company repurchased the warrants
to purchase 916,425 shares of the Company's common stock at $0.80 per share for
$3,925.
(d) Employee Stock Purchase Plan
In March 1995, the Board of Directors established the C.P. Clare
Corporation 1995 Employee Stock Purchase Plan (the "Purchase Plan"). Under the
Purchase Plan, all employees (including officers) of the Company, as defined,
are eligible to purchase the Company's common stock at an exercise price equal
to 85% of the fair market value of the common stock. The Purchase Plan provides
for up to 300,000 shares for issuance under the Purchase Plan. As of March 31,
1996 and 1997, there were 9,085 and 32,276 shares, respectively, issued under
this Purchase Plan, and rights to purchase 7,277 shares were outstanding as of
March 31, 1997.
(e) Shareholder Rights Plan
On April 29, 1996, the Board of Directors of the Company adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Pursuant to the terms of
the Rights Agreement, the Board of Directors declared a dividend distribution of
one Preferred Stock Purchase Right (a "Right") for each outstanding share of
common stock of the Company to stockholders of record as of the close of
business on May 15, 1996 (the "Record Date"). In addition, one Right will
automatically attach to each share of common stock issued subsequent to the
Record Date, until April 29, 2006. Each Right entitles the registered holder to
purchase from the Company, upon the occurrence of certain events, a unit
consisting of one one-thousandth of a share (a "Unit") of Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), at a cash exercise price of $100 per Unit (the "Exercise
Price"), subject to adjustment. The Company has reserved 150,000 shares of the
Preferred Stock for issuance upon exercise of the Rights.
The Rights currently are not exercisable and are attached to and trade with
the outstanding shares of common stock. Under the Rights Agreement, the Rights
become exercisable (i) if a person as defined in the rights plan becomes an
"acquiring person" by acquiring 15% or more of the outstanding shares of common
stock (ii) if a person who owns 10% or more of the common stock is determined to
be an "adverse person" by the Board of Directors, or (iii) if a person commences
a tender offer that would result in that person owning 15% or more of the common
stock. Upon the occurrence of any one of these events, each holder of a Right
(other than the acquiring person or the adverse person) would be entitled to
acquire such number of shares of the Company's Preferred Stock which are
equivalent to such number of shares of common stock having a value of twice the
then current exercise price of the Right. If the Company is acquired in a merger
or other business combination transaction after any such event, each holder of a
Right would then be entitled to purchase, at the then current exercise price,
shares of the acquiring company's common stock having a value of twice the
exercise price of the Right.
Until a Right is exercised, the holder will have no rights as a stockholder
of the Company (beyond those as an existing stockholder), including the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Units, other securities of the Company, other consideration or
for common stock of an acquiring company.
39
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. EMPLOYEE BENEFIT PLANS:
(a) 401(k) Benefit Plan and Retirement Savings Plan
U.S. employees of the Company may participate in a supplemental retirement
program (the "401(k) Plan") established under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The Company matches 75% of individual
contributions, up to 3% of base pay, as defined. Employee contributions vest
immediately, while Company matching contributions fully vest after two years of
service, as defined. For the fiscal years ended March 31, 1995, 1996 and 1997
the Company contributed $97, $230 and $262, respectively, under the 401(k) Plan.
The Company also maintains a retirement savings plan for all eligible U.S.
employees. At the discretion of the Board of Directors, the Company contributes
5% of employees' gross regular wages to the plan. During the fiscal years ended
March 31, 1995, 1996 and 1997, no contributions were made to the retirement
savings plan. In fiscal 1996, the plan was discontinued for new participants.
(b) Postretirement Health Care Benefits
The Company provides certain employees with postretirement health benefits
in accordance with SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Subsequent to March 31, 1995, the Company curtailed the
plan, as defined by SFAS No. 106. The Company recorded a liability of $463 as of
March 31, 1996, which represented the unrecognized prior service costs
associated with the remaining eligible plan participants. During fiscal 1997,
the plan recorded $37 of additional expense and $40 in estimated retiree claims.
At March 31, 1997, the Company's liability was $460.
(c) Foreign Retirement Insurance Benefits
The Company also provides certain defined retirement annuity payments on
behalf of its employees in Europe and Mexico. For the fiscal years ended March
31, 1995, 1996 and 1997, the Company contributed $134, $184, and $219,
respectively, for the annuity premium payments.
(d) Defined Benefit Plan
All employees of the Company located in Taiwan are entitled to retirement
benefits under regulatory requirements. The actuarial present value of these
benefits has been recorded in the accompanying consolidated financial statements
in accordance with SFAS No. 87, "Employers' Accounting for Pensions."
The components of the net periodic pension cost for fiscal years 1995, 1996
and 1997 are as follows:
1995 1996 1997
---- ---- ----
Service cost -- benefit earned during the period.................. $ 96 $ 87 $ 84
Interest cost on projected benefit obligation..................... 130 150 153
Expected return on assets......................................... (19) (19) (20)
---- ---- ----
Net periodic pension cost......................................... $207 $218 $217
==== ==== ====
40
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the plan at March 31, 1995, 1996 and 1997 was as
follows:
1995 1996 1997
------ ------ ------
Actuarial present value of accumulated plan benefits
Vested................................................. $ 17 $ -- $ --
Non-vested............................................. 635 1,123 1,212
------ ------ ------
652 1,123 1,212
Additional amounts related to projected salary
increases.............................................. 602 978 968
------ ------ ------
Actuarial present value of projected benefit
obligation............................................. 1,254 2,101 2,180
Plan assets at fair value................................ 269 246 290
------ ------ ------
Projected benefit obligation in excess of plan assets.... $ 985 $1,855 $1,890
====== ====== ======
Assumptions:
Rate of return on plan assets.......................... 7% 7% 7%
Discount rate for projected benefit obligations........ 7% 7% 7%
Rate of increase in future compensation levels
Indirect labor...................................... 6% 6% 6%
Direct labor........................................ 4% 4% 4%
(e) Bonus Plan
In May 1995, the Board of Directors approved the 1995 Key Employee
Incentive Plan (the "Bonus Plan") which was subsequently amended. Under the
Bonus Plan, the Company has the discretion to determine certain employees of the
Company who are eligible for a bonus if certain milestones established for the
Company and each individual are achieved, as defined. Participants may elect to
defer payment of their bonus to a later date and will be entitled to interest on
deferred amounts. The Company also has the discretion to pay the bonus in cash,
or partially or fully in stock, options or discount options under the 1995 Stock
Plan. During the year ended March 31, 1996 and 1997, the Company paid
approximately $640 and $310 related to the Bonus Plan.
NOTE 11. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The statement requires that deferred income tax
accounts reflect the tax consequences on future years of differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts for income tax purposes. In addition, SFAS No. 109 requires the
recognition of future tax benefits, such as net operating loss carryforwards
("NOLs"), to the extent that realization of such benefits is more likely than
not.
The components of domestic and foreign income (loss) before the provision
for income taxes are as follows:
FISCAL YEAR ENDED MARCH 31,
-------------------------------
1995 1996 1997
------- ------- -------
Domestic.............................. $ 3,217 $11,949 $(5,991)
Foreign............................... (538) 943 544
------ ------ -------
$ 2,679 $12,892 $(5,447)
====== ====== =======
41
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of current and deferred provision for income taxes are as
follows:
YEAR ENDED MARCH 31,
-------------------------------
1995 1996 1997
------- ------- -------
Current:
Federal..................................................... $ 1,614 $ 4,761 $ 2,131
State....................................................... 382 1,285 383
Foreign..................................................... -- 488 322
------- ------- -------
Total current............................................ $ 1,996 $ 6,534 $ 2,836
======= ======= =======
Deferred:
Federal..................................................... $(1,178) $ (354) $(1,074)
State....................................................... (122) (51) (222)
Foreign..................................................... 646 (971) (76)
------- ------- -------
Total deferred........................................... $ (654) $(1,376) $(1,372)
------- ------- -------
Provision for income taxes.................................... $ 1,342 $ 5,158 $ 1,464
======= ======= =======
The income tax provision is different from that which would be computed by
applying the U.S. federal income tax rate to income before taxes as follows:
YEAR ENDED MARCH 31,
--------------------------
1995 1996 1997
----- ---- -----
Federal statutory tax rate....................................... 34.0% 35.0% (34.0)%
State income taxes, net of federal income tax benefit............ 3.8 5.7 4.6
Tax exempt interest.............................................. -- (1.3) (8.3)
Foreign Sales Corporation benefits............................... -- (1.0) (1.4)
Capital loss carryforward valuation allowance.................... -- -- 62.8
Excess of foreign provision over statutory U.S. rate............. -- 3.2 1.1
Foreign taxes.................................................... 9.6 -- --
Permanent items.................................................. (9.6) -- --
Decrease in valuation allowance relating to net operating loss
carryforwards.................................................. (10.0) (8.6) (1.9)
Deemed repatriation of foreign earnings.......................... -- 7.0 2.3
Other............................................................ 2.5 -- 1.7
----- ---- -----
30.3% 40.0% 26.9%
===== ==== =====
42
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred income tax assets and liabilities at
March 31, 1996 and 1997 are as follows:
1996 1997
------- --------
Current deferred income tax assets:
Net operating loss carryforwards............................ $ 106 $ 106
Inventory reserves.......................................... 620 762
Accrued environmental remediation costs..................... 84 35
Accrued restructuring....................................... -- 1,140
Accrued severance and payroll related costs................. 1,048 1,095
Other temporary differences................................. 600 721
Less: Valuation allowance................................... (1,011) (724)
------- --------
Net current deferred income tax assets................... $ 1,447 $ 3,135
======= ========
Long-term deferred income tax assets:
Net operating loss carryforwards............................ $ 3,392 $ 3,293
Net capital loss carryforwards.............................. -- 9,424
Less: Depreciation.......................................... (1,488) (28)
Less: Valuation allowance................................... (1,869) (11,744)
------- --------
Long-term deferred income tax asset........................... $ 35 $ 945
======= ========
The Internal Revenue Code (the "Code") limits the amount of net operating
loss and tax credit carryforwards that companies may utilize in any one year in
the event of cumulative changes in ownership over a three-year period in excess
of 50%. In connection with the acquisition of the Clare Division of General
Instrument in 1989 and the simultaneous issuance of common stock and warrants,
the Company incurred a cumulative change in ownership in excess of 50% as
defined in the Code. This change in ownership has limited the Company's ability
to utilize, in any one year, the net operating loss and credit carryforwards
incurred prior to this change in ownership. The Company estimates that the total
NOLs through January 1989 subject to this limitation is approximately $7,803.
The use of the available NOLs is limited to approximately $311 in each year
subsequent to this change in ownership. In Taiwan, the Company has NOLs and tax
credit carryforwards of $3,012 at March 31, 1997. These NOLs begin to expire in
fiscal 1998.
In January 1997, the Company completed the sale of TMC to Gunther GmbH. As
a result of this transaction the Company incurred a capital loss of
approximately $24,800, which the Company may carry forward for a period of five
(5) years. The Company's ability to utilize this capital loss carryforward is
limited to the amount of capital gains that the Company generates in the
carryforward period. The Company has provided a full valuation allowance against
the capital loss carryforward as the Company believes that it is more likely
than not that the Company will not be able to utilize such a carryforward.
The remainder of the valuation allowance relates to the limited use of
certain NOLs. During the year ended March 31, 1997, the Company increased its
valuation allowance by $164 as an increase in its provision for income taxes.
Taxes have not been provided on foreign subsidiaries undistributed earnings of
approximately $6,779 at March 31, 1997, which are deemed indefinitely invested.
NOTE 12. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following for the fiscal years ended
March 31, 1995, 1996 and 1997:
YEAR ENDED MARCH 31,
-----------------------
1995 1996 1997
---- ----- ----
Net gain (loss) on foreign currency exchange transactions............ $434 $(243) $(40)
Other................................................................ 42 223 32
---- ----- ----
$476 $ (20) $ (8)
==== ===== ====
43
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. CASH FLOWS
(a) Supplemental Disclosure of Cash Flow Information:
YEAR ENDED MARCH 31,
----------------------------
1995 1996 1997
------ ------ ------
Interest paid.................................................... $2,443 $1,097 $ 224
====== ====== ======
Income taxes paid................................................ $1,156 $3,125 $2,160
====== ====== ======
(b) Summary Information on Sale of Tongeren Manufacturing Company:
The Company sold the following assets and the purchaser assumed the
following obligations in connection with the Company's disposition of TMC:
MARCH 31,
1997
---------
Fair value of assets sold:
Cash...................................................... $ 743
Intercompany and other receivable......................... 1,479
Inventory, net............................................ 1,395
Other current assets...................................... 26
Property, plant and equipment............................. 4,890
Other non-current assets.................................. 1,466
-------
Total fair value of assets sold........................... 9,999
-------
Liabilities assumed by purchaser:
Accounts payable.......................................... (529)
Accrued expenses.......................................... (1,447)
Income taxes payable...................................... (429)
Long-term debt, net of current portion.................... (1,515)
Deferred income taxes..................................... (938)
Other non-current liabilities............................. (72)
-------
Total liabilities assumed by purchaser.................... (4,930)
-------
Loss on disposition of TMC..................................... $ 5,069
=======
(c) Supplemental Disclosure of Noncash Transactions:
YEAR ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
Deferred compensation associated with the issuance of stock
options................................................... $396 $651 $ --
==== ==== ====
44
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. GEOGRAPHIC INFORMATION
Geographic information is as follows:
YEAR ENDED MARCH 31,
------------------------
1995 1996 1997
---- ---- ----
Geographic Sales by Destination
United States............................................. 56% 58% 62%
Europe.................................................... 35 34 28
Far East.................................................. 9 8 10
--- --- ---
100% 100% 100%
=== === ===
Sales, operating income and identifiable assets for the Company's United
States and foreign operations are summarized as follows:
UNITED TOTAL
YEAR ENDED MARCH 31, STATES EUROPE FAR EAST ELIMINATION COMPANY
- -------------------------------------------- -------- ------- --------- ------------ --------
1995
Sales to unaffiliated customers............. $ 53,672 $33,960 $ 8,360 $ -- $ 95,992
Transfers between geographic areas.......... 18,125 9,927 -- (28,052) --
-------- ------ ------ ------- --------
Total sales............................ 71,797 43,887 8,360 (28,052) 95,992
======== ====== ====== ======= ========
Operating income............................ 4,727 185 132 -- 5,044
======== ====== ====== ======= ========
Identifiable assets......................... 41,574 18,403 1,717 (6,423) 55,271
======== ====== ====== ======= ========
1996
Sales to unaffiliated customers............. 73,562 43,585 10,781 -- 127,928
Transfers between geographic areas.......... 26,038 10,805 -- (36,843) --
-------- ------ ------ ------- --------
Total sales............................ 99,600 54,390 10,781 (36,843) 127,928
======== ====== ====== ======= ========
Operating income (loss)..................... 11,645 1,723 (208) -- 13,160
======== ====== ====== ======= ========
Identifiable assets......................... 103,521 16,014 2,082 (6,409) 115,208
======== ====== ====== ======= ========
1997
Sales to unaffiliated customers............. 79,652 36,141 12,368 -- 128,161
Transfers between geographic areas.......... 24,508 5,205 -- (29,713) --
-------- ------ ------ ------- --------
Total sales............................ 104,160 41,346 12,368 (29,713) 128,161
======== ====== ====== ======= ========
Operating income (loss)..................... (7,797) 930 302 -- (6,565)
======== ====== ====== ======= ========
Identifiable assets......................... $106,874 $ 3,077 $ 1,909 $ (690) $111,170
======== ====== ====== ======= ========
Management believes transfers between geographic areas are accounted for on
an arms' length basis.
45
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for the fiscal years ended March 31, 1996
and 1997 are as follows:
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
1996
Net sales.............................. $ 29,986 $ 31,900 $ 32,818 $ 33,224 $127,928
Gross profit........................... 9,271 10,012 10,678 11,503 41,464
Net income............................. 1,110 1,838 2,205 2,581 7,734
Earnings per common and common share
equivalent........................... $ 0.18 $ 0.23 $ 0.25 $ 0.27 $ 0.95
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
1997
Net sales.............................. $ 34,038 $ 30,019 $ 31,374 $ 32,730 $128,161
Gross profit........................... 11,624 10,223 10,147 10,564 42,558
Net income (loss)...................... 2,791 (12,439)(1) 1,193 1,544 (6,911)
Earnings (loss) per common and common
share equivalent..................... $ 0.29 $ (1.39) $ 0.13 $ 0.16 $ (0.77)
- ---------------
(1) See Note 8.
46
49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To C.P. Clare Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of C.P. Clare Corporation and subsidiaries
included in this Form 10-K and have issued our report thereon dated April 25,
1997. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 25, 1997
47
50
SCHEDULE II
C.P. CLARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
RECOVERIES
BALANCE AS OF FOR ACCOUNTS UNCOLLECTIBLE BALANCE AT
BEGINNING PROVISION PREVIOUSLY ACCOUNTS END OF
OF PERIOD FOR BAD DEBT WRITTEN OFF WRITTEN OFF PERIOD
------------- ------------ ------------ ------------- ----------
Allowance for Doubtful Accounts:
Year Ended March 31, 1997 535 273 -- 133 675
Year Ended March 31, 1996 617 199 19 300 535
Year Ended March 31, 1995 513 670 -- 566 617
48
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, C.P. Clare Corporation certifies that it has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Beverly, Massachusetts on June 24, 1997.
C.P. CLARE CORPORATION
BY: /s/ ARTHUR R. BUCKLAND
------------------------------------
Date: June 24, 1997 Arthur R. Buckland President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- --------------
ARTHUR R. BUCKLAND President, Chief Executive Officer June 24, 1997
- ---------------------------------------- and Chairman
Arthur R. Buckland
THOMAS B. SAGER Controller (Principal Financial June 24, 1997
- ---------------------------------------- Officer and Principal Accounting
Thomas B. Sager Officer)
WINSTON R. HINDLE, JR. Director June 24, 1997
- ----------------------------------------
Winston R. Hindle, Jr.
CLEMENTE C. TIAMPO Director June 24, 1997
- ----------------------------------------
Clemente C. Tiampo
JOHN G. TURNER Director June 24, 1997
- ----------------------------------------
John G. Turner
JAMES K. SIMS Director June 24, 1997
- ----------------------------------------
James K. Sims
49
52
PAGE NUMBER
EXHIBIT NO. TITLE SEQUENTIAL
----------- -------------------------------------------------------------- ------------
11.1 Computation of Net Income Per Share
21 Subsidiaries of the Registrant
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule (Edgar)
50