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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-26092
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C.P. CLARE CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2561471
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
78 CHERRY HILL DRIVE
BEVERLY, MASSACHUSETTS 01915
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 524-6700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of September 28, 1997, there were 9,306,551 shares of Common Stock,
$.01 par value, outstanding.
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C.P. CLARE CORPORATION
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION: PAGE
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 1
Consolidated Condensed Statements of Operations 2
Consolidated Condensed Statements of Cash Flows 3
Notes to Consolidated Condensed Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Item 3 Quantitative and Qualitative Disclosure About Market Risk 12
PART II OTHER INFORMATION:
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 28, 1997 MARCH 31, 1997
------------------ --------------
ASSETS
Current assets:
Cash, cash equivalents and investments (Note 4) $ 30,141 $ 37,430
Accounts receivable, less allowance for doubtful accounts 19,981 17,412
Inventories (Note 5) 20,532 20,116
Other current assets 5,236 3,832
-------- --------
Total current assets 75,890 78,790
Property, plant and equipment, net 33,256 28,976
Other assets 2,206 3,404
-------- --------
$111,352 $111,170
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 517 $ 511
Accounts payable 11,437 12,620
Accrued expenses (Note 6) 10,986 14,434
-------- --------
Total current liabilities 22,940 27,565
Long-term debt, net of current portion 615 550
Other long-term liabilities 1,789 1,789
------- --------
Total liabilities 25,344 29,904
------- --------
Stockholders' equity:
Preferred stock, $ .01 par value-
Authorized: 2,500,000 shares
Issued and outstanding: None -- --
Common stock, $ .01 par value-
Authorized: 40,000,000 shares
Issued and outstanding: 9,306,551 shares and 9,176,657 shares
as of September 28, 1997 and March 31, 1997, respectively 93 92
Additional paid-in capital 95,021 94,115
Deferred compensation (269) (409)
Accumulated deficit (7,911) (11,702)
Cumulative translation adjustment (926) (830)
-------- --------
Total stockholders' equity 86,008 81,266
-------- --------
$111,352 $111,170
======== ========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
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C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------------
SEPT. 28, 1997 SEPT. 29, 1996 SEPT. 28, 1997 SEPT. 29, 1996
-------------- -------------- -------------- --------------
Net sales $ 39,204 $ 30,019 $ 73,871 $ 64,057
Cost of sales 27,024 19,796 50,534 42,210
----------- ---------- ----------- ----------
Gross profit 12,180 10,223 23,337 21,847
Operating expenses:
Selling, general and administrative (Note 8) 7,028 7,929 13,773 14,236
Research and development 2,006 1,633 4,334 2,971
Restructuring costs (Note 7) -- 14,750 -- 14,750
----------- ---------- ----------- ----------
Operating income (loss) 3,146 (14,089) 5,230 (10,110)
Interest income 388 368 750 901
Interest expense (71) (117) (99) (236)
Other income (expense), net (69) (47) 136 (148)
----------- ---------- ----------- ----------
Income (loss) before provision (benefit) for income taxes 3,394 (13,885) 6,017 (9,593)
Provision (benefit) for income taxes 1,255 (1,446) 2,226 54
----------- ---------- ----------- ----------
Net income (loss) $ 2,139 $ (12,439) $ 3,791 $ (9,647)
=========== ========== =========== ==========
Earnings (loss) per common and common
share equivalent $ 0.21 $ (1.39) $ 0.38 $ (1.09)
=========== ========== =========== ==========
Weighted average number of common shares and
common share equivalents outstanding 10,025,357 8,941,473 10,011,197 8,886,909
=========== ========== =========== ==========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
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C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
-------------------------------
SEPT. 28, 1997 SEPT. 29, 1996
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,791 $ (9,647)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Non-cash portion of restructuring charge -- 3,500
Provision for environmental remediation costs 519 1,250
Depreciation and amortization 2,651 2,167
Deferred income tax benefit (87) (37)
Compensation expense associated with stock options 140 95
Changes in assets and liabilities:
Accounts receivable (3,443) 2,312
Inventories (483) (4,146)
Other current assets 832 (1,005)
Accounts payable (1,067) 1,365
Accrued expenses and other liabilities (3,852) 9,180
------- --------
Net cash provided by (used in) operating activities (999) 5,034
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (7,086) (10,682)
------- --------
Net cash used in investing activities (7,086) (10,682)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of lines of credit -- (1,232)
Net proceeds from issuance of common stock 145 214
Proceeds from exercise of options and warrants 663 910
Payments of principal on long-term debt -- (364)
Tax benefit of disqualifying disposition of incentive stock options 99 709
------- --------
Net cash provided by financing activities 907 237
------- --------
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS
AND INVESTMENTS (111) (55)
------- --------
NET DECREASE IN CASH, CASH EQUIVALENTS AND
INVESTMENTS (7,289) (5,466)
Cash, cash equivalents and investments, beginning of period 37,430 49,082
------- --------
Cash, cash equivalents and investments, end of period $30,141 $ 43,616
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 22 $ 36
======= ========
Income taxes $ 2,676 $ 1,840
======= ========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
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C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 28, 1997
(dollars in thousands, except per share amount)
1. FISCAL PERIODS
The Company's fiscal year is comprised of either 52 or 53 weeks and
ends on the Sunday closest to March 31 each year. Interim quarters are comprised
of 13 weeks unless otherwise noted and end on the Sunday closest to June 30,
September 30, December 31 and March 31.
2. INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated condensed financial statements
presented herein have been prepared in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-Q and Regulation S-X pertaining to interim financial statements.
Accordingly, these interim financial statements do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. The financial statements reflect all adjustments and
accruals which management considers necessary for a fair presentation of the
Company's financial position as of September 28, 1997, and results of operations
for the three and six months ended September 28, 1997 and September 29, 1996.
The results for the interim periods presented are not necessarily indicative of
results to be expected for any future period. The financial statements should be
read in conjunction with the summary of significant accounting policies and
notes to consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997 as filed with the
Securities and Exchange Commission.
3. EARNINGS (LOSS) PER COMMON AND COMMON SHARE EQUIVALENT
Earnings per common share and common share equivalent is computed using
the weighted average number of common shares and dilutive common share
equivalents outstanding during each period. (Loss) per common share and common
share equivalent is computed using the weighted average number of common shares
outstanding during each period. Dilutive common share equivalents consist of
stock options and warrants using the modified treasury stock method. Fully
diluted earnings per share are not presented as the amounts are not materially
different.
4. 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 September 28, 1997 and March 31, 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 September 28, 1997 and March 31, 1997 and they are
carried at cost which approximates market value.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. 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 September 28, 1997 and March 31, 1997:
September 28, March 31,
1997 1997
------------- ---------
Raw material $ 9,399 $ 8,905
Work in process 3,623 6,117
Finished goods 7,510 5,094
======= ========
$20,532 $20,116
======= ========
6. ACCRUED EXPENSES
Accrued expenses consist of the following at September 28, 1997 and
March 31, 1997:
September 28, March 31,
1997 1997
------------- ---------
Payroll and benefits $ 4,126 $ 3,768
Restructuring (Note 7) 1,368 5,884
Environmental remediation
(Note 8) 1,124 1,017
Other 4,368 3,765
======= =======
$10,986 $14,434
======= =======
7. RESTRUCTURING COSTS
In fiscal 1997, the Company announced a restructuring of its
operations, primarily in the Company's reed relay business, and recorded a net
restructuring charge of $14,250. The restructuring includes severance-related
costs associated with a workforce reduction of approximately 250 persons on a
worldwide basis, primarily in manufacturing. Also included in the restructuring
is the write-down of certain facilities and intangible assets to their net
realizable value as a result of a facilities realignment and the consolidation
of product lines. The Company incurred approximately $8,366 and $4,516 of these
restructuring charges through the end of fiscal 1997 and for the first six
months of fiscal 1998, respectively. As of September 28, 1997, the Company had
$1,368 remaining in accrued restructuring for restructuring activities in
process, but for which payments are due in the future.
8. COMMITMENTS AND CONTINGENCIES
Environmental Matter
The Company accrues for estimated costs associated with known
environmental matters, when such costs are probable and can be reasonably
estimated. The actual costs to be incurred for environmental 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.
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(i) 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. In September 1996, an independent environmental
consulting firm retained by the Company completed their assessment 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 expense.
During the quarter ended December 29, 1996, the Company and General
Instrument began remediation, however the approved clean-up method produced
conditions that were not acceptable to the community. As a result, the Company
determined the most likely scenario will be to remediate the property to make it
usable as industrial/commercial, rather than residential property, as originally
planned.
As of March 31, 1997, the Company had an environmental remediation
liability of $517 and a receivable from General Instrument of $427 related to
the remediation of environmental contamination discovered at the Chicago
facility.
During the six months ended September 28, 1997, the Company paid
approximately $129 of remediation costs and related expenses. At September 28,
1997, the Company has an environmental remediation liability of $774. As of
September 28, 1997, General Instrument paid approximately $320 of remediation
costs. As of September 28, 1997, the receivable balance from General Instruments
is $107. 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.
(ii) Belgium
In January 1997, the Company completed the sale of the Tongeren
Manufacturing Company (TMC) to Gunther GmBH. Upon the sale of TMC, the Company
agreed to indemnify Gunther for an amount subsequently reduced to $350, for
established environmental remediation costs, subject to certain conditions and
limitations. The Company accrued this environmental remediation indemnification
as of March 31, 1997.
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9. 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
options 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.
10. 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) which relates to trade sales to
third party customers in the ordinary course of business. At September 28, 1997,
the Company had nine outstanding forward contracts amounting to 514,760 Belgian
francs ("BF") or $14,000 with a gross deferred gain of $74 from the rollover of
such contracts to the planned settlement date. At March 31, 1997, the Company
had five outstanding forward contracts amounting to 170,000 BF or $4,923 with a
gross deferred loss of $28 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward looking statements.
Certain factors that might cause such a difference are discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997,
as filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth the relative percentage that certain
income and expense items bear to net sales for the periods indicated:
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.9 65.9 68.4 65.9
----- ------ ----- -----
Gross profit 31.1 34.1 31.6 34.1
Operating expenses:
Selling, general and administrative 17.9 26.4 18.6 22.3
Research and development 5.1 5.4 5.9 4.6
Restructuring costs -- 49.1 -- 23.0
----- ------ ----- -----
Operating income (loss) 8.1 (46.8) 7.1 (15.8)
Interest income 1.0 1.2 1.0 1.4
Interest expense (0.2) (0.4) (0.1) (0.4)
Other income (expense), net (0.2) (0.2) 0.2 (0.2)
----- ------ ----- -----
Income (loss) before income taxes 8.7 (46.2) 8.2 (15.0)
Provision (benefit) for income taxes 3.2 (4.8) 3.0 0.1
----- ------ ----- -----
Net income (loss) 5.5% (41.4)% 5.2% (15.1)%
===== ====== ===== ======
Net Sales. Net sales increased 30.6% in the second quarter of fiscal
1998 to $39.2 million from $30.0 million for the three months ended
September 29, 1996. This increase was attributable to higher sales volume of
semiconductor and electromagnetic products. The increase was partially offset
during the quarter by the relative strength of the U.S. dollar to other foreign
currencies.
Net sales increased 15.3% for the six months ended September 28, 1997
to $73.9 million from $64.1 million for the same period in fiscal 1997. The
increase was primarily attributable to higher unit sales volume of semiconductor
and advanced magnetic products.
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Net sales by major product category are as follows:
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
(in millions)
Semiconductor products $17.3 $14.7 $32.5 $30.5
Electromagnetic and other products 21.9 15.3 41.4 33.6
Net sales to customers located outside of the United States (primarily
Europe and Asia) increased 44.6% in the second quarter of fiscal 1998 to
$16.2 million from $11.2 million in the second quarter of fiscal 1997. The
increase in net sales is primarily attributed to increased sales volume in the
Far East and Europe. Net sales to customers located outside the United States
increased 21.8% for the six months ended September 28, 1997 to $30.2 million
from $24.8 million for the six months ended September 29, 1996. The Company will
continue to focus on new markets and expansion of certain existing international
markets.
Gross Profit. The Company's gross profit as a percentage of net sales
weakened to 31.1% in the second quarter of fiscal 1998 from 34.1% in the same
period of fiscal 1997. The decrease in gross profit was primarily attributable
to increased sales volume of the Company's lower margin electromagnetic
products, the additional costs associated with the new semiconductor wafer
fabrication facility and the impact of the strengthening U.S. dollar on the
Company's international sales. The Company's gross profit as a percentage of net
sales fell to 31.6% for the six months ended September 28, 1997 from 34.1% for
the six months ended September 29, 1996. The decrease in gross profit was
primarily attributable to a strong U.S. dollar as well as starting costs
associated with the Company's partial move into its new semiconductor wafer
fabrication facility.
Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased in the second quarter of fiscal 1998 to $7.0
million from $7.9 million in the same period of fiscal 1997 and as a percentage
of net sales were 17.9% for the second quarter of fiscal 1998 as compared with
26.4% for the same period of fiscal 1997. The largest single component of the
dollar and percentage decrease was the result of the $1.3 million
non-recurring environmental charge taken during the second quarter of fiscal
1997. The expenses decreased to $13.8 million for the six months ended September
28, 1997 from $14.2 million for the six months ended September 29, 1996 and as a
percentage of sales fell to 18.6% from 22.3%, respectively.
Excluding this $1.3 million environmental charge, selling, general and
administrative expenses would have increased to $7.0 million in the second
quarter of fiscal 1998 from $6.7 million in the same period of fiscal 1997 and
as a percentage of net sales would be 17.9% for the second quarter of fiscal
1998 as compared with 22.2% for the same period of fiscal 1997. These expenses
would have increased to $13.8 million for the six months ended September 28,
1997 from $12.9 million for the six months ended September 29, 1996 but as a
percentage of sales would have decreased to 18.6% from 20.3%, respectively. The
increased spending primarily relates to additional commissions from increased
revenue and increased communication costs.
Research and Development Expense. Research and development (R&D)
expense increased to $2.0 million for the second quarter of fiscal 1998 from
$1.6 million for the same period in fiscal 1997. R&D expense increased to $4.3
million for the six months ended September 28, 1997 from $3.0 million for the
six months ended September 29, 1996. As a percentage of sales R&D expense
increased to 5.9% from 4.6%, respectively. These increases are primarily due to
the increased investment in new product development, specifically in
semiconductor products. The Company expects its R&D spending to increase in
fiscal 1998, as current R&D programs are continued and new semiconductor
programs are begun.
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Restructuring. The Company recorded a non-recurring charge in the
second quarter of fiscal 1997 of $14.8 million, which was subsequently reduced
by $0.5 million in the third quarter of fiscal 1997, or $12.9 million ($1.44 per
share) after income taxes, to restructure operations primarily in the Company's
reed relay business. Restructuring costs include costs for work force reduction
and worldwide facilities realignment. Workforce reduction costs include
primarily severance costs related to involuntary terminations. Facilities
realignment costs are primarily associated with consolidations of product lines
to restructure and streamline the Company's operations. The restructuring costs
also include asset write-downs of $3.5 million. See Note 7 of Notes to
Consolidated Condensed Financial Statements.
Interest Income. Interest income remained constant at $0.4 million for
the second quarter in both fiscal 1998 and 1997 and decreased in the six months
of fiscal 1998 to $0.8 million from $0.9 million for the same period in fiscal
1997. Interest income is derived from investments in short term commercial paper
and tax exempt municipal bonds.
Interest Expense. Interest expense for the second quarter of both
fiscal 1997 and 1998 was comparable at $0.1 million. Interest expense decreased
for the six months ended September 28, 1997 to $0.1 million from $0.2 million in
the same period of fiscal 1997, primarily as a result of the Company's sale of
its Belgium manufacturing company and the elimination of the European line of
credit.
Other Income (Expense), net. During the second quarter of both fiscal
1998 and 1997, other income (expense), net was comparable at ($0.1) million.
Included in other income (expense), net was income of $0.1 million for the six
months ended September 28, 1997, primarily due to a one time royalty payment
received, compared to an expense of ($0.1) million for the six months ended
September 29, 1996. These expenses are primarily the result of foreign exchange
transaction losses.
Income Taxes. In accordance with generally accepted accounting
principles, the Company has provided for income taxes at its estimated annual
effective tax rate in fiscal 1998 and 1997. Income tax expense increased to
$2.2 million for the six months ended September 28, 1997 from $0.1 million for
the six months ended September 29, 1996. In fiscal 1998 and 1997, the Company
recorded income taxes at an effective rate of 37% and 38%, respectively. While
the Company incurred a loss before income taxes for the six months ended
September 29, 1996, the Company did not record a full benefit for income taxes
because the Company anticipated it will not fully utilize the losses associated
with the restructuring.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended September 28, 1997, the Company's cash,
cash equivalents and investments decreased by $7.3 million. Operations used
$1.1 million of cash during this period. The Company used $7.1 million for
capital expenditures during the six months ended September 28, 1997. Financing
activities provided $1.0 million of cash during the period, primarily due to the
proceeds from exercises of options and warrants.
In connection with the acquisition of the Clare Division of General
Instrument Corporation in 1989, the Company purchased a manufacturing facility
located in Chicago, Illinois. From the acquisition date, the Company used the
facility primarily as office space. During 1993, the Company discovered evidence
of contamination at this facility. 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. See Note 8 of Notes to Consolidated Condensed
Financial Statements.
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. There can be no
assurance that this policy will eliminate all currency exposure.
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The Company believes that cash generated from operations, available
cash and amounts available under its credit agreements will be sufficient to
satisfy its working capital needs and planned capital expenditures through the
next 12 to 24 months. 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.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
None
Part II. Other Information
Item 1. Legal Proceedings
The Company is subject to routine litigation incident to the conduct of
its business. None of such proceedings is considered material to the business or
the financial condition of the Company.
Item 2. Changes In Securities and Use of Proceeds
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
The Annual Meeting of Stockholders was held on September 16, 1997 to
elect John Turner as the Class II director to serve until the 2000
Annual Meeting of Stockholders and until his successor is duly elected
and qualified. The following table sets forth the results of the
stockholder vote:
In Favor Withheld
----------- --------
Election of John Turner 8,378,256.2 3,789
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
10.71 Amended and Restated Employment Agreement between the
Company and Thomas B. Sager, dated September 16, 1997.
11.1 Computation of Net Income Per Share.
27.0 Financial Data Schedule (Edgar)
(b) Reports on Form 8-K
The Registrant filed no Current Reports on Form 8-K
during the quarter ended September 28, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C.P. CLARE CORPORATION
By: /s/ Thomas B. Sager
-----------------------
Thomas B. Sager
Vice President and
Chief Financial Officer
Date: November 10, 1997
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