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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 JUNE 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-26092
C.P. CLARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2561471
(State or other jurisdiction of (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 June 28, 1998, there were 9,372,889 shares of Common Stock, $.01 par
value per share, 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 and use of Proceeds 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)
JUNE 28, 1998 MARCH 31, 1998
------------- --------------
ASSETS
Current assets:
Cash, cash equivalents and investments (Note 4) $ 22,864 $ 26,364
Accounts receivable, less allowance for doubtful accounts 19,325 21,383
Inventories (Note 5) 23,254 22,083
Other current assets 3,491 3,122
-------- --------
Total current assets 68,934 72,952
Property, plant and equipment, net 40,128 38,777
Other assets 2,411 2,457
-------- --------
$111,473 $114,186
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 689 $ 666
Accounts payable 9,694 12,464
Accrued expenses (Note 6) 8,053 9,899
-------- --------
Total current liabilities 18,436 23,029
Total liabilities 18,436 23,029
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: 9,372,889 shares
and 9,356,452 shares as of June 28, 1998
and March 31, 1998, respectively 94 94
Additional paid-in capital 95,795 95,653
Deferred compensation (137) (154)
Accumulated deficit (1,697) (3,390)
Cumulative translation adjustment (1,018) (1,046)
-------- --------
Total stockholders' equity 93,037 91,157
-------- --------
$111,473 $114,186
======== ========
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
-------------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Net sales $ 36,694 $ 34,667
Cost of sales 25,514 23,510
---------- ----------
Gross profit 11,180 11,157
Operating expenses:
Selling, general and administrative 6,710 6,745
Research and development 2,024 2,328
---------- ----------
Operating income 2,446 2,084
Interest income 247 362
Interest expense (23) (28)
Other income 11 205
---------- ----------
Income before provision for income taxes 2,681 2,623
Provision for income taxes 988 971
---------- ----------
Net income $ 1,693 $ 1,652
========== ==========
Basic earnings per share (Note 3) $ 0.18 $ 0.18
========== ==========
Diluted earnings per share $ 0.17 $ 0.17
========== ==========
Weighted average number of common shares outstanding:
Basic 9,366,482 9,192,582
========== ==========
Diluted 9,863,568 9,683,127
========== ==========
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 THREE MONTHS ENDED
--------------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,693 $ 1,652
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,716 1,224
Deferred income tax benefit (50) (28)
Compensation expense associated with stock options 17 91
Changes in assets and liabilities:
Accounts receivable 2,018 (705)
Inventories (1,156) (1,195)
Other current assets (284) 69
Accounts payable (2,761) (1,964)
Accrued expenses and other liabilities (1,782) (832)
------- -------
Net cash used in operating activities (589) (1,688)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,045) (2,670)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 131 133
Tax benefit of disqualifying disposition of incentive
stock options 11 58
------- -------
Net cash provided by financing activities 142 191
------- -------
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS
AND INVESTMENTS (8) (165)
------- -------
NET DECREASE IN CASH, CASH EQUIVALENTS AND INVESTMENTS (3,500) (4,332)
Cash, cash equivalents and investments, beginning of period 26,364 37,430
------- -------
Cash, cash equivalents and investments, end of period $22,864 $33,098
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 11
======= =======
Income taxes $ 708 $ 1,086
======= =======
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
JUNE 28, 1998
(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 normal, recurring adjustments
and accruals that management considers necessary for a fair presentation of the
Company's financial position as of June 28, 1998, and results of operations for
the three months ended June 28, 1998 and June 29, 1997. 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, 1998 as filed with the Securities
and Exchange Commission.
3. EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Basic
earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of stock options and warrants that could share
in the earnings of the Company.
A reconciliation of basic and diluted shares outstanding, as required by
SFAS No. 128, is as follows (in thousands):
THREE MONTHS ENDED
-----------------------------
JUNE 28, JUNE 29,
1998 1997
--------- ---------
Basic weighted average shares outstanding 9,366,482 9,192,582
Weighted average common equivalent shares 497,086 490,545
--------- ---------
Diluted weighted average shares outstanding 9,863,568 9,683,127
========= =========
The following securities were not included in computing diluted earnings per
share because their effect would be antidilutive.
THREE MONTHS ENDED
---------------------------
JUNE 28, JUNE 29,
1998 1997
-------- --------
Options to purchase common stock 488,065 178,444
======= =======
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
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 SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Investments at June 28, 1998 and
March 31, 1998 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 June 28, 1998 and March 31,
1998 and they are carried at cost which approximates market value.
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 June 28, 1998 and March 31, 1998:
JUNE 28, MARCH 31,
1998 1998
-------- ---------
Raw material $ 9,079 $ 9,568
Work in process 5,798 4,835
Finished goods 8,377 7,680
------- -------
$23,254 $22,083
======= =======
6. ACCRUED EXPENSES
Accrued expenses consist of the following at June 28, 1998 and March 31,
1998:
JUNE 28, MARCH 31,
1998 1998
-------- ---------
Payroll and benefits $3,172 $5,793
Environmental remediation (Note 7) 1,169 1,172
Other 3,712 2,934
------ ------
$8,053 $9,899
====== ======
7. 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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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
8. DERIVATIVE FINANCIAL INSTRUMENTS
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," requires disclosure of any significant
derivative or other financial instruments. The Company hedged its net
intercompany trade balance (Belgian francs) which relates to trade sales to
third party customers in the ordinary course of business. At June 28, 1998, the
Company had twelve outstanding Belgian franc ("BF") forward contracts amounting
to 137,680 BF or $3,682 with a gross deferred gain of $34 from the rollover of
such contracts to the planned settlement date. At June 28, 1998, the Company had
no outstanding Mexican peso ("MXP") forward contracts. At March 31, 1998, the
Company had thirteen outstanding BF forward contracts amounting to 215,740 BF or
$5,908 with a gross deferred loss of $163 from the rollover of such contracts to
the planned settlement date. Also, at March 31, 1998, the Company had one
outstanding MXP forward contract amounting to 2,160 MXP or $255. The Mexican
peso forward contract had no deferred gain or loss. The forward contracts hedge
currency transactional exposure resulting from intercompany trade transactions.
9. NEW ACCOUNTING STANDARDS
In June 1997, SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information" was issued, which establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosure for prior periods are required to be
restated. The Company is in the process of evaluating the disclosure
requirements and the Company will adopt this statement for the fiscal year ended
March 31, 1999. The adoption of SFAS No. 131 is not expected to have a material
effect on the Company's results of operations, financial position or cash flows.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued, which standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes of the benefit
obligations for the fair market values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when SFAS No. 87, "Employers' Accounting for Pensions," SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," were
issued. SFAS No. 132 suggests combined formats for presentation of pension and
other postretirement benefit disclosures. This statement is effective for the
fiscal years beginning after December 15, 1997 and is not expected to have a
material effect on the Company's results of operations, financial position and
cash flows.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair market
value. This Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Adoption of the statement is not expected to have
a material impact on the Company's consolidated financial position or results of
operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5). SOP 98-5 requires all costs associated with the pre-opening,
pre-operating and organization activities to be expensed as incurred. The
Company will adopt SOP 98-5 beginning April 1, 2000. Adoption of the statement
is not expected to have a material impact on the Company's consolidated
financial position or results of operations.
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9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
10. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130 "Reporting Comprehensive Income," effective
April 1, 1998. SFAS No. 130 establishes standards for reporting and displays of
comprehensive income and its components in the financial statements. The
components of the Company's comprehensive income are as follows:
THREE MONTHS ENDED
---------------------
JUNE 28, JUNE 29,
1998 1999
--------- -------
Net income $1,693 $1,652
Foreign currency translation adjustments, net of taxes 18 (37)
------ ------
Comprehensive income $1,711 $1,615
====== ======
11. SUBSEQUENT EVENT
On July 6, 1998, the Company acquired Micronix Integrated Systems, Inc.
("Micronix"), a designer and manufacturer of analog and mixed-signal application
specific integrated circuits, located in Aliso Viejo, California for $15.8
million in cash. The transaction will be accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16. Based on a
preliminary appraisal, a significant portion of the purchase price has been
identified as in-process research and development projects that do not have an
alternative future use. Accordingly, the Company will record a charge of
approximately $9.3 million in the second quarter of fiscal 1999 for acquired
in-process research and development.
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10
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, 1998,
as filed with the Securities and Exchange Commission. See "Trends and
Uncertainties" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth the relative percentage that certain income
and expense items bear to net sales for the periods indicated:
THREE MONTHS ENDED
------------------------
JUNE 28, JUNE 29,
1998 1997
------------------------
Net sales 100.0% 100.0%
Cost of sales 69.5 67.8
----- -----
Gross profit 30.5 32.2
Operating expenses:
Selling, general and administrative 18.3 19.5
Research and development 5.5 6.7
----- -----
Operating income 6.7 6.0
Interest income 0.7 1.0
Interest expense (0.1) (0.1)
Other income -- 0.6
----- -----
Income before income taxes 7.3 7.5
Provision for income taxes 2.7 2.7
----- -----
Net income 4.6% 4.8%
===== =====
Net Sales. In the first quarter of fiscal 1999 revenues of $36.7 million
increased from $34.7 million for the same period in fiscal 1998, an increase of
5.8%. Sales of the Company's semiconductor products increased 5.3% while
electromagnetic and other product sales increased 6.2%.
Net sales by major product category are as follows:
THREE MONTHS ENDED
------------------------
JUNE 28, JUNE 29,
1998 1997
------------------------
(IN MILLIONS)
Semiconductor products $16.0 $15.2
Electromagnetic and other products 20.7 19.5
The Company's semiconductor products are primarily used in data
communication applications such as modems and sales have grown significantly
over the last few years as Internet usage has expanded. The Company's revenues
for the first quarter of fiscal 1999 were impacted by customer inventory
reductions.
The Company's electromagnetic products are primarily used in
telecommunication applications such as telephone switching gear and cellular
phones. The continued increased usage of cellular phones has been a growth
driver for the Company's dry reed switch business and the Company has recently
expanded production capacity for these products. The Company believes growth is
dependent on the market acceptance of new digital cellular phones, in which the
Company's customers utilize the reed switches. Another area
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of growth in the electromagnetic products is the Remtech products group which
provides application specific design and manufacturing services for magnetic
components to various industries.
Net sales to customers located outside of the United States increased 11% in
the first quarter of fiscal 1999 to $15.7 million from $14.1 million in the same
period in fiscal 1998. Net sales to customers in Europe represents 29.3% of the
Company's net sales for the first quarter of fiscal 1999 and increased 16.7% in
local currencies and 8.4% in U.S. dollars compared with the prior year and were
impacted by a significant shifting of production by a key customer from the U.S.
to Europe. Net sales to customers in Asia represent 13.3% of the Company's net
sales and increased 17.1% in U.S. dollars for the quarter compared with the
prior year. The Company monitors its currency exposure and international
economic developments and takes actions to reduce the Company's risk from
exposures to fluctuations in foreign currency markets. Due to the inherent
uncertainty of foreign exchange markets the Company cannot predict future events
in this area. The Company will continue to focus on new markets and expansion of
certain existing international markets.
During the first quarter of fiscal 1999, several Asian countries experienced
continuing economic problems and a significant weakening of their local
currencies. The Company believes that these issues did not have a material
impact on the financial results for the first quarter of fiscal 1999. However,
the Company does believe that these issues may have a future impact on operating
results as opportunity for customer product demand declines in the Asian
markets, credit terms tighten, and Asian competitors with weak currencies
increase downward pressure on average selling prices for various products.
Gross Profit. The Company's gross profit as a percentage of net sales
decreased to 30.5% in the first quarter of fiscal 1999 from 32.2% in the same
period of fiscal 1998, principally due to additional costs associated with the
Company's new semiconductor wafer fabrication facility, the impact of the
strengthening U.S. dollar on the Company's European sales, and the increased
sales volume of the Company's lower margin Remtech products.
Selling, General and Administrative Expense. Selling, general and
administrative expenses were flat in the first quarter of fiscal 1999 as
compared with the first quarter of fiscal 1998 at $6.7 million and as a
percentage of net sales were 18.3% for the first quarter of fiscal 1999 as
compared with 19.5% for the same period of fiscal 1998.
Research and Development Expense. Research and development expense decreased
to $2.0 million for the first quarter of fiscal 1999 from $2.3 million for the
same period in fiscal 1998, due to a larger portion of the fiscal 1998 research
and development budget being expended in the first quarter.
Interest Income. Interest income decreased to $0.2 million for the first
quarter of fiscal 1999 from $0.4 million for the same period in fiscal 1998 due
to lower cash balances. Interest income is derived from investments of the
Company's cash in both commercial paper and short term tax exempt municipal
bonds.
Interest Expense. Interest expense for the first quarter of fiscal 1999 was
essentially the same as in the first quarter of fiscal 1998.
Other Income. In the first quarter of fiscal 1999 other income consists
principally of net foreign currency transactional gains. During the first
quarter of fiscal 1998, other income consisted principally of foreign currency
transactional gains and a one time royalty payment received.
Income Taxes. In accordance with generally accepted accounting principles,
the Company has provided for income taxes at its estimated annual effective tax
rate in both fiscal 1999 and 1998 of 37%, which is less than the combined
federal and state statutory rates. This lower rate is primarily based on the
favorable treatment of the Company's foreign sales corporation, utilization of
net operating loss carryforwards, and investment in variable rate tax exempt
municipal bonds.
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TRENDS AND UNCERTAINTIES
Development of New Products. 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 communications related equipment such as facsimile machines, modems and
cellular telephones would cause a significant decline in demand for the
Company's products. The Company has invested heavily over the past several years
in the capital expenditures necessary to develop new products. Slower than
expected acceptance of new products will adversely affect the Company's
operating results. To remain competitive, the Company must continue to develop
new process and manufacturing capabilities to meet customer needs and introduce
new products that reduce size and increase functionality and performance. If the
Company is unable to develop such new capabilities or is unable to design,
develop and introduce competitive new products, its operating results will be
adversely affected.
Customer Concentration. In the first quarter of fiscal 1999, the Company's ten
largest customers accounted for 46% of total net sales. The Company is highly
reliant upon continued revenues from its largest customers and any material
delay, cancellation or reduction of orders from these customers could have a
material adverse effect on the Company's future results.
International Operations. The Company's international operations are subject to
several risks including, but not limited to, fluctuations in the value of
foreign currencies, changes to import and export duties or regulations, greater
difficulty in collecting accounts receivable and labor unrest. While, to date,
these factors have not had a material effect on the Company's results, there can
be no assurance that there will not be such an impact in the future.
Competition. C.P. Clare competes with various global companies. Certain
competitors of the Company have greater manufacturing, engineering or financial
resources.
Full Operation of the New Wafer Fabrication Facility. The Company recently
completed construction of a larger, more advanced semiconductor facility in
Beverly, Massachusetts to address capacity constraints and operating
efficiencies in the production of its semiconductor products. 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.
Reliance On Key Suppliers. The Company relies on certain suppliers of raw
materials and services for sole source supply of critical items. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's needs effectively and on a timely basis and any such disruption could
have a material adverse effect on future results.
New Systems. The Company is in the process of implementing an Oracle Enterprise
Resource Planning ("ERP") system for all applications and locations. The Company
has been informed by the vendor that this new system is compliant with year 2000
issues. This effort is consuming significant resources of the Company and
implementation of various applications is scheduled throughout fiscal year 1999.
As a result of the systems transition, the Company may experience business
disruptions or compliance issues which may have a material adverse effect on the
Company's results of operations.
Fluctuations in Operating Results. The Company has experienced fluctuation in
its operating results in the past and its operating results may fluctuate in the
future. 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 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.
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LIQUIDITY AND CAPITAL RESOURCES
During the three months ended June 28, 1998, the Company's cash, cash
equivalents and investments decreased by $3.5 million. Operations used $0.6
million of cash during this period, mainly as a result of an increase in
inventories and a decrease in accounts payable, which was offset by an decrease
in accounts receivable. The Company used $3.0 million for capital expenditures
during the three months ended June 28, 1998. Financing activities provided $0.1
million of cash during the period, primarily from the proceeds from exercises of
stock options and warrants.
The Company manages its foreign exchange exposure by monitoring its net
monetary position using natural hedges of its assets and liabilities denominated
in local currencies and entering into forward contract hedges with financial
institutions for trade transactions. There can be no assurance that this policy
will eliminate all currency exposure.
On July 6, 1998, the Company acquired Micronix Integrated Systems, Inc., and
paid $15.8 million in cash plus direct acquisition costs of $0.4 million. This
transaction will be accounted for as a purchase. See Note 11.
The Company believes that cash generated from operations, cash, cash
equivalents and investments and amounts available under its credit agreement and
operating lease facilities will be sufficient to satisfy its working capital
needs and planned capital expenditures for the 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.
YEAR 2000 ISSUE
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the Year 2000 issue. The Company is in the
process of implementing an Oracle Enterprise Resource Planning ("ERP") system
for all applications and locations. The Company has been informed by the vendor
that the new system is compliant with Year 2000 issues. The Company presently
believes, with modification to existing software and conversion to the new ERP
system, the Year 2000 problem will not pose significant operational problems.
Costs to complete this process and install the new ERP system are significant
but are not expected to have a material adverse effect on the Company's
financial position or results of operations in any year. The Company's potential
exposure extends beyond financial applications to include suppliers, customers
and other communication and manufacturing equipment. The Company has established
cross functional teams which is in the process of reviewing these issues and
developing effective strategies to minimize risk.
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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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
27.0 Financial Data Schedule (Edgar)
(b) Reports on Form 8-K
The Registrant filed no Current Reports on Form 8-K during the
quarter ended June 28, 1998.
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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: August 11, 1998
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