<PAGE> 1
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 MARCH 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 2-15299
RAYCHEM CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-1369731
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Constitution Drive, Menlo Park, CA 94025-1164
(Address of principal executive offices) (Zip code)
</TABLE>
(415) 361-4180
(Registrant's telephone number, including area code)
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
--- ---
As of April 28, 1994 the registrant had outstanding 42,758,672 shares of Common
Stock, $1.00 par value.
<PAGE> 2
RAYCHEM CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Information
Consolidated Condensed Statements of Income -
Three and Nine Months Ended March 31, 1994 and 1993 1
Consolidated Condensed Balance Sheets -
March 31, 1994 and June 30, 1993 2
Consolidated Condensed Statements of Cash
Flows - Nine Months Ended March 31, 1994 and 1993 3
Notes to Consolidated Condensed Financial
Statements 4-6
Item 2: Management's Discussion and Analysis 7-14
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- --------------------------
1994 1993 1994 1993
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 361,278 $ 324,042 $ 1,070,545 $ 1,024,639
Cost of goods sold 195,509 168,289 567,223 522,128
Research and development
expense 31,757 33,190 100,677 95,928
Selling, distribution
and administrative
expense 122,507 117,236 356,587 348,309
Interest expense, net 3,215 3,161 9,263 11,082
Other expense (income),
net 895 (63) 6,352 9,822
----------- ----------- ----------- -----------
Income before income
taxes and changes in
accounting principles 7,395 2,229 30,443 37,370
Provision for income taxes 6,329 1,783 21,310 29,896
----------- ----------- ----------- -----------
Income before changes in
accounting principles 1,066 446 9,133 7,474
Cumulative effect of
changes in accounting
principles, net of
$0 income taxes - - - 1,700
----------- ----------- ----------- -----------
Net income $ 1,066 $ 446 $ 9,133 $ 9,174
=========== =========== =========== ===========
Average number of
common shares and
equivalents outstanding 43,438,898 41,455,423 43,188,841 40,883,377
=========== =========== =========== ===========
Earnings per common
share:
Income before changes
in accounting
principles $ 0.02 $ 0.01 $ 0.21 $ 0.18
Changes in accounting
principles - - - 0.04
----------- ---------- ----------- -----------
Net income $ 0.02 $ 0.01 $ 0.21 $ 0.22
=========== ========== =========== ===========
Dividends per common
share $ 0.08 $ 0.08 $ 0.24 $ 0.24
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE> 4
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 1994 JUNE 30, 1993
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 114,280 $ 133,946
Accounts receivable, net 276,480 245,344
Inventories:
Raw materials 100,802 79,528
Work in process 48,351 49,819
Finished goods 101,549 96,565
---------- ----------
Total inventories 250,702 225,912
Prepaid taxes 40,941 58,450
Other current assets 56,152 51,767
---------- ----------
Total current assets 738,555 715,419
Property, plant and equipment 1,072,148 1,021,344
Less accumulated depreciation and amortization 556,549 519,531
---------- ----------
Net property, plant and equipment 515,599 501,813
Other assets 116,383 115,038
---------- ----------
Total assets $1,370,537 $1,332,270
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 28,884 $ 38,557
Accounts payable 69,589 66,301
Other accrued liabilities 179,129 181,534
Income taxes 23,034 25,052
Current maturities of long-term debt 3,874 3,152
---------- ----------
Total current liabilities 304,510 314,596
Long-term debt 249,007 233,853
Deferred income taxes 27,252 29,481
Other long-term liabilities 70,536 62,398
Minority interest 4,294 2,438
Stockholders' equity:
Preferred Stock, $1.00 par value
Authorized: 15,000,000 shares; Issued: none - -
Common Stock, $1.00 par value
Authorized: 72,150,000 shares
Issued: 42,753,384 and 41,874,773 shares, respectively 42,753 41,875
Additional contributed capital 347,460 321,512
Retained earnings 330,798 331,850
Currency translation (5,370) (5,100)
Notes receivable from sale of stock (703) (633)
---------- ----------
Total stockholders' equity 714,938 689,504
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,370,537 $1,332,270
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31 (IN THOUSANDS) 1994 1993
- - ----------------------------------------- -------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,133 $ 9,174
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Payments for restructuring and divestitures (4,106) (15,263)
Changes in accounting principles - (1,700)
Depreciation and amortization 61,113 57,788
Deferred income taxes 199 1,268
Gain on sale of investment - (2,590)
Net loss (gain) on disposal of property, plant and
equipment 59 (96)
Changes in certain assets and liabilities, net of
effects from restructuring and divestitures and
changes in accounting principles:
Accounts receivable (35,048) 13,039
Inventories (27,902) (18,259)
Accounts payable and accrued liabilities 10,469 16,743
Income taxes 13,308 (32,072)
Other assets and liabilities (6,143) 6,488
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,082 34,520
-------- --------
Cash flows from investing activities:
Investment in property, plant and equipment (73,524) (56,506)
Disposition of property, plant and equipment 7,297 4,234
Sale of investment - 2,685
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (66,227) (49,587)
-------- --------
Cash flows from financing activities:
Net proceeds from (payment of) short-term debt (5,454) 15,727
Proceeds from long-term debt 17,022 4,010
Payments of long-term debt (1,755) (1,602)
Common Stock issued under employee
benefits plans 26,826 25,074
Repayments of stockholder notes receivable 162 2,546
Cash dividends (10,185) (9,809)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,616 35,946
EFFECT OF EXCHANGE RATE CHANGES ON CASH -------- --------
AND CASH EQUIVALENTS (1,137) (7,069)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,666) 13,810
Cash and cash equivalents at beginning
of period 133,946 148,862
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $114,280 $162,672
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest (net of amounts capitalized) $ 17,714 $ 24,340
Income taxes 27,828 55,385
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 6
RAYCHEM CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
STATEMENT OF ACCOUNTING PRESENTATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements include all adjustments, including normal recurring
accruals, necessary to present fairly the results of operations for the three
and nine months ended March 31, 1994 and 1993, the financial position as of
March 31, 1994, and the cash flows for the nine months ended March 31, 1994 and
1993. The June 30, 1993 balance sheet included is derived from the
consolidated financial statements included in the company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993.
BUSINESS SEGMENTS
Revenues and operating income (loss) by business segment are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- -------------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
In thousands
<S> <C> <C> <C> <C>
Revenues
- - --------
Electronics $130,384 $123,559 $ 384,464 $ 365,977
Industrial 114,903 98,576 336,252 333,586
Telecommunications 101,762 100,557 326,297 319,901
Raynet 14,229 1,350 23,532 5,175
-------- -------- ---------- ----------
Total revenues $361,278 $324,042 $1,070,545 $1,024,639
======== ======== ========== ==========
Operating income (loss)
- - -----------------------
Electronics $ 19,416 $ 15,833 $ 66,040 $ 43,526
Industrial 20,502 10,466 58,413 64,801
Telecommunications 16,759 22,007 66,900 71,261
Raynet (23,350) (23,307) (80,903) (67,333)
Corporate (21,822) (19,672) (64,392) (53,981)
-------- -------- ---------- ----------
Total operating income $ 11,505 $ 5,327 $ 46,058 $ 58,274
======== ======== ========== ==========
</TABLE>
CHANGES IN ACCOUNTING PRINCIPLES
The company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS
106), effective as of July 1, 1992. This statement requires accrual accounting
for all postretirement benefits other than pensions. In the third quarter of
1993, the company elected, effective July 1, 1992, to immediately recognize the
transition obligation as the cumulative effect of a change in accounting
principle, resulting in a decrease to net income of $2.3 million, or $0.06 per
share.
Effective July 1, 1992, the company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of
this standard changed the company's method of accounting for income taxes from
the deferred method to an asset and liability method. The standard was adopted
on a prospective basis in the third quarter of 1993. The cumulative effect of
adopting the standard was a $4.0 million, or $0.10 per share, increase in net
income.
4
<PAGE> 7
RECENT ACCOUNTING STANDARDS
In November 1992, the Financial Accounting Standards Board issued Statement No.
112, "Employers' Accounting for Postemployment Benefits." The statement
changes the method of accounting for certain postemployment benefits from a
cash basis to an accrual basis. The statement must be adopted in the first
quarter of fiscal 1995. The company has not yet fully determined the impact of
adoption on the company's results of operations or financial condition.
INCOME TAXES
On August 10, 1993, the U.S. federal corporate income tax rate was increased to
35% from 34%, effective January 1, 1993. The effect of this income tax rate
change was to increase the company's gross deferred tax assets by $5 million
and to correspondingly increase the valuation allowance by approximately $5
million.
LONG-TERM DEBT
In December 1992, the company entered into a three-year interest rate swap
agreement which effectively converted $100 million of notional principal amount
from a fixed rate to a floating rate. Under the agreement, which was to mature
on December 8, 1995, the company made payments to a counter party at variable
rates based on LIBOR, reset every six months, and in return received payments
based on a fixed rate of 5.715%. The LIBOR rate for the period from December
8, 1992, to June 7, 1993, was 3.875%, and the LIBOR rate for the period from
June 8, 1993, to December 8, 1993, was 3.4375%. The effect of the swap
agreement was to reduce interest expense in fiscal 1993 by $1.1 million and in
fiscal 1994 by $1 million. On December 8, 1993, the company terminated the
swap agreement. The termination resulted in a gain of $2.7 million which has
been deferred and will be amortized over the remaining life of the hedged debt.
For the three- and nine-month periods ended March 31, 1994, $0.3 million and
$0.4 million, respectively, of the gain was recognized as a reduction of
interest expense.
CONTINGENCIES
The company has been named, among others, as a potentially responsible party
("PRP") in administrative proceedings alleging that it may be liable for the
costs of correcting environmental conditions at certain hazardous waste sites.
At most of the sites, the company is alleged to be a de minimis generator of
hazardous wastes, and the company believes that it has limited or no liability
for clean-up costs at these sites. At the only site where the company's
alleged involvement exceeds that of a de minimis generator, there are numerous,
large PRPs which already have undertaken clean-up work. As a result, the
company believes that it is highly unlikely that it will be held responsible
for the total clean-up costs. Management believes its liability, if any, will
not be material to the company. The company has also been notified by a state
environmental agency that it may be required to investigate the need for
remedial work at one of its manufacturing sites. The company currently is
conducting such investigation on a voluntary basis.
Additionally, the company and its subsidiaries have been named as defendants in
lawsuits arising from an environmental cost recovery matter and various
commercial matters, including product liability. The principal product
liability litigation involves a variety of claims arising from the company's
heat-tracing and freeze-protection products.
Legal proceedings tend to be unpredictable and costly. Based on currently
available information, however, management believes that the resolution of
pending claims, regulatory inquiries, and legal proceedings will not have a
material adverse effect on the company's operating results or financial
position.
5
<PAGE> 8
SUBSEQUENT EVENTS
On April 15, 1994, the company's Board of Directors declared a quarterly cash
dividend of $0.08 per share of Common Stock, payable on June 8, 1994, to
stockholders of record as of May 11, 1994.
On May 3, 1994, the company undertook certain strategic initiatives affecting
its telecommunications business segment. Among the principal actions planned
is a rationalization of the segment's European manufacturing operations which
will reduce headcount by an estimated 160 employees. The total cost of these
initiatives is expected to be approximately $6 million.
On May 16, 1994, the company announced that Morgan Stanley & Co., Incorporated
was retained to assist it in evaluating a full range of strategic alternatives
for Raynet, including partnership, ownership and other options.
6
<PAGE> 9
RAYCHEM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The company reported third quarter 1994 net income of $1 million, or $0.02 per
share, versus net income of $0.4 million, or $0.01 per share, in the third
quarter of 1993. Revenues of $361 million represented an increase of 14% from
the year-ago quarter on a constant currency basis (which assumes that foreign
currency exchange rates had remained constant from the prior period). Net
income was $9 million for each of the nine-month periods ended March 31, 1994
and 1993, or $0.21 and $0.22 per share, respectively. Revenues for the
nine-month period ended March 31, 1994, increased 10% over the prior-year
period on a constant currency basis to $1.071 billion. In the third quarter of
1993, the company adopted, effective July 1, 1992, Statements of Financial
Accounting Standards Nos. 106 and 109. The cumulative effect of these
accounting changes (a net credit of $2 million, or $.04 per share) has been
reflected in the restated results for the nine months ended March 31, 1993.
Excluding the effect of Raynet and unusual transactions, Raychem's "ongoing"
pretax income increased to $31 million in the three months ended March 31,1994,
from $30 million in the year-ago quarter. Pretax income for the year-ago
quarter included a $3 million gain on the sale of a portion of the company's
equity investment in Mitek Surgical Products, Inc., $5 million of licensing
income for medical technology, and $11 million in plant closing and severance
costs. In addition to these items, pretax income for the nine months ended
March 31, 1993, included $3 million in severance costs related to streamlining
of the company's electronics business segment and licensing income of $1
million for liquid crystal technology.
Raychem's results are summarized as follows:
<TABLE>
<CAPTION>
PRETAX INCOME (LOSS) BEFORE CHANGES IN Three Months Ended Nine Months Ended
ACCOUNTING PRINCIPLES March 31, March 31,
(in millions) 1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Core business:
"Ongoing" pretax income $ 31 $ 30 $113 $112
One-time license fees - 5 - 6
Gain on sale of Mitek stock - 3 - 3
Other charges, primarily severance - (12) - (14)
---- ---- ---- ----
Core business pretax income 31 26 113 107
Raynet pretax loss (24) (24) (83) (70)
---- ---- ---- ----
Consolidated $ 7 $ 2 $ 30 $ 37
==== ==== ==== ====
</TABLE>
The tax provision for the third quarter of 1994 was $6 million, approximately
$1 million of which was an adjustment to increase the company's estimated
annual effective tax rate from 65% in the previous quarter to 70% (compared to
80% in the prior year). The higher tax rate resulted from higher than
anticipated Raynet losses to be incurred in fiscal 1994.
7
<PAGE> 10
The following discussion of the results of operations is presented based on the
company's business segments--electronics, industrial, and
telecommunications--(which, along with the corporate groups, are referred to
collectively as the "core business") and Raynet Corporation, which was
established as a separate subsidiary in calendar 1987 to commercialize certain
fiber-optic technology for the telecommunications and cable television markets.
This discussion is supplemented with condensed consolidating financial
statements included on pages 12 through 14.
CORE BUSINESS OPERATIONS
Core business revenues for the third quarter of 1994 increased to $347 million
from $323 million in the prior-year period. Revenue growth was 10% on a
constant currency basis. Revenues for the nine months ended March 31, 1994,
were $1.047 billion compared to $1.019 billion in the comparable prior-year
period, a constant currency increase of 9%.
Revenues in the electronics business segment were $130 million for the three
months ended March 31, 1994, representing an 8% increase in constant currency
terms over the prior-year quarter. Increased sales of PolySwitch and Elo
TouchSystems (formerly Elographics) products accounted for most of the
increase. Revenues were substantially up across all divisions in Asia.
Revenues in the third quarter of 1993 included a one-time license fee of $5
million. Operating income for the third quarter grew to $19 million from $16
million a year ago, in part reflecting increased sales and improved
profitability arising from a more favorable product mix and improved
manufacturing yields in the segment's PolySwitch division. Operating income in
the third quarter of 1993 included $6 million in plant closing and severance
costs, in addition to the $5 million of licensing revenue. Revenues for the
nine months ended March 31, 1994, were $384 million compared to $366 million in
the comparable prior-year period, primarily due to growth in PolySwitch sales.
Operating income in the nine months ended March 31, 1994, increased to $66
million from $44 million in the comparable prior-year period, reflecting
increased profitability in the PolySwitch and Thermofit divisions.
Revenues in the industrial business segment for the three months ended March
31, 1994, were $115 million, a 21% constant currency increase over the
prior-year quarter. Shipments were strong in all divisions of the segment,
with Ultratec accounting for nearly half of the increase. The unusually harsh
winter conditions in North America resulted in strong sales growth for the
Chemelex division. Operating income increased to $21 million from $10 million
in the third quarter of 1993 due to higher sales volumes and improved gross
profit percentage. Operating income in the third quarter of 1993 included $5
million in plant rationalization and relocation charges. Revenues for the nine
months ended March 31, 1994, were $336 million compared to $334 million in the
comparable prior-year period, reflecting constant currency growth across all
divisions. Operating income was $58 million for the nine months, down from $65
million in the comparable prior-year period due to higher operating expenses.
Revenues in the telecommunications business segment for the three months ended
March 31, 1994, were $102 million, a 6% increase in constant currency terms
over the prior-year quarter. Strong sales growth in the United Kingdom, Spain
and the Middle East was moderated by declines in the United States and Asia.
Operating income was $17 million in the third quarter of 1994, down from $22
million in the prior-year period reflecting lower gross profit due primarily to
currency movements. Revenues for the nine months ended March 31, 1994,
increased to $326 million compared to $320 million in the prior-year period,
reflecting primarily growth in Latin America. Operating income for the nine
months declined from $71 million to $67 million due to a lower gross profit
percentage resulting from adverse currency movements.
8
<PAGE> 11
The core business' selling, distribution and administrative expense as a
percentage of revenues was 33% for the quarter ended March 31, 1994, as
compared to 34% in the prior year quarter, but was unchanged if severance
charges in the prior period were excluded. For the nine-month period ended
March 31, 1994, such expenses represented 31% of revenues, a slight decrease
from 32% in the comparable prior-year period.
Other expense, net, for the third quarter of 1994 was $1 million higher
compared to the year-ago period. A gain of $3 million on the sale of a portion
of the company's equity investment in Mitek Surgical Products, Inc. was
included in the 1993 other expense, net. For the nine-month period ended March
31, 1994, other expense, net, was $3 million lower than the prior-year period
which included significant exchange losses in the People's Republic of China.
Orders exceeded shipments in the telecommunications segment, were approximately
equal to shipments in the electronics segment, and were lower than shipments in
the industrial segment. Overall, orders were above shipments for the core
business in the three months ended March 31, 1994.
RAYNET OPERATIONS
Raynet Corporation recorded revenues of $14 million and $24 million,
respectively, for the three- and nine-month periods ended March 31, 1994,
compared with $1 million and $5 million, respectively, in the comparable
prior-year periods. Raynet's pretax loss for the quarter was $24 million,
unchanged from the previous year's third quarter. For the nine months ended
March 31, 1994, Raynet's pretax loss increased to $83 million from $70 million
in the comparable period of the prior year. The higher loss is primarily due
to software amortization and a lower gross profit margin resulting from
inventory write-offs and higher costs associated with increased volume and
anticipated future shipments.
Research and development expense declined to $9 million for the quarter ended
March 31, 1994, from $12 million in the comparable year-ago quarter due to
savings resulting from last quarter's restructuring actions and generally lower
discretionary spending in the quarter. For each of the nine-month periods
ended March 31, 1994 and 1993, research and development expense was $30
million.
Selling, distribution and administrative expense increased to $9 million for
the quarter ended March 31, 1994, from $8 million in the third quarter of the
prior year. For the nine-month period ended March 31, 1994, selling,
distribution and administrative expense increased to $28 million from $25
million in the comparable year-ago period, due to higher international sales
and marketing spending and $1 million of the severance provision booked in
the second quarter of 1994.
Orders were less than revenues for the three months ended March 31, 1994. The
sales value of product shipped, but not recognized as revenue, was
approximately $20 million at the end of the third quarter of 1994.
9
<PAGE> 12
OUTLOOK
Though orders appear to be firming in some European markets, Raychem is
cautious about the overall recovery in Europe as well as slow growth in some of
the company's markets in the United States. Overall, the company believes that
there will be moderate revenue growth in the fiscal year.
The telecommunications business segment anticipates the implementation of
strategic initiatives in the fourth quarter of 1994 which should strengthen
future performance within the segment. Among the principal actions planned is
the rationalization of the segment's European manufacturing operations
affecting an estimated 160 employees. The total cost of these initiatives is
expected to be approximately $6 million.
Recent alliances of telecommunications, cable television, and media businesses
(and subsequent decisions by certain alliance partners not to proceed) have
created considerable uncertainty regarding communications technologies to be
deployed in the United States and other regions of the world, as well as the
timing of these deployments. Decisions by these businesses regarding these
technologies and the timing of deployment may have a material effect on
Raynet's and Raychem's future revenues and profitability.
On May 16, 1994, the company announced that Morgan Stanley & Co., Incorporated
was retained to assist it in evaluating a full range of strategic alternatives
for Raynet, including partnership, ownership and other options.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED
Debt exceeded cash by $167 million at March 31, 1994, compared to $142 million
at June 30, 1993. The $25 million increase in debt net of cash reflects
increased cash needs at Raynet and capital expenditures in the core business
partially offset by cash flow from core business operations.
At March 31, 1994, the company had $114 million in cash and cash equivalents,
$315 million in committed credit facilities (of which $3 million was utilized)
and approximately $161 million in various uncommitted credit facilities (of
which $40 million was utilized).
The combination of cash and cash equivalents, available lines of credit, and
future cash flows from operations are expected to be sufficient to satisfy
substantially all of the company's needs for working capital, normal capital
expenditures, and anticipated dividends. The cash requirements for Raynet
will be determined as the business develops, and alternative methods of
financing may be considered.
CORE BUSINESS
Net cash provided by operating activities increased to $115 million for the
first nine months of 1994 from $77 million for the corresponding period of
1993. This increase resulted from higher net income, decreased income tax
payments, and reduced spending on restructuring and divestitures, partially
offset by changes in certain assets and liabilities. Inventory, as measured by
the number of days of inventory on hand, improved to 114 days for the third
quarter of 1994 compared to 119 days for the year-ago period. Receivables, as
measured by the number of billing days outstanding, increased to 65 days at
March 31, 1994 as compared to 60 days at March 31, 1993 due to changes in
receivables mix and collection patterns among certain countries where customary
payment terms are protracted.
Capital expenditures of $66 million increased $15 million in the first nine
months of 1994 compared to the prior-year period, mainly due to higher spending
for a new PolySwitch manufacturing plant in Japan, investment in equipment to
increase PolySwitch capacity in Menlo Park, and new manufacturing equipment at
the company's telecommunications facility in North Carolina. In the first
quarter of 1994, the company received $4 million from the sale of a building in
the United States.
RAYNET
Net cash used in operating activities at Raynet increased to $101 million for
the nine months ended March 31, 1994, as compared to $48 million in the
corresponding prior-year period. The higher cash outflow for the nine-month
period was primarily due to inventory builds in anticipation of future
shipments, increase in accounts receivable, and higher net loss from
operations.
11
<PAGE> 14
RAYCHEM CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 (UNAUDITED)
---------------------------------------------------------------
CORE BUSINESS RAYNET CONSOLIDATED
------------------ ------------------ ------------------
1994 1993 1994 1993 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $347,049 $322,692 $ 14,229 $ 1,350 $361,278 $324,042
Cost of goods sold 175,386 163,740 20,123 4,549 195,509 168,289
Research and development expense 22,972 21,224 8,785 11,966 31,757 33,190
Selling, distribution and
administrative expense 113,836 109,094 8,671 8,142 122,507 117,236
Interest expense, net 2,533 2,323 682 838 3,215 3,161
Other expense (income), net 1,087 17 (192) (80) 895 (63)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes 31,235 26,294 (23,840) (24,065) 7,395 2,229
Provision for income taxes 6,244 1,741 85 42 6,329 1,783
-------- -------- -------- -------- -------- --------
Net income (loss) $ 24,991 $ 24,553 $(23,925) $(24,107) $ 1,066 $ 446
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31 (UNAUDITED)
-----------------------------------------------------------------------
CORE BUSINESS RAYNET CONSOLIDATED
---------------------- ------------------ ---------------------
1994 1993 1994 1993 1994 1993
---------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,047,013 $1,019,464 $ 23,532 $ 5,175 $1,070,545 $1,024,639
Cost of goods sold 521,355 504,802 45,868 17,326 567,223 522,128
Research and development expense 70,184 65,660 30,493 30,268 100,677 95,928
Selling, distribution and
administrative expense 328,513 323,395 28,074 24,914 356,587 348,309
Interest expense, net 7,091 8,796 2,172 2,286 9,263 11,082
Other expense, net 6,214 9,376 138 446 6,352 9,822
---------- ---------- -------- -------- ---------- ----------
Income (loss) before income taxes and
changes in accounting principles 113,656 107,435 (83,213) (70,065) 30,443 37,370
Provision for income taxes 21,192 29,763 118 133 21,310 29,896
---------- ---------- -------- -------- ---------- ----------
Income (loss) before changes in
accounting principles 92,464 77,672 (83,331) (70,198) 9,133 7,474
Cumulative effect of changes in
accounting principles, net of
$0 income taxes - 1,700 - - - 1,700
---------- ---------- -------- -------- ---------- ----------
Net income (loss) $ 92,464 $ 79,372 $(83,331) $(70,198) $ 9,133 $ 9,174
========== ========== ======== ======== ========== ==========
</TABLE>
12
<PAGE> 15
RAYCHEM CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORE BUSINESS RAYNET CONSOLIDATED*
----------------------- -------------------- -----------------------
(Unaudited) (Unaudited) (Unaudited)
3/31/94 6/30/93 3/31/94 6/30/93 3/31/94 6/30/93
----------- ---------- ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 106,601 $ 116,115 $ 7,679 $17,831 $ 114,280 $ 133,946
Accounts receivable, net 262,849 237,492 13,631 7,852 276,480 245,344
Inventories 216,150 215,301 34,552 10,611 250,702 225,912
Other current assets 92,026 107,377 5,067 2,840 97,093 110,217
---------- ---------- -------- ------- ---------- ----------
Total current assets 677,626 676,285 60,929 39,134 738,555 715,419
---------- ---------- -------- ------- ---------- ----------
Net property, plant and equipment 487,980 474,544 27,619 27,269 515,599 501,813
Investment in Raynet 44,292 36,264 - - - -
Other assets 103,499 101,811 12,884 13,227 116,383 115,038
---------- ---------- -------- ------- ---------- ----------
Total assets $1,313,397 $1,288,904 $101,432 $79,630 $1,370,537 $1,332,270
========== ========== ======== ======= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 26,561 $ 38,557 $ 2,323 $ - $ 28,884 $ 38,557
Intercompany accounts
payable (receivable) (13,101) (11,372) 13,101 11,372 - -
Accounts payable 53,062 56,170 16,527 10,131 69,589 66,301
Other current liabilities 180,848 187,875 25,189 21,863 206,037 209,738
---------- ---------- -------- ------- ---------- ----------
Total current liabilities 247,370 271,230 57,140 43,366 304,510 314,596
---------- ---------- -------- ------- ---------- ----------
Long-term debt 249,007 233,853 - - 249,007 233,853
Other long-term liabilities 97,788 91,879 - - 97,788 91,879
Minority interest 4,294 2,438 - - 4,294 2,438
Stockholders' equity 714,938 689,504 44,292 36,264 714,938 689,504
---------- ---------- -------- ------- ---------- ----------
Total liabilities and
stockholders' equity $1,313,397 $1,288,904 $101,432 $79,630 $1,370,537 $1,332,270
========== ========== ======== ======= ========== ==========
</TABLE>
* Consolidated balances reflect eliminations of intercompany transactions.
13
<PAGE> 16
RAYCHEM CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31 (UNAUDITED)
----------------------------------------------------------------------
CORE BUSINESS RAYNET CONSOLIDATED
-------------------- -------------------- ---------------------
1994 1993 1994 1993 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $114,882 $ 76,799 $(93,800) $(42,279) $ 21,082 $ 34,520
-------- -------- -------- -------- -------- --------
Cash flows from investing activities:
Investment in property, plant and
equipment (65,996) (50,700) (7,528) (5,806) (73,524) (56,506)
Disposition of property, plant and equipment 7,297 4,234 - - 7,297 4,234
Sale of investment - 2,685 - - - 2,685
-------- -------- -------- -------- -------- --------
Net cash used in investing activities (58,699) (43,781) (7,528) (5,806) (66,227) (49,587)
-------- -------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from (payment of) debt 9,813 18,135 - - 9,813 18,135
Proceeds from (payment of) intercompany loans (76,632) (49,213) 76,632 49,213 - -
Common Stock issued under employee benefits plans 26,826 25,074 - - 26,826 25,074
Repayments of stockholder notes receivable 162 2,546 - - 162 2,546
Cash dividends (10,185) (9,809) - - (10,185) (9,809)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) financing activities (50,016) (13,267) 76,632 49,213 26,616 35,946
-------- -------- -------- -------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents (1,258) (7,287) 121 218 (1,137) (7,069)
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents $ 4,909 $ 12,464 $(24,575) $ 1,346 $(19,666) $13,810
======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 17
RAYCHEM CORPORATION
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On March 8, 1994, a judgment was entered in the company's favor in a lawsuit
filed on September 9, 1988, in the Supreme Court of Newfoundland, Canada, Trial
Division, Bow Valley, et. al. v. Saint John Shipbuilding and Raychem. The
plaintiffs had alleged claims for damages arising out of a fire on an offshore
drilling platform and made allegations attributing the cause and spread of the
fire to heat-tracing and cladding products manufactured by the company. The
decision has been appealed by the plaintiffs. The company disclosed
information about this lawsuit in its annual report on Form 10-K for the year
ended June 30, 1993. On November 30, 1993, a Petition by joint venturers of
the plaintiffs in the Bow Valley lawsuit making similar claims was filed in the
Supreme Court of Newfoundland, Canada, Trial Division and was served on Raychem
on March 25, 1994. Raychem will seek dismissal of this lawsuit based on the
ruling in the Bow Valley lawsuit. A New Brunswick lawsuit filed by Saint John
Shipbuilding against Raychem Canada, Ltd. arising out of the same incident has
been stayed by prior agreement of the parties.
On May 4, 1994, the United States District Court for the Northern District of
California entered an Order Granting Summary Adjudication on Certain Issues and
Continuing Motion As to Other Issues in the matter Raychem Corporation v.
Federal Insurance Company. The company disclosed information about this lawsuit
in its annual report on Form 10-K for the year ended June 30, 1993 and in its
quarterly report on Form 10-Q for the quarter ended December 31, 1993. The
Order finds in Raychem's favor that the indemnification of officers and
directors for settlement payments and defense costs was "permitted by law,"
that any "allocation" for coverage purposes between the corporation and the
officers and directors is improper, that the officers and directors were acting
in their official capacities insofar as the acts alleged to have occurred;
further, that although Federal has raised no genuine issue of material fact to
the contrary, Federal may conduct discovery over a six month period on whether
Raychem's indemnification of the officers and directors was in good faith and
whether settlement payments and defense costs were for matters insurable under
the law. Raychem was also granted the right to re-notice its motion for partial
summary judgment after six months.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
None.
(b) Reports on Form 8-K
None.
15
<PAGE> 18
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.
RAYCHEM CORPORATION
(Registrant)
Date: May 16, 1994 /s/ RAYMOND J. SIMS
--------------------------------
Raymond J. Sims
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
/s/ DEIDRA D. BARSOTTI
-------------------------------
Deidra D. Barsotti
Vice President and
Corporate Controller
(Principal Accounting Officer)
16
