<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 DECEMBER 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 February 2, 1995, the registrant had outstanding 43,665,513 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 Operations -
Three and Six Months Ended December 31, 1994 and 1993 1
Consolidated Condensed Balance Sheets -
December 31, 1994, and June 30, 1994 2
Consolidated Condensed Statements of Cash
Flows - Six Months Ended December 31, 1994 and 1993 3
Notes to Consolidated Condensed Financial
Statements 4-9
Item 2: Management's Discussion and Analysis 10-18
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 19
Item 4: Submission of Matters to a Vote of Security Holders 19-20
Item 6: Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
<PAGE> 3
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- -----------------------------
1994* 1993 1994* 1993
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 382,494 $ 353,835 $ 750,639 $ 709,267
Cost of goods sold 184,648 187,984 367,507 371,714
Research and development expense 28,748 35,306 55,977 68,920
Selling, distribution, and administrative
expense 121,267 119,858 236,460 234,080
Provision for restructuring and
divestitures - - 23,900 -
Loss on formation of Ericsson Raynet
joint venture and other Raynet
items (423) - 31,300 -
Equity in net losses of affiliated
companies 12,640 118 37,316 677
Interest expense, net 2,973 3,345 7,567 6,048
Other expense, net 1,507 2,493 5,116 4,780
------------ ------------ ------------ -------------
Income (loss) before income taxes,
extraordinary item, and change in
accounting principle 31,134 4,731 (14,504) 23,048
Provision for income taxes 11,135 3,075 13,825 14,981
------------ ------------ ------------ -------------
Income (loss) before extraordinary item
and change in accounting principle 19,999 1,656 (28,329) 8,067
Extraordinary item - (loss) adjustment
related to early retirement of debt,
net of $0 income taxes 756 - (6,318) -
Cumulative effect of change in
accounting principle, net of
$0 income taxes - - (1,477) -
------------ ------------ ------------ -------------
Net income (loss) $ 20,755 $ 1,656 $ (36,124) $ 8,067
============ ============ ============ =============
Average number of common
shares and equivalents outstanding 44,225,536 43,171,602 43,394,465 43,065,406
============ ============ ============ =============
Earnings (loss) per common share:
Income (loss) before extraordinary
item and change in accounting
principle $ 0.45 $ 0.04 $ (0.65) $ 0.19
Extraordinary item 0.02 - (0.15) -
Change in accounting principle - - (0.03) -
------------ ------------ ------------ -------------
Net income (loss) $ 0.47 $ 0.04 $ (0.83) $ 0.19
============ ============ ============ =============
Dividends per common share $ 0.08 $ 0.08 $ 0.16 $ 0.16
============ ============ ============ =============
</TABLE>
*Raynet Corporation and subsidiaries' results are presented on the equity basis
of accounting in fiscal 1995 versus consolidated in fiscal 1994.
See accompanying notes to consolidated condensed financial statements.
1
<PAGE> 4
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1994* June 30, 1994
------------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 114,587 $ 78,090
Accounts receivable, net 274,344 312,624
Inventories:
Raw materials 80,463 99,129
Work in process 49,645 55,406
Finished goods 89,661 93,254
----------- -----------
Total inventories 219,769 247,789
Prepaid taxes 41,534 40,014
Other current assets 79,343 57,425
----------- -----------
Total current assets 729,577 735,942
Property, plant, and equipment 1,072,035 1,110,695
Less accumulated depreciation and amortization 573,108 576,216
----------- -----------
Net property, plant, and equipment 498,927 534,479
Other assets 120,713 128,594
----------- -----------
Total assets $ 1,349,217 $ 1,399,015
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 25,555 $ 26,986
Accounts payable 54,241 83,136
Other accrued liabilities 167,364 184,573
Income taxes 21,097 25,515
Current maturities of long-term debt 1,649 3,881
----------- -----------
Total current liabilities 269,906 324,091
Long-term debt 258,869 244,681
Deferred income taxes 28,536 27,433
Other long-term liabilities 81,453 65,625
Minority interest 4,331 4,261
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: 43,633,858 and 43,005,786 shares, respectively 43,634 43,006
Additional contributed capital 372,659 354,660
Retained earnings 276,826 319,905
Currency translation 15,693 16,077
Treasury Stock, at cost (56,700 shares) (2,013) -
Notes receivable from sale of stock (677) (724)
----------- -----------
Total stockholders' equity 706,122 732,924
----------- -----------
Total liabilities and stockholders' equity $ 1,349,217 $ 1,399,015
=========== ===========
</TABLE>
* Raynet Corporation and subsidiaries' results are presented on the equity
basis of accounting in fiscal 1995 versus consolidated in fiscal 1994.
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31 (IN THOUSANDS)
1994* 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(36,124) $ 8,067
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Provision for restructuring and divestitures, net of payments 20,196 (3,696)
Loss on formation of Ericsson Raynet joint venture 14,950 -
Extraordinary loss from early retirement of debt (1,043) -
Change in accounting principle 1,477 -
Depreciation and amortization 32,994 38,975
Deferred income tax benefit (680) 3
Changes in certain assets and liabilities, net of effects from
restructuring and divestitures, joint venture formation,
extraordinary item, and change in accounting principle:
Accounts receivable (867) (26,665)
Inventories (2,532) (23,309)
Accounts payable and accrued liabilities (28,356) (10,779)
Income taxes (2,173) (1,612)
Other assets and liabilities 19,814 4,838
-------- --------
Net cash provided by (used in) operating activities 17,656 (14,178)
-------- --------
Cash flows from investing activities:
Investment in property, plant, and equipment (49,166) (51,288)
Disposition of property, plant, and equipment 5,102 7,735
Proceeds from sale of specified Raynet assets 40,000 -
Purchase of investment (1,000) -
-------- --------
Net cash used in investing activities (5,064) (43,553)
-------- --------
Cash flows from financing activities:
Net proceeds from (payment of) short-term debt 3,085 (16,419)
Proceeds from long-term debt 225,378 15,880
Payments of long-term debt (212,043) (839)
Common Stock issued under employee
benefit plans 18,396 17,639
Common stock repurchased (2,013) -
Proceeds from repayments of stockholder notes receivable 278 160
Cash dividends (6,955) (6,767)
-------- --------
Net cash provided by financing activities 26,126 9,654
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (2,221) (2,180)
-------- --------
Increase (decrease) in cash and cash equivalents 36,497 (50,257)
Cash and cash equivalents at beginning
of period 78,090 133,946
-------- --------
Cash and cash equivalents at end of period $114,587 $ 83,689
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest (net of amounts capitalized) $ 16,588 $ 7,211
Income taxes (net of refunds) 10,687 12,682
</TABLE>
* Raynet Corporation and subsidiaries' results are presented on the equity
basis of accounting in fiscal 1995 versus consolidated in fiscal 1994.
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 six months ended December 31, 1994 and 1993, the financial position as of
December 31, 1994 and the cash flows for the six months ended December 31, 1994
and 1993. The June 30, 1994 balance sheet included is derived from the
consolidated financial statements included in the company's Annual Report on
Form 10-K for the year ended June 30, 1994. Certain prior-period amounts have
been reclassified to conform with the fiscal 1995 financial statement
presentation.
Results for the three- and six-months ended December 31, 1994, include the
results of Raynet Corporation and subsidiaries through November 16, 1994, and
the results of Ericsson Raynet from November 17, 1994, through December 31,
1994, on the equity basis of accounting.
BUSINESS SEGMENTS
Revenues and operating income (loss) by business segment are as follows:
<TABLE>
<CAPTION>
In thousands
------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- --------------------------------
1994* 1993 1994* 1993
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Electronics $144,891 $127,476 $284,990 $254,080
Industrial 130,558 108,611 252,420 221,349
Telecommunications 107,045 109,201 213,229 224,535
Raynet - 8,547 - 9,303
-------- -------- -------- --------
Total revenues $382,494 $353,835 $750,639 $709,267
======== ======== ======== ========
Operating income (loss) before
provision for restructuring and
loss on formation of JV and
other Raynet items
Electronics $ 24,566 $ 21,026 $ 47,068 $ 46,624
Industrial 28,112 16,246 51,541 37,911
Telecommunications 16,442 23,047 33,709 50,141
Raynet - (28,964) - (57,553)
Corporate (21,289) (20,668) (41,623) (42,570)
-------- -------- -------- --------
Total operating income $ 47,831 $ 10,687 $ 90,695 $ 34,553
======== ======== ======== ========
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Operating income (loss) including
provision for restructuring and
loss on formation of JV and
other Raynet items
Electronics $ 24,566 $ 21,026 $ 47,068 $ 46,624
Industrial 28,112 16,246 51,541 37,911
Telecommunications 16,442 23,047 9,809 50,141
Raynet 423 (28,964) (31,300) (57,553)
Corporate (21,289) (20,668) (41,623) (42,570)
-------- -------- -------- --------
Total operating income $ 48,254 $ 10,687 $ 35,495 $ 34,553
======== ======== ======== ========
</TABLE>
*Raynet Corporation and subsidiaries' results are presented on the equity basis
of accounting in fiscal 1995 versus consolidated in fiscal 1994.
CHANGE IN ACCOUNTING PRINCIPLE
The company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), effective July
1, 1994. This statement changes the method of accounting for certain
postemployment benefits from a cash basis to an accrual basis. Adoption of FAS
112 resulted in a one-time adjustment of $1.5 million for the six months ended
December 31, 1994, to reflect the cumulative amount that would have been
accrued had the statement been in effect in prior years.
EXTRAORDINARY ITEM - LOSS FROM EARLY RETIREMENT OF DEBT
On September 30, 1994, the company gave irrevocable notice to the holders of
its 9.55% privately placed senior notes of its intention to prepay this debt on
November 1, 1994. Accordingly, the company recorded in the first quarter of
1995 an extraordinary loss of $7.1 million for the early retirement of debt.
The extraordinary loss was comprised of an estimated $8.1 million prepayment
penalty and deferred debt issuance costs of $0.5 million, net of a $1.5 million
deferred gain resulting from the termination of a related interest rate swap
agreement. The prepayment penalty was estimated based on interest rates at the
time of notice. When paid, the prepayment penalty was $0.8 million less, which
adjustment was recorded in the second quarter of 1995.
NEW ACCOUNTING STANDARD
In October 1994, the Financial Accounting Standards Board issued Statement
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," which the company has adopted this quarter. Currently,
the company has not entered into any interest rate risk management
transactions. The company does not engage in foreign currency speculative
transactions. The company has written policies that place all foreign currency
forward and option transactions under the direction of corporate treasury and
that restrict all derivative transactions to those intended for hedging
purposes.
The company operates in more than 40 countries worldwide, with in excess of
sixty percent of its revenues occurring outside the United States. The company
attempts to limit its exposure to changing foreign currency exchange rates
through both operational and financial market actions. The company
manufactures its products in a number of locations around the world, and hence
has a cost base that is well diversified over a number of European and Asian
currencies as well as the U.S. dollar. This diverse base of local currency
costs serves to counterbalance the income effect
5
<PAGE> 8
of potential changes in the value of the company's local currency denominated
revenues. Also, the company denominates its third-party export sales in the
currency of the selling Raychem entity, whenever possible.
Short-term exposures to changing foreign currency exchange rates are managed by
financial market transactions, principally through the purchase of forward
exchange contracts (with maturities usually less than three months) to hedge
the non-functional currency denominated receivables and payables of the
company's operating units. The related gains and losses are included in "other
expense, net," as they arise. For the three- and six-month periods ended
December 31, 1994, gains and losses from forward exchange contracts used to
hedge receivables and payables totaled $0.4 million and $4.1 million,
respectively. During these periods the company incurred total foreign exchange
transaction losses of $1.6 million and $3.6 million, respectively. The total
amount of exposure hedged as at December 31, 1994, was $155 million, reflecting
hedging for trade and intercompany receivables, payables, and loans in
non-functional currencies.
The company has unhedged non-functional currency translation and transaction
exposures in countries whose currencies do not have a liquid, cost-effective
forward market available for hedging. Exposures, at December 31, 1994,
included $13.1 million in intercompany payables in non-functional currencies
and $5.5 million of net monetary assets in foreign countries with the U.S.
dollar as functional currency.
The company periodically enters into forward exchange contracts to
hedge a portion of its foreign equity. The gains and losses on these contracts
are included in "stockholders' equity."
RESTRUCTURING AND DIVESTITURES
On October 11, 1994, the company announced a major restructuring of its
telecommunications business segment. As a result, the company recorded a
pretax charge of $24 million for restructuring and divestitures in the first
quarter of 1995. The segment's restructuring charge included $13 million for
severance costs related to a net workforce reduction of 340 employees,
resulting from the closure of telecommunications' manufacturing operations in
Germany and the restructuring of its North American activities. The remaining
charge of $11 million related to plant consolidations and the shutdown of
unprofitable product lines.
RAYNET
On November 16, 1994, the company and L M Ericsson (Ericsson), a Swedish
telecommunications company, formed a joint venture for the development,
manufacture, and marketing of fiber-optic communications systems for telephone
access networks worldwide. The joint venture, called "Ericsson Raynet," has
taken over and is continuing the operations of the company's Raynet subsidiary,
and is headquartered in Menlo Park, California. Ericsson Raynet has been
organized as a partnership under Delaware law; the company's Raynet subsidiary
holds the company's interest in the joint venture. Ericsson representatives
constitute a majority of the Board of Managers of the joint venture.
In forming the joint venture, Raychem sold certain specified assets of its
Raynet subsidiary to Ericsson in exchange for $40 million. Ericsson
contributed the purchased assets to the joint venture, and Raynet contributed
substantially all of its remaining assets and liabilities to the joint venture.
Funding of the joint venture will initially be provided by the partners,
generally 51% by Ericsson and 49% by Raynet.
6
<PAGE> 9
During the first five to eight years of operation, subject to various
conditions, substantially all of the profits of the joint venture up to $156
million will be allocated to Raynet; thereafter, profits of the joint venture
will be shared 51/49 by Ericsson and Raynet, respectively. Ericsson's share of
the joint venture's losses will be capped at $25 million for the fiscal year
ending June 30, 1995. During the fiscal year ending June 30, 1996, up to $19.6
million of losses will be allocated to Ericsson and Raynet in a 51/49 ratio;
additional losses, if any, of up to $10 million will be allocated 100% to
Raynet; and additional losses, if any, will again be allocated to Ericsson and
Raynet in a 51/49 ratio.
BellSouth Enterprises Inc. (BSE) had financed a portion of the software
development work at Raynet and held a royalty interest in the software related
revenues of Raynet. With the creation of the joint venture, this royalty
payment was reconfigured. Raychem paid BSE $10 million in 1994, and is
required to make two additional payments of $10 million each over the next two
calendar years. Raychem has agreed to make other royalty payments to BSE
contingent upon the revenues and earnings performance of the joint venture. At
such time as the joint venture achieves profitability, these royalty payments
could approximate 36% of Raychem's distributions from the joint venture.
Ericsson has a right to purchase Raynet's interest in the joint venture at a
fixed price for a limited period beginning November 16, 1996; and Ericsson and
Raynet have call and put rights, respectively, on Raynet's interest in the
joint venture exercisable at fair market value at any time after July 1, 1999.
If any of these options are exercised, Raychem has agreed to pay BSE a portion
of the purchase price received.
Reflected in the accompanying Statement of Operations for the six months ended
December 31, 1994, is a pre-tax charge of $28 million which is the company's
loss resulting from these transactions. For purposes of recording its loss,
the company has discounted its obligations to BSE to their present value using
a 7.97% discount rate.
INVESTMENTS
The financial position and results of operations of Ericsson Raynet, the only
significant equity investment of the company, is summarized below:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1994(a) 1993(c) 1994(a) 1993(c)
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 6,959 $ 8,547 $ 29,515 $ 9,303
======== ======== ======== ========
Gross profit (loss) $ (5,990) $ (7,786) $ (8,959) $(16,442)
Research and development
expense 8,922 11,188 20,646 21,708
Selling, distribution and
administrative expense 9,687 9,990 19,626 19,403
Interest and other expense 865 1,002 909 1,820
-------- -------- -------- --------
Pretax loss $(25,464) $(29,966) $(50,140) $(59,373)
======== ======== ======== ========
Raychem's equity in loss $(13,532)(b) $(29,966) $(38,208)(b) $(59,373)
======== ======== ======== ========
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1994(d) 1994(c)
------------ ------------
<S> <C> <C>
Current assets $51,882 $70,120
Non-current assets 36,938 39,424
Current liabilities $46,351 $55,532
Non-current liabilities 312 0
</TABLE>
(a) Results for the three and six months ended December 31, 1994, include the
results of Raynet Corporation and subsidiaries through November 16, 1994,
and the results of Ericsson Raynet from November 17, through December 31,
1994, on the equity basis of accounting as reflected in Raychem's financial
statements.
(b) The joint venture agreement specifies varying profit and loss allocations
to its partners as more fully described in the "Raynet" footnote above.
(c) Results for the three and six months ended December 31, 1993, and the
balances as of June 30, 1994, are those of Raynet Corporation and
subsidiaries as previously reported.
(d) Balances as of December 31, 1994, are those of Ericsson Raynet, reflected
as an equity investment in Raychem's financial statements.
DEBT STRUCTURE
On September 29, 1994, the company entered into syndicated loan agreements
providing for a five-year partially amortizing term loan of $225 million, and a
renewable 364-day revolving credit facility of $200 million. Interest on the
term loan and revolving credit facility are at variable rates. The term loan
requires quarterly principal payments of $15 million beginning December 31,
1996, increasing to $17.5 million from December 31, 1997, and to $20 million
from December 31, 1998, with a final payment of $35 million due September 29,
1999. Proceeds from the term loan were drawn on November 1, 1994, and used to
retire the 9.55% privately placed senior notes and for general corporate
purposes, while the revolving credit facility replaced existing committed
credit facilities. The new agreement includes covenants which, among other
things, specify a minimum net worth requirement, a maximum leverage limit, a
minimum fixed charge coverage ratio, a dividend restriction, and limits on
further advances to fund Raynet operations.
REPURCHASE OF COMMON STOCK
In December 1994, the Board of Directors authorized the repurchase, at
management's discretion, of up to 1.5 million shares of the company's stock
during any one fiscal year. Shares repurchased under this authorization will
be used to offset the dilution caused by the company's employee stock plans.
The company has repurchased 100,000 shares, of which 56,700 shares settled and
were held as treasury stock at December 31, 1994.
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 all 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 cleanup costs at these sites. 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
8
<PAGE> 11
manufacturing sites. The company currently is conducting such
investigations on a voluntary basis.
Additionally, the company and its subsidiaries have been named as defendants in
lawsuits arising from various commercial matters, including product liability
and private cost recovery for environmental cleanup expenses. The principal
product liability litigation involves a variety of claims arising from the
company's heat-tracing and freeze-protection products. The single
environmental cost recovery lawsuit in which Raychem has been named as a
defendant, along with sixteen other corporate and governmental codefendants,
involves the disposal of waste materials at the West Contra Costa County
Landfill in Richmond, California.
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.
SUBSEQUENT EVENTS
On January 2, 1995, the company entered into a revolving credit agreement with
its Ericsson Raynet joint venture. The company committed to make available to
the joint venture a maximum of $50 million, due in full on December 20, 1995,
or earlier if the revolving credit arrangement is terminated at the company's
discretion. The credit agreement stipulates that borrowings under the
agreement will be interest-free, and imposes no covenants or restrictions on
the joint venture's operations. Ericsson has also entered into a similar
agreement with the joint venture.
On January 17, 1995, the company's Board of Directors declared a quarterly cash
dividend of $0.08 per share of Common Stock, payable on March 8, 1995, to
stockholders of record as of February 8, 1995.
9
<PAGE> 12
RAYCHEM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The company reported second quarter 1995 net income of $21 million, or $0.47
per share, versus net income of $2 million, or $0.04 per share, in the second
quarter of 1994. Revenues increased to $382 million in the second quarter of
1995 from $354 million in the comparable prior-year period, which included $9
million in revenues from Raynet. This represents a 5% increase over the
year-ago quarter on a constant currency basis (which assumes that foreign
currency exchange rates had remained constant from the prior period). For the
six months ended December 31, 1994, net loss was $36 million, or $0.83 per
share, compared to net income of $8 million, or $0.19 per share, for the same
period in the prior year. Revenues for the six-month period ended December 31,
1994, increased 3% over the prior-year period on a constant currency basis to
$751 million.
Results for the three- and six-months ended December 31, 1994, include the
results of Raynet Corporation and subsidiaries through November 16, 1994, and
the results of Ericsson Raynet from November 17, 1994, through December 31,
1994, (the "Raynet" results) on the equity basis of accounting.
Excluding the effect of Raynet, Raychem's "ongoing" pretax income increased to
$44 million in the three months ended December 31, 1994, from $35 million in
the year-ago quarter which was adversely affected by currency movements in
Europe. Raynet's pretax loss for the quarter was $13 million, which was
primarily attributable to losses incurred through November 16, 1994, compared
with a $30 million loss in the previous year's second quarter when Raynet was a
wholly owned Raychem subsidiary. Pretax income for the six months ended
December 31, 1994, included a $24 million provision for restructuring of the
telecommunications business segment and a Raynet pretax loss of $70 million,
which included a $28 million loss on formation of the Ericsson Raynet joint
venture, equity in loss of $38 million and $3 million of other Raynet items.
Raychem's results are summarized as follows:
<TABLE>
<CAPTION>
PRETAX INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND CHANGE Three Months Ended Six Months Ended
IN ACCOUNTING PRINCIPLE December 31, December 31,
(in millions) 1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Core business:
"Ongoing" pretax income $ 44 $ 35 $ 79 $ 82
Provision for restructuring
and divestitures - - (24) -
---- ---- ---- ----
Core business pretax income 44 35 55 82
Raynet pretax loss (13) (30) (70) (59)
---- ---- ---- ----
Consolidated $ 31 $ 5 $(15) $ 23
==== ==== ==== ====
</TABLE>
10
<PAGE> 13
The results for the six months ended December 31, 1994, include an
extraordinary loss of $6.3 million (recorded as $7.1 million in the first
quarter and adjusted by $0.8 million in the second quarter), or $0.15 per
share, for the early retirement of debt following payment by the company of its
9.55% privately placed senior notes. In addition, the company adopted in the
first quarter, effective July 1, 1994, Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (FAS
112). The cumulative effect of this accounting change (a charge of $1.5
million, or $0.03 per share) has been reflected in the 1995 first half results.
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 on Raynet. The condensed consolidating financial
statements included on pages 16 through 18 supplement the discussion.
CORE BUSINESS OPERATIONS
Core business revenues for the second quarter of 1995 increased to $382 million
from $345 million in the prior-year period. Revenue growth was 7% on a
constant currency basis. Revenues for the six months ended December 31, 1994,
were $751 million compared to $700 million in the comparable prior-year period,
a constant currency increase of 4%.
Revenues in the electronics business segment were $145 million in the second
quarter of 1995 compared to $127 million in the prior-year period, a 10%
constant currency increase over the prior-year quarter. The PolySwitch and
Thermofit divisions contributed significantly to the revenue growth. The
PolySwitch division decreased its prices substantially compared to the prior
year while sales increased in all geographic regions. The Thermofit division
experienced particularly strong growth in Europe and in the worldwide
automotive market. In addition, Elo TouchSystems experienced strong U.S.
growth. Incoming orders during the quarter were slightly less than shipments
for the segment. Operating income grew to $25 million from $21 million a year
ago reflecting increased sales volume. Revenues for the six months ended
December 31, 1994, were $285 million compared to $254 million in the comparable
prior-year period. Operating income for the six months ended December 31, 1994
and 1993, was $47 million, unchanged due to increased operating expenses in
growth divisions.
Revenues in the industrial business segment for the three months ended December
31, 1994, were $131 million, up from $109 million, a 16% constant currency
increase over the prior-year period. The strong growth was due to the
Electrical Products (EPD) and Chemelex divisions. Chemelex sales were
especially strong in North America, while EPD experienced strong growth in
North America and Europe. Incoming orders in the second quarter were
approximately equal to shipments for the industrial business segment.
Operating income increased to $28 million from $16 million a year ago
reflecting higher sales volumes and an increase in gross profit percentage over
the prior year which was adversely affected by exchange rate movements.
Revenues for the six months ended December 31, 1994, were $252 million versus
$221 million in the comparable prior-year period. Operating income was $52
million, $14 million higher than the comparable prior-year period reflecting
the strong revenues in EPD and Chemelex divisions and improved gross profit
percentage, partially offset by weakness in the Ultratec division due to a lack
of pipeline construction projects worldwide and continued softness in its
European base business.
11
<PAGE> 14
Revenues in the telecommunications business segment decreased to $107 million
from $109 million in the second quarter of the prior year, a 5% decrease in
constant currency terms from the prior-year quarter. Sales were down in Asia,
but flat in Europe, despite a sales decline in Germany. The segment's North
American sales improved versus the year-ago quarter, and sales were little
changed in Latin America. Orders received in the second quarter of 1995 were
$9 million less than sales in the quarter. Operating income was $16 million
versus $23 million in the year-ago quarter due to adverse product and
geographic mix and higher operating expenses. Revenues for the six months ended
December 31, 1994, were $213 million compared to $225 million in the comparable
prior-year period. Excluding the previously described restructuring charge,
operating income declined $16 million to $34 million for the six months ended
December 31, 1994, due to lower sales and higher operating expenses. Fiscal
1995 revenues for the telecommunications business segment will likely be lower
than the prior year resulting from a general market shift away from the copper
telephony network and an expected decline in Asia and Latin America sales.
While the company is introducing new products into other market segments of the
outside plant network, sales of these new products, which carry lower margins,
are not yet sufficient to offset the decline in sales of copper closures. This
adverse geographic and product mix is expected to offset restructuring savings
so that telecommunications' fiscal 1995 profitability will likely be lower than
the prior year.
Provision for Restructuring and Divestitures
On October 11, 1994, the company announced a major restructuring of its
telecommunications business segment. As a result, the core business incurred
a pretax charge of $24 million for restructuring and divestitures in the first
quarter of 1995. The segment's restructuring charge included $13 million for
severance costs related to a net workforce reduction of 340 employees,
resulting from the closure of telecommunications' manufacturing operations in
Germany and the restructuring of its North American activities. The remaining
charge of $11 million related to plant consolidations and the shutdown of
unprofitable product lines. The restructuring is expected to be substantially
complete by June 30, 1995, and will result in approximately $24 million of
annualized savings, of which $9 million of savings is expected in fiscal 1995.
Substantially all of the savings are cash related.
The following table sets forth the company's restructuring charge for the six
month period ended December 31, 1994. All charges, excluding asset writedowns,
are cash in nature and are expected to be incurred in fiscal year 1995 and
funded through operating cash flow.
<TABLE>
<CAPTION>
Provision for Restructuring and Divestitures
-----------------------------------------------
Employee Asset
Severance Writedowns Leases Other Total
--------- ---------- ------ ----- -----
(in millions)
<S> <C> <C> <C> <C> <C>
1995 Provision:
Telecommunications:
Employee severance $13 $- $- $- $13
Assets to be sold - 5 - 1 6
Discontinued product inventory - 3 - - 3
Vacated buildings - - 1 - 1
Other - - - 1 1
--- -- -- -- ---
Total 1995 Provision $13 $8 $1 $2 $24
=== == == == ===
</TABLE>
12
<PAGE> 15
The company has implemented a number of programs over the past three years to
restructure the core business. Reserves which were established in prior fiscal
years have largely been used, and the remaining balances, if any, are
immaterial. The following table sets forth the company's 1995
telecommunications restructuring reserve as of December 31, 1994:
<TABLE>
<CAPTION>
Restructuring Reserves
----------------------
Employee Asset
Severance Writedowns Leases Other Total
--------- ---------- ------ ----- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Reserve Balances, July 1, 1994: $ - $ - $- $- $ -
1995 provision 13 8 1 2 24
Cash payments (1) - - - (1)
Non-cash items - (8) - - (8)
--- --- -- -- ---
Reserve Balance, December 31, 1994: $12 $ - $1 $2 $15
=== === == == ===
</TABLE>
As of December 31, 1994, 205 employees have separated from the company
following the telecommunications announcement in the first quarter, although
severance will not be paid until the end of the notice period.
Extraordinary Item - Loss From Early Retirement of Debt
On September 30, 1994, the company gave irrevocable notice to the holders of
its 9.55% privately placed senior notes of its intention to prepay this debt on
November 1, 1994. Accordingly, the company recorded in the first quarter of
1995 an extraordinary loss of $7.1 million for the early retirement of debt.
The extraordinary loss is comprised of an estimated $8.1 million prepayment
penalty and deferred debt issuance costs of $0.5 million, net of a $1.5 million
deferred gain resulting from the termination of a related interest rate swap
agreement. The prepayment penalty was estimated based on interest rates at the
time of notice. When paid, the prepayment penalty was $0.8 million less, which
adjustment was recorded in the second quarter of 1995.
Change in Accounting Principle
The company adopted FAS 112 effective July 1, 1994. This statement changes the
method of accounting for certain postemployment benefits from a cash basis to
an accrual basis. Adoption of FAS 112 resulted in a one-time adjustment of
$1.5 million for the six months ended December 31, 1994, to reflect the
cumulative amount that would have been accrued had the statement been in effect
in prior years.
New Accounting Standard
In October 1994, the Financial Accounting Standards Board issued Statement No.
119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," which the company adopted in the second quarter. For
the disclosures, see "New Accounting Standard" in the notes to the consolidated
condensed financial statements.
RAYNET OPERATIONS
The pretax loss attributable to Raynet was $13 million for the second quarter
of 1995, principally due to losses incurred through November 16, 1994. The
joint venture agreement provides that Ericsson's share of the joint venture's
losses will be capped at
13
<PAGE> 16
$25 million for the fiscal year ending June 30, 1995. Accordingly, $12 million
of equity losses in the second quarter were absorbed by Ericsson. Raynet was
consolidated in the previous year's second quarter when it was a wholly owned
Raychem subsidiary and reported revenues of $9 million and a pretax loss of $30
million. Raynet's second quarter 1994 results also included a $2 million
severance provision reflecting a restructuring and work force reduction of
approximately 80 people throughout the organization. Pretax loss of $70 million
for the six months ended December 31, 1994, includes a $28 million loss on
formation of the Ericsson Raynet joint venture, equity in loss of $38 million,
and $3 million of other Raynet items. Revenues in the comparable prior-year
period were $9 million and pretax loss was $59 million. For selected financial
data on Ericsson Raynet, see "Investments" in the notes to the consolidated
condensed financial statements.
Loss on Formation of Ericsson Raynet Joint Venture
In the first quarter of 1995, the company recorded a pre-tax charge of $28
million which was the company's estimate of the loss which would result from
transactions relating to the formation of the Ericsson Raynet joint venture.
This amount was previously presented as a core business item, but has been
reclassified to conform to the current presentation. For details on the loss,
see "Raynet" in the notes to the consolidated condensed financial statements.
OUTLOOK
As described earlier, fiscal 1995 revenues for the telecommunications
business segment will likely be lower than the prior year resulting from a
general market shift away from the copper telephony network and an expected
decline in Asia and Latin America sales. While the company is introducing new
products into other market segments of the outside plant network, sales of
these new products, which carry lower margins, are not yet sufficient to offset
the decline in sales of copper closures. This adverse geographic and product
mix is expected to offset restructuring savings so that telecommunications'
fiscal 1995 profitability will likely be lower than the prior year. In
addition, Ultratec revenues and profitability are expected to be lower in 1995
as compared to the prior year. Overall, the company believes that there will be
moderate sales growth in the core business, in constant currency terms, for the
remainder of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED
Debt exceeded cash by $171 million at December 31, 1994, compared to $197
million at June 30, 1994. Debt net of cash decreased $26 million in the first
six months of 1995, compared to an increase in debt net of cash of $45 million
in the first six months of 1994. The decrease in debt net of cash results from
cash proceeds from the Ericsson Raynet joint venture transaction and improved
cash flow from operations. In addition, in accordance with the joint venture
agreement, the parties completed their initial funding of the joint venture
which resulted in Raychem receiving $17 million of amounts previously advanced
to fund Raynet's operations.
On September 29, 1994, the company entered into syndicated loan agreements
providing for a five-year partially amortizing term loan of $225 million, and a
renewable 364-day revolving credit facility of $200 million. Interest on the
term loan and revolving credit facility are at variable rates. The term loan
requires quarterly principal payments of $15 million beginning December 31,
1996, increasing to $17.5 million from December 31, 1997, and to $20 million
from December 31, 1998, with a final payment of $35 million due September 29,
1999. Proceeds from the term loan were drawn on November 1, 1994, and used to
retire the 9.55% privately placed senior notes and for general corporate
14
<PAGE> 17
purposes, while the revolving credit facility replaced existing committed
credit facilities. The new agreement includes covenants which, among other
things, specify a minimum net worth requirement, a maximum leverage limit, a
minimum fixed charge coverage ratio, a dividend restriction, and limits on
further advances to fund Raynet operations.
At December 31, 1994, the company had $115 million in cash and cash
equivalents, $240 million in committed credit facilities (of which $3 million
was utilized) and approximately $174 million in various uncommitted credit
facilities (of which $37 million was utilized).
On January 2, 1995, the company entered into a revolving credit agreement with
its Ericsson Raynet joint venture. The company committed to make available to
the joint venture a maximum of $50 million, due in full on December 20, 1995,
or earlier if the revolving credit arrangement is terminated at the company's
discretion. The credit agreement stipulates that borrowings under the
arrangement will be interest-free, and imposes no covenants or restrictions on
the joint venture's operations. Ericsson has also entered into a similar
agreement with the joint venture.
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, Ericsson Raynet funding requirements, scheduled debt repayments,
and anticipated dividends.
CORE BUSINESS
Inventory, as measured by the number of days of inventory on hand, improved to
109 days for the second quarter compared to 114 days for the year-ago period.
Receivables, as measured by the number of billing days outstanding, increased
to 64 days at December 31, 1994, compared to 61 days at December 31, 1993.
Capital expenditures of $49 million in the first half of 1995 increased
slightly from $46 million in the prior-year period. In the first quarter of
1994, the company received $4 million from the sale of a building in the United
States.
15
<PAGE> 18
RAYCHEM CORPORATION
Condensed Consolidating Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31 (UNAUDITED)
-----------------------------------------------------------------
CORE BUSINESS RAYNET CONSOLIDATED
------------------- --------------------- -------------------
1994* 1993 1994* 1993 1994* 1993
-------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $382,494 $345,288 $ - $ 8,547 $382,494 $353,835
Cost of goods sold 184,648 171,651 - 16,333 184,648 187,984
Research and development expense 28,748 24,118 - 11,188 28,748 35,306
Selling, distribution, and administrative expense 121,267 109,868 - 9,990 121,267 119,858
Loss on formation of Ericsson Raynet joint
venture and other Raynet items - - (423) - (423) -
Equity in net (earnings) losses of affiliated companies (892) 118 13,532 - 12,640 118
Interest expense, net 2,973 2,597 - 748 2,973 3,345
Other expense, net 1,507 2,239 - 254 1,507 2,493
-------- -------- -------- ---------- -------- --------
Income (loss) before income taxes and extraordinary item 44,243 34,697 (13,109) (29,966) 31,134 4,731
Provision for income taxes 11,135 3,073 - 2 11,135 3,075
-------- -------- -------- ---------- -------- --------
Income (loss) before extraordinary item 33,108 31,624 (13,109) (29,968) 19,999 1,656
Extraordinary item - adjustment related to early
retirement of debt, net of $0 income taxes 756 - - - 756 -
-------- -------- -------- ---------- -------- --------
Net income (loss) $ 33,864 $ 31,624 $(13,109) $(29,968) $ 20,755 $ 1,656
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31 (UNAUDITED)
----------------------------------------------------------------
CORE BUSINESS RAYNET CONSOLIDATED
------------------- -------------------- -------------------
1994* 1993 1994* 1993 1994* 1993
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $750,639 $699,964 $ - $ 9,303 $750,639 $709,267
Cost of goods sold 367,507 345,969 - 25,745 367,507 371,714
Research and development expense 55,977 47,212 - 21,708 55,977 68,920
Selling, distribution, and administrative expense 236,460 214,677 - 19,403 236,460 234,080
Provision for restructuring and divestitures 23,900 - - - 23,900 -
Loss on formation of Ericsson Raynet joint
venture and other Raynet items - - 31,300 - 31,300 -
Equity in net (earnings) losses of affiliated companies (892) 677 38,208 - 37,316 677
Interest expense, net 7,567 4,558 - 1,490 7,567 6,048
Other expense, net 5,116 4,450 - 330 5,116 4,780
-------- -------- -------- --------- -------- --------
(Loss) income before income taxes, extraordinary
item, and change in accounting principle 55,004 82,421 (69,508) (59,373) (14,504) 23,048
Provision for income taxes 13,825 14,948 - 33 13,825 14,981
-------- -------- -------- --------- -------- --------
(Loss) income before extraordinary item
and change in accounting principle 41,179 67,473 (69,508) (59,406) (28,329) 8,067
Extraordinary item - loss from early retirement of
debt, net of $0 income taxes (6,318) - - - (6,318) -
Cumulative effect of change in accounting
principle, net of $0 income taxes (1,477) - - - (1,477) -
-------- -------- -------- --------- -------- --------
Net (loss) income $ 33,384 $ 67,473 $(69,508) $ (59,406) $(36,124) $ 8,067
======== ======== ======== ========= ======== ========
</TABLE>
* Raynet Corporation and subsidiaries' results are presented on the equity
basis of accounting in fiscal 1995 versus consolidated in fiscal 1994.
16
<PAGE> 19
RAYCHEM CORPORATION
Condensed Consolidating Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
CORE BUSINESS RAYNET CONSOLIDATED
-------------------------- ------------------------- --------------------------
(Unaudited) (Unaudited) (Unaudited)
12/31/94* 06/30/94 12/31/94* 06/30/94 12/31/94* 06/30/94**
----------- ----------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 114,587 $ 75,384 $ - $ 2,706 $ 114,587 $ 78,090
Accounts receivable, net 274,344 275,904 - 36,720 274,344 312,624
Inventories 219,769 220,116 - 27,673 219,769 247,789
Other current assets 120,877 94,418 - 3,021 120,877 97,439
---------- ---------- ----------- -------- ---------- ----------
Total current assets 729,577 665,822 - 70,120 729,577 735,942
---------- ---------- ----------- -------- ---------- ----------
Net property, plant, and equipment 498,927 507,474 - 27,005 498,927 534,479
Other assets, including investment
in Raynet 120,713 170,187 - 12,419 120,713 128,594
---------- ---------- ----------- -------- ---------- ----------
Total assets $1,349,217 $1,343,483 $ - $109,544 $1,349,217 $1,399,015
========== ========== =========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 25,555 $ 24,183 $ - $ 2,803 $ 25,555 $ 26,986
Intercompany accounts
payable (receivable) - (12,532) - 12,532 - -
Accounts payable 54,241 61,939 - 21,197 54,241 83,136
Other current liabilities 190,110 194,969 - 19,000 190,110 213,969
---------- ---------- ----------- -------- ---------- ----------
Total current liabilities 269,906 268,559 - 55,532 269,906 324,091
---------- ---------- ----------- -------- ---------- ----------
Long-term debt 258,869 244,681 - - 258,869 244,681
Other long-term liabilities 109,989 93,058 - - 109,989 93,058
Minority interest 4,331 4,261 - - 4,331 4,261
Stockholders' equity 706,122 732,924 - 54,012 706,122 732,924
---------- ---------- ----------- -------- ---------- ----------
Total liabilities and
stockholders' equity $1,349,217 $1,343,483 $ - $109,544 $1,349,217 $1,399,015
========== ========== =========== ======== ========== ==========
</TABLE>
* Raynet Corporation and subsidiaries' results are presented on the equity
basis of accounting in fiscal 1995 versus consolidated in fiscal 1994.
** Consolidated balances reflect eliminations of intercompany transactions.
17
<PAGE> 20
RAYCHEM CORPORATION
Condensed Consolidating Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 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 $ 17,656 $ 55,139 $ - $(69,317) $ 17,656 $(14,178)
-------- -------- ------- -------- -------- --------
Cash flows from investing activities:
Investment in property, plant, and equipment (49,166) (45,895) - (5,393) (49,166) (51,288)
Disposition of property, plant, and equipment 5,102 7,735 - - 5,102 7,735
Proceeds from sale of specified Raynet Assets 40,000 - - - 40,000 -
Purchase of investment (1,000) - - - (1,000) -
-------- -------- ------- -------- -------- --------
Net cash used in investing activities (5,064) (38,160) - (5,393) (5,064) (43,553)
-------- -------- ------- -------- -------- --------
Cash flows from financing activities:
Proceeds from (payment of) debt 16,420 (1,378) - - 16,420 (1,378)
Proceeds from (payment of) intercompany loans - (48,962) - 48,962 - -
Common Stock issued under employee benefit plans 18,396 17,639 - - 18,396 17,639
Common Stock repurchased (2,013) - - - (2,013) -
Proceeds from repayments of stockholder notes receivable 278 160 - - 278 160
Cash dividends (6,955) (6,767) - - (6,955) (6,767)
-------- -------- ------- -------- -------- --------
Net cash provided by (used in) financing activities 26,126 (39,308) - 48,962 26,126 9,654
-------- -------- ------- -------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (2,221) (2,131) - (49) (2,221) (2,180)
-------- -------- ------- -------- -------- --------
Increase (decrease) in cash and cash equivalents $ 36,497 $(24,460) $ - $(25,797) $ 36,497 $(50,257)
======== ======== ======= ======== ======== ========
</TABLE>
* Raynet Corporation and subsidiaries' results are presented on the equity
basis of accounting in fiscal 1995 versus consolidated in fiscal 1994.
18
<PAGE> 21
RAYCHEM CORPORATION
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On January 13, 1995, the company's motion to dismiss the related lawsuits
against the company by Creole Engineering Co. and Unit Process Company was
granted in its entirety. Information about this lawsuit was disclosed in the
company's annual report on Form 10-K for the year ended June 30, 1994.
On January 5, 1995, the company and its insurers agreed to settle the
property damage claims in the lawsuit initiated by Culinary Foods against the
company for $8.5 million, of which the company will be required to pay a $1
million insurance deductible. Subsequently, the personal injury claims in the
Culinary Foods action were settled for $1.05 million, which is to be funded
entirely from insurance proceeds. These settlements are subject to court
approval and entry of consent judgment. Information about this lawsuit was
disclosed in the company's annual report on Form 10-K for the year ended
June 30, 1994.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On November 9, 1994, the company held its Annual Meeting of the
Stockholders.
(b) The following Directors were elected:
<TABLE>
<CAPTION>
Votes
Name Votes For Withheld
---- ---------- --------
<S> <C> <C>
Paul M. Cook 35,386,045 191,007
Richard Dulude 35,393,937 183,115
James F. Gibbons 35,399,396 177,656
John P. McTague 35,386,651 190,401
Dean O. Morton 35,398,787 178,265
Robert J. Saldich 35,398,303 178,748
Isaac Stein 35,383,461 193,590
Cyril J. Yansouni 35,383,807 193,245
</TABLE>
(c) The following other matters were voted upon:
1. Approval of amendments to the company's Amended and Restated
1984 Employee Stock Purchase Plan and Amended and Restated 1985
Supplemental Employee Stock Purchase Plan to increase by
700,000 shares the aggregate number of shares issuable under
the two plans.
<TABLE>
<S> <C>
Affirmative Votes: 31,112,081
Negative Votes: 3,792,335
Abstentions: 672,636
</TABLE>
2. Approval of an amendment to the company's 1990 Incentive Plan
to limit the number of shares with respect to which options
may be granted to no more than 200,000 shares to any one
participant in any one-year period.
<TABLE>
<S> <C>
Affirmative Votes: 33,002,866
Negative Votes: 1,899,307
Abstentions: 674,878
</TABLE>
19
<PAGE> 22
3. Approval of an amendment to the 1990 Incentive Plan to extend
up to five years the period during which awards granted on or
after August 12, 1994, may be exercised following retirement
from the company.
<TABLE>
<S> <C>
Affirmative Votes: 24,523,189
Negative Votes: 10,371,323
Abstentions: 682,539
</TABLE>
4. Ratification of the appointment by the company's Board of
Directors of Price Waterhouse LLP to audit the accounts of the
company and its subsidiaries for the 1995 fiscal year.
<TABLE>
<S> <C>
Affirmative Votes: 35,444,158
Negative Votes: 48,956
Abstentions: 83,937
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The company filed a Current Report on Form 8-K dated November
16, 1994, the date on which the company and L M Ericsson, a
Swedish telecommunications company, formed a joint venture for
the development, manufacture, and marketing of fiber-optic
communications systems for telephone access networks
worldwide. The joint venture, called "Ericsson Raynet," has
taken over and is continuing the operations of the company's
Raynet subsidiary. Pro forma financial information to give
effect to the formation of the Ericsson Raynet joint venture
was filed as an amendment to the Form 8-K on January 6, 1995.
20
<PAGE> 23
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: February 13, 1995 /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)
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD
ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 114,587
<SECURITIES> 0
<RECEIVABLES> 286,298
<ALLOWANCES> 11,954
<INVENTORY> 219,769
<CURRENT-ASSETS> 729,577
<PP&E> 1,072,035
<DEPRECIATION> 573,108
<TOTAL-ASSETS> 1,349,217
<CURRENT-LIABILITIES> 269,906
<BONDS> 258,869
<COMMON> 43,634
0
0
<OTHER-SE> 662,488
<TOTAL-LIABILITY-AND-EQUITY> 1,349,217
<SALES> 748,912
<TOTAL-REVENUES> 750,639
<CGS> 366,648
<TOTAL-COSTS> 367,507
<OTHER-EXPENSES> 55,977
<LOSS-PROVISION> 2,339
<INTEREST-EXPENSE> 7,567
<INCOME-PRETAX> (14,504)
<INCOME-TAX> 13,825
<INCOME-CONTINUING> (28,329)
<DISCONTINUED> 0
<EXTRAORDINARY> (6,318)
<CHANGES> (1,477)
<NET-INCOME> (36,124)
<EPS-PRIMARY> ($0.83)
<EPS-DILUTED> 0
</TABLE>
