<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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)
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 361-3333
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 October 28, 1998, the registrant had outstanding 79,153,355 shares of
Common Stock, $1.00 par value.
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RAYCHEM CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Information
Consolidated Condensed Statement of Income for
the three months ended September 30, 1998 and 1997 1
Consolidated Condensed Balance Sheet at
September 30, 1998 and June 30, 1998 2
Consolidated Condensed Statement of Cash Flows for
the three months ended September 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial
Statements 4
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
<PAGE> 3
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues $446,746 $455,031
Cost of goods sold 239,331 226,948
Research and development expense 24,473 27,363
Selling, general, and administrative expense 118,757 112,306
Interest expense, net 4,926 2,815
Other expense, net 413 3,572
-------- --------
Income before income taxes 58,846 82,027
Provision for income taxes 20,595 20,506
-------- --------
Net income $ 38,251 $ 61,521
======== ========
Earnings per share--basic $ 0.47 $ 0.72
======== ========
Average number of shares
outstanding--basic 80,651 85,551
======== ========
Earnings per share--assuming dilution $ 0.47 $ 0.70
======== ========
Average number of shares
outstanding--assuming dilution 81,635 87,934
======== ========
Dividends per share $ 0.08 $ 0.07
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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RAYCHEM CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, June 30,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 164,103 $ 92,667
Accounts receivable, net 341,500 325,039
Inventories:
Raw materials 87,011 90,874
Work in process 62,899 64,143
Finished goods 125,302 123,931
----------- -----------
Total inventories 275,212 278,948
Prepaid taxes 40,429 38,350
Other current assets 109,937 110,593
----------- -----------
Total current assets 931,181 845,597
Property, plant, and equipment 1,196,195 1,147,923
Less accumulated depreciation and amortization 700,923 668,737
----------- -----------
Net property, plant, and equipment 495,272 479,186
Deferred tax assets 186,940 186,595
Other assets 109,409 107,977
----------- -----------
TOTAL ASSETS $ 1,722,802 $ 1,619,355
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 333,322 $ 181,284
Accounts payable 73,388 82,901
Compensation and benefits 67,199 56,878
Other accrued liabilities 86,154 88,914
Income taxes 74,260 62,871
Current maturities of long-term debt 6,969 6,574
----------- -----------
Total current liabilities 641,292 479,422
Long-term debt 152,810 151,488
Deferred tax liabilities 27,413 27,762
Other long-term liabilities 96,067 92,257
Minority interests 9,763 8,784
Stockholders' equity:
Preferred Stock, $1.00 par value
Authorized: 15,000,000 shares; Issued: none -- --
Common Stock, $1.00 par value
Authorized: 150,000,000 shares
Issued: 90,028,103 shares 90,028 90,028
Additional contributed capital 425,477 425,477
Retained earnings 694,555 665,753
Accumulated other comprehensive income (7,828) (26,778)
Treasury Stock, at cost (10,787,408 and 7,144,399
shares, respectively) (401,938) (290,320)
Other (4,837) (4,518)
----------- -----------
Total stockholders' equity 795,457 859,642
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,722,802 $ 1,619,355
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
RAYCHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 38,251 $ 61,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Payments for restructurings and divestitures (4,143) (7,438)
Net loss (gain) on sale of intellectual property and other 437 (1,223)
assets
Depreciation and amortization 21,938 20,533
Deferred income tax (benefit) provision (1,004) 1,320
Changes in certain assets and liabilities, net of effects from
restructuring and divestitures:
Accounts receivable (5,280) (16,587)
Inventories 10,870 (6,284)
Accounts payable and accrued liabilities (4,839) (25,091)
Income taxes 9,279 8,652
Other assets and liabilities 364 14
--------- ---------
Net cash provided by operating activities 65,873 35,417
--------- ---------
Cash flows from investing activities:
Investment in property, plant, and equipment (26,660) (25,282)
Disposition of property, plant, and equipment -- 8,314
Investments in and advances to affiliated companies (2,315) (2,500)
--------- ---------
Net cash used in investing activities (28,975) (19,468)
--------- ---------
Cash flows from financing activities:
Net proceeds from short-term debt 150,022 70,119
Proceeds from long-term debt 4,127 222
Payments of long-term debt (4,991) (6,253)
Common Stock repurchased (123,461) (94,386)
Common Stock issued under employee benefit plans 8,668 23,897
Proceeds from repayments of stockholder notes receivable 62 320
Cash dividends (6,530) (6,015)
--------- ---------
Net cash provided by (used in) financing activities 27,897 (12,096)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents 6,641 (1,035)
--------- ---------
Increase in cash and cash equivalents 71,436 2,818
Cash and cash equivalents at beginning of period 92,667 86,583
--------- ---------
Cash and cash equivalents at end of period $ 164,103 $ 89,401
========= =========
Supplemental Disclosures
Cash paid for:
Interest (net of amounts capitalized) $ 5,984 $ 4,496
Income taxes (net of refunds) 12,323 9,596
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<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
months ended September 30, 1998 and 1997, the financial position as of September
30, 1998, and the cash flows for the three months ended September 30, 1998 and
1997. The June 30, 1998 balance sheet is derived from the consolidated financial
statements included in the company's Annual Report on Form 10-K for the year
ended June 30, 1998. The results of operations for the three months ended
September 30, 1998, are not necessarily indicative of the results to be expected
for the full year. Certain prior-period amounts have been reclassified to
conform with the 1999 financial statement presentation.
BUSINESS SEGMENTS
Revenues and operating income by business segment are as follows:
<TABLE>
<CAPTION>
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues
Electronics OEM components $ 203,318 $ 199,903
Telecommunications, energy and industrial 243,428 255,128
--------- ---------
Total revenues $ 446,746 $ 455,031
========= =========
Operating income
Electronics OEM components $ 30,214 $ 41,689
Telecommunications, energy and industrial 48,600 64,858
Corporate group expenses (14,629) (18,133)
--------- ---------
Total operating income $ 64,185 $ 88,414
========= =========
</TABLE>
4
<PAGE> 7
EARNINGS PER SHARE
In the second quarter of 1998, the company adopted and retroactively applied the
requirements of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (FAS 128) to all periods presented. The following table presents the
computation of earnings per share--basic and earnings per share--assuming
dilution.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
------- -------
<S> <C> <C>
Net income available to stockholders (numerator) $38,251 $61,521
======= =======
Shares calculation (denominator):
Average shares outstanding--basic 80,651 85,551
Effect of dilutive securities:
Potential Common Stock relating to stock options
and employee stock purchase plan 984 2,383
------- -------
Average shares outstanding--assuming dilution 81,635 87,934
======= =======
Earnings per share--basic $ 0.47 $ 0.72
======= =======
Earnings per share--assuming dilution $ 0.47 $ 0.70
======= =======
</TABLE>
Options to purchase 6,594,000 shares of Common Stock at prices ranging from
$30.13 to $47.94 per share were outstanding during the quarter ended September
30, 1998, but were not included in the computation of earnings per
share--assuming dilution because the options' exercise prices were greater than
the average market price of the common shares. These options expire between
April 2006 and August 2008.
FINANCIAL INSTRUMENTS
Net gains and losses from forward exchange contracts used to cover receivables
and payables totaled gains of $4.3 million and $2.0 million for the three months
ended September 30, 1998 and 1997, respectively. The company incurred a total
net foreign exchange gain of $0.5 million and a net loss of $0.4 million for the
three months ended September 30, 1998 and 1997, respectively. These realized and
unrealized gains and losses are included in "Other expense, net." The total
amount of foreign exchange exposure covered was $117 million at September 30,
1998. The company covers exposures that arise from trade and intercompany
receivables and payables, intercompany loans in non-functional currencies, and
net monetary assets in certain foreign countries with the US dollar as
functional currency. These exposures are primarily in Japanese yen (27% of net
contract value), Belgian francs (18%), French francs (13%), Italian lire (7%),
and Spanish pesetas (7%).
The company does not cover non-functional currency translation and transaction
exposures in countries whose currencies do not have a liquid, cost-effective
forward market available for hedging, or where the company's exposed position
and the perceived currency environment render a hedge inadvisable. Such
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<PAGE> 8
exposures at September 30, 1998, included $13 million in net receivables and
payables in non-functional currencies and $7 million in net monetary assets in
foreign countries with the US dollar as functional currency.
MARKETABLE SECURITIES
Marketable securities are classified as available for sale and carried at fair
value as determined by quoted market prices. The aggregate fair value of
marketable securities held at September 30, 1998, was $8 million. Gross
unrealized gains were $3 million as of September 30, 1998, and are included, net
of tax, as a component of "Accumulated other comprehensive income."
RESTRUCTURING AND DIVESTITURES
The company incurred a pretax restructuring charge of $28 million in the fourth
quarter of 1998 (the 1998 restructuring). The restructuring actions included
write-downs of inventory and machinery and equipment related to discontinued
products and operations, severance costs for the reorganization of certain
business segments, and severance costs associated with moving certain
manufacturing facilities to lower-cost locations. As a result of the 1998
restructuring, approximately 130 positions will be eliminated. As of September
30, 1998, 68 employees have separated from the company due to the 1998
restructuring. The company expects the 1998 restructuring to be substantially
completed by the end of the current fiscal year.
The following table, which includes the 1998 restructuring as well as prior
restructurings, presents the company's restructuring reserves as of September
30, 1998:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------------------------------------------
EMPLOYEE ASSET
COSTS WRITE-DOWNS LEASES OTHER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Reserve Balances,
June 30, 1998 $ 22,318 $ 13,062 $ 89 $ 3,348 $ 38,817
Cash payments (3,548) -- -- (595) (4,143)
Non-cash items -- (7,798) -- (17) (7,815)
-------- -------- -------- -------- --------
RESERVE BALANCES,
SEPTEMBER 30, 1998 $ 18,770 $ 5,264 $ 89 $ 2,736 $ 26,859
======== ======== ======== ======== ========
</TABLE>
REPURCHASE OF COMMON STOCK
During the three months ended September 30, 1998, the company repurchased 4
million shares of its Common Stock for $123 million and reissued 0.4 million
shares, leaving 10.8 million shares in treasury stock at September 30, 1998. In
July 1997, the board of directors authorized the company's management, at its
discretion, to repurchase up to $300 million of the company's stock during any
fiscal year. The company utilized a portion of its committed borrowing
facilities to partially finance share repurchases.
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<PAGE> 9
COMPREHENSIVE INCOME
In the first quarter of 1999, the company adopted and retroactively applied the
requirements of Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS 130). FAS 130 establishes standards for reporting and
displaying comprehensive income and its components in an annual financial
statement that is displayed with the same prominence as other financial
statements.
The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Net income $ 38,251 $ 61,521
Other comprehensive income:
Net change in unrealized (loss) gain on
available-for-sale securities (2,275) 1,987
Foreign currency translation adjustment 21,225 (8,018)
-------- --------
Comprehensive income $ 57,201 $ 55,490
======== ========
</TABLE>
CONTINGENCIES
The company and its subsidiaries are parties to lawsuits or may in the future
become parties to lawsuits involving various types of commercial claims,
including, but not limited to, product liability, unfair competition, antitrust,
breach of contract, and intellectual property matters. Legal proceedings tend to
be unpredictable and costly and may be affected by events outside the control of
the company. The company maintains various levels of insurance to apply to
product liability and certain other claims in excess of deductibles. There is no
assurance that litigation will not have an adverse effect on the company's
financial position or results of operations. The company's major litigation
matters as of September 30, 1998, are described below.
On December 19, 1994, the company filed a complaint entitled Raychem Corporation
and Thermacon, Inc. v. Steven D. Hogge, Bourns, Inc., et al. in the Superior
Court of the State of California, County of San Mateo, which alleged, among
other claims, misappropriation of trade secrets. On May 2, 1995, a complaint
entitled Bourns, Inc. v. Raychem Corporation was filed in the United States
District Court, Central District of California, alleging antitrust law
violations. Many of the claims asserted in the company's state action were
consolidated with Bourns' federal action against the company. On March 9, 1998,
this case was transferred from the Eastern Division of the Central District to
the Western Division of the Central District and reassigned to a new judge. The
trial for Bourns' action against the company commenced on June 16, 1998. During
the sixth week of the trial, due to the length of the proceeding, the judge
bifurcated the company's trade secret action against Bourns for trial at a later
date. On August 10, 1998, the trial of Bourns' action against the company ended
with a jury verdict that awarded Bourns $64 million in damages. Legal fees and
expenses, including attorneys fees, are also recoverable by Bourns under
applicable U.S. antitrust law. The company has filed motions with the court to
set aside the jury's verdict, to reduce the damages, and to ask for a new trial
on the grounds that the verdict is contrary to the evidence presented at trial
and is incorrect as a matter of law and that the jury's damage award bears no
relationship to the market segment to which the verdict was directed. If
necessary, the company intends to appeal this decision. Under applicable U.S.
antitrust law, any remaining damage award against the company will be trebled.
The company also intends to continue with its theft of trade secrets case
against
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<PAGE> 10
Bourns. The new trial date for the trade secret action has not been set by the
court. Due to the foregoing, the company has not accrued any liability with
respect to this litigation.
Currently, the company's principal product liability litigation involves a
variety of claims arising from the company's heat-tracing and freeze-protection
products. The company's experience to date is that losses, if any, from such
claims have not had a material effect on the company's financial position or
results of operations. However, the company sells its products into applications
(such as electronic interconnection products for aerospace and automotive
markets) where product liability issues could be material.
The company is a defendant in a product liability case in the United States
District Court in Seattle, All Alaskan Seafoods, Inc., et al. v. Raychem
Corporation, Minnesota Mining and Manufacturing Corporation and Marine Electric,
Inc., et al. The action arises out of a cargo vessel fire allegedly caused by a
heat-tracing product. The plaintiffs in this case are seeking in excess of $150
million in damages. On November 21, 1997, the District Court granted the
company's motion to limit damages claimed by the plaintiffs to the value of the
cargo lost or destroyed and certain other incidental claims of crew members (now
alleged to be approximately $4 million) on account of the incident giving rise
to the plaintiffs' claims. The parties have stipulated to a dismissal (without
prejudice) of the remaining claims, so that plaintiffs may appeal the District
Court's decision to the Ninth Circuit Court of Appeals. Plaintiffs filed their
Notice of Appeal on May 26, 1998. The company believes that it has meritorious
defenses to the claims asserted in this case and intends to defend itself
vigorously in this matter.
Four separate state actions based on essentially the same facts, alleging
wrongful distributor termination and antitrust claims, have been consolidated in
the Superior Court of San Mateo County, California, Unit Process Company, et al.
v. Raychem Corporation, et al. The dismissal in the United States District
Court, Northern District of California, of an action alleging essentially the
same facts was affirmed by the Ninth Circuit Court of Appeals in 1996. On
February 25, 1998, the Superior Court granted the company's motion to dismiss
this lawsuit, with leave to the plaintiffs to amend certain of their claims. The
company believes that it has meritorious defenses to the claims asserted in this
case and intends to defend itself vigorously in this matter.
Additionally, the company has been named, among others, as a potentially
responsible party in judicial and administrative proceedings alleging that it
may be liable for the costs of correcting environmental conditions at certain
hazardous waste sites. The company believes that it does not have material
liability for cleanup costs at these sites.
SUBSEQUENT EVENTS
On October 1, 1998, the company completed the acquisition of the
telecommunications business of Plasticos Mondragon S.A. (Mondragon) in Spain for
a cash purchase price of approximately $40 million. The Mondragon
telecommunications business manufactures and supplies components for connecting,
insulating, and protecting copper and fiber-optic telephone networks. The
acquisition will be accounted for using the purchase method.
On October 14, 1998, the company's Board of Directors announced its regular
quarterly dividend of $0.08 per share, payable on December 9, 1998, to
stockholders of record as of November 11, 1998.
On October 23, 1998, the company issued $400 million of notes. The notes mature
on October 15, 2008, and bear interest at a rate of 7.20% per annum. The company
will use the net proceeds from the sale of
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<PAGE> 11
the notes primarily to repay $275 million outstanding under the company's $400
million revolving credit facility, which remains available to the company until
September 12, 2001. The company intends to use the remaining portion of the net
proceeds from the sale of the notes for general corporate purposes, which may
include financing the company's current stock repurchase program and possible
acquisitions.
Between October 1, 1998 and November 4, 1998, the company repurchased 366,000
shares of the company's Common Stock for $11 million.
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<PAGE> 12
RAYCHEM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
(in millions, except per share data)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 447 $ 455
Pretax income $ 59 $ 82
Provision for income taxes 21 20
Net income $ 38 $ 62
Earnings per share--assuming dilution $0.47 $0.70
Average number of shares outstanding--assuming dilution 81.6 87.9
- ------------------------------------------------------------------------------------
</TABLE>
REVENUES AND REVENUE GROWTH
Revenues for the first quarter of 1999 were $447 million compared to $455
million in the year-ago quarter. Revenues were flat on a constant currency
basis, but declined 2% in reporting currencies, primarily as a result of the
U.S. dollar strengthening against the Japanese yen.
Revenues were also impacted by price reductions in several product lines due to
competitive pressures, as shown in the table below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
(percentage change over prior-year quarter)
- ------------------------------------------------------------------------------------
<S> <C>
Components of reported revenue growth:
Growth in volumes, net of product mix changes 4%
Effect of price reductions(a) (4%)
----
- ------------------------------------------------------------------------------------
Constant currency revenue growth 0%
Effect of exchange rate changes (2%)
----
- ------------------------------------------------------------------------------------
Total reported revenue growth (2%)
====
- ------------------------------------------------------------------------------------
</TABLE>
(a) A management estimate based on year-over-year changes in revenues at
constant volume and mix.
On a constant currency basis, first quarter revenues were up 2% in North
America, down 4% in Europe, down 1% in Asia, and up 9% in the rest of the world.
In North America, sales growth was largely driven by sales increases in the
electronics OEM components segment and by sales growth in access network
electronics, partially offset by a decline in sales of telecommunications and
electric heat-tracing products. The sales decline in Europe was mainly caused by
weak sales of telecommunications and electric heat-tracing products. In Asia,
revenue growth in Taiwan and the Peoples Republic of China was
10
<PAGE> 13
offset by sales declines in other Asian markets, particularly in Korea and
Japan. In the rest of the world, strong revenue growth in Latin America was
partially offset by revenue declines in other regions.
GROSS PROFIT, OPERATING EXPENSES, AND PRETAX INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
(percentage of revenues)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gross profit 46% 50%
Research and development expense 5% 6%
Selling, general, and administrative expense 27% 25%
Interest and other expense, net 1% 1%
Pretax income 13% 18%
- --------------------------------------------------------------------------------
</TABLE>
Gross profit as a percentage of revenues declined to 46% in the first quarter of
1999, compared to 50% in the year-ago quarter. The decline was primarily due to
price reductions, a shift toward product lines with lower margins, and adverse
currency movements.
Selling, general, and administrative expense (SG&A) as a percentage of revenues
increased to 27% in the first quarter of 1999, compared to 25% in the prior-year
quarter. The increase in SG&A was in part due to increased spending related to
the implementation of the company's enterprise information system and higher
litigation expenses.
Pretax income for the first quarter of 1999 was $59 million (13% of revenues)
compared to $82 million (18% of revenues) in the prior-year quarter. The
decrease was primarily attributable to lower gross profit and increased SG&A
expense during the quarter.
PROVISION FOR INCOME TAXES
The estimated annual effective tax rate for 1999 is 35% compared to 25% in the
year-ago quarter. The lower estimated annual effective tax rate in 1998 was
primarily attributable to recognition of a U.S. deferred tax benefit.
NET INCOME AND EPS
Net income for the first quarter of 1999 was $38 million ($0.47 per
share--assuming dilution), compared to net income of $62 million ($0.70 per
share--assuming dilution) in the year-ago quarter. The average number of shares
outstanding--assuming dilution during the first quarter of 1999 decreased to
81.6 million from 87.9 million in the prior-year quarter, largely due to the
company's repurchase of its Common Stock.
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<PAGE> 14
BUSINESS SEGMENTS
During the fourth quarter of 1998, the company realigned its businesses by
combining the former telecommunications and energy networks segment and the
commercial and industrial infrastructure segment into the new
telecommunications, energy and industrial business segment. The company's
financial results are now reported as two business segments, described below,
and the corporate group.
ELECTRONICS OEM COMPONENTS
This business segment serves original equipment manufacturers (OEMs) in
transportation, defense, and a wide range of commercial electronics industries.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
(dollars in millions)
- ---------------------------------------------------------------
<S> <C> <C>
Revenues $203 $200
Constant currency revenue growth 5% 18%
Operating income $ 30 $ 42
- ---------------------------------------------------------------
</TABLE>
First quarter revenues for the electronics OEM components business segment were
$203 million, up 5% on a constant currency basis from the year-ago quarter.
Revenues from sales of interconnection products, including wire, cable,
heat-shrinkable tubing and connectors, were $121 million for the quarter,
reflecting growth of 8% on a constant currency basis from the year-ago quarter.
Sales growth was strongest in North America as a result of increased sales of
transportation and commercial electronics products. In Europe, growth was the
result of increased sales of interconnection products for rail and mass transit,
automotive and defense applications. The growth in North America and Europe more
than offset sales declines in Japan and the rest of Asia where governments cut
back on defense spending.
Sales of circuit protection products were $54 million, down 7% on a constant
currency basis from the year-ago quarter. This is primarily attributable to a
17% decline in sales price as compared to the year-ago quarter. However, an
increase in unit volumes of 10% partially offset the adverse effect of
competitive pricing pressures.
Elo TouchSystems' revenues were $28 million, up 20% on a constant currency basis
compared to the year-ago quarter. This growth was driven by an increase in the
demand for kiosk and point-of-information applications in Europe and North
America, and demand for touch-input systems in kiosk, amusement and gaming
applications in Japan.
The segment's operating income as a percentage of revenues in the first quarter
of 1999 was 15% compared to 20% in the year-ago quarter. The reduction in
operating income as a percentage of revenue was primarily caused by price
reductions, primarily on circuit protection products; a change in product mix,
as the sales volume of products with lower profit margins increased; and
increased litigation expenses.
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TELECOMMUNICATIONS, ENERGY AND INDUSTRIAL
This business segment serves telecommunication operators; power, gas, and water
utilities; and industrial plants and pipelines.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
(dollars in millions)
- ------------------------------------------------------------------
<S> <C> <C>
Revenues $ 243 $ 255
Constant currency revenue growth (4%) 7%
Operating income $ 49 $ 65
- ------------------------------------------------------------------
</TABLE>
First quarter revenues for the telecommunications, energy and industrial
business segment were $243 million, down 4% on a constant currency basis from
the year-ago quarter.
Revenues from the sale of telecommunications products, including accessories for
cable and fiber networks, were $95 million, down 6% on a constant currency basis
from the year-ago quarter. A decline in sales of copper system accessories was
partially offset by continuing growth in revenues from fiber-optic products for
broadband networks.
Revenues from sales of access network electronics products were $23 million, up
13% on a constant currency basis over the prior-year quarter. The first quarter
revenue growth, as compared to the prior-year quarter, was impacted by the
company's decision to discontinue sales of access network electronics products
outside of North America. Growth in North America was up 27%, but slower than
expected due to delayed product deployment at certain customers.
Revenues from sales of cable accessories and other insulation products for
energy networks totaled $69 million for the quarter, up 2% on a constant
currency basis from the year-ago quarter.
Revenues from commercial and industrial sales of electric heat-tracing systems,
corrosion prevention products, and leak detection systems were $57 million, down
11% on a constant currency basis from the year-ago quarter. The decline in
revenues was primarily caused by decreased sales of electric heat-tracing
products in Europe and North America, in part due to the lingering effects of
last year's warm winter, a slowdown in maintenance spending within the oil, gas
and chemical processing industries, and slow project business.
The segment's operating income as a percentage of revenues in the first quarter
of 1999 was 20% compared with 25% in the year-ago quarter. The reduction in
operating income as a percentage of sales was primarily caused by a shift in mix
toward products that have lower profit margins and adverse currency exchange
movements.
13
<PAGE> 16
ACQUISITION
Subsequent to quarter end, on October 1, 1998, the company completed the
acquisition of the telecommunications business of Plasticos Mondragon S.A.
(Mondragon) in Spain for a cash purchase price of approximately $40 million. The
Mondragon telecommunications business manufactures and supplies components for
connecting, insulating, and protecting copper and fiber-optic telephone
networks.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The company is in the process of reassessing current business segment reporting
to determine if changes in reporting will be required in adopting this new
standard. The disclosures prescribed by FAS 131 will first be adopted in the
company's 1999 annual report.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133).
The new standard requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives should be reported in the statement
of operations or as a deferred item, depending on the use of the derivatives and
whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge. The company plans to adopt FAS 133 in the first quarter of
fiscal 2000 and has not yet determined the effect, if any, of adopting the new
standard.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the company had $164 million in cash and cash equivalents
and $304 million in unused credit facilities, of which $182 million are
committed facilities. Subsequent to quarter-end, on October 23, 1998, the
company completed an offering of notes in the amount of $400 million. The
combination of cash and cash equivalents, available lines of credit, and future
cash flows from operations is expected to be sufficient to satisfy substantially
all of the company's needs for anticipated capital expenditures, working
capital, dividends and share repurchases, and for potential acquisitions.
The following table presents certain measures of liquidity and capital
resources:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SEPTEMBER 30, June 30,
(dollars in millions) 1998 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Debt net of cash $329 $247
Debt net of cash as a percent of stockholders' equity 41% 29%
Days' sales outstanding 64 62
Days' sales in inventory 102 104
- -------------------------------------------------------------------------------------
</TABLE>
Debt net of cash was $329 million on September 30, 1998 compared to $247 million
on June 30, 1998. The increase was primarily due to an increase in short-term
borrowings to repurchase shares of the company's Common Stock. During the first
quarter of 1999, the company repurchased 4 million shares for $123 million.
The table below summarizes the company's cash flows from operating, investing,
and financing activities:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
(dollars in millions)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operating activities $ 66 $ 35
Investing activities (29) (19)
Financing activities 28 (12)
Effect of exchange rate changes on cash
and cash equivalents 6 (1)
---- ----
- -------------------------------------------------------------------------------------
Increase in cash and cash equivalents $ 71 $ 3
==== ====
- -------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
OPERATING ACTIVITIES
Cash provided by operating activities during the first quarter of 1999 was $66
million compared to $35 million in the prior-year quarter. The increase was
primarily due to the absence of employee bonus payments in the first quarter of
1999, compared to $29 million of such payments in the prior-year quarter. In
addition, the change also reflects lower spending on inventory as compared to
the first quarter of 1998.
INVESTING ACTIVITIES
Net cash used in investing activities was $29 million in the first quarter of
1999 compared to $19 million in the year-ago quarter. Capital expenditures were
$27 million in the first quarter of 1999 compared to $25 million in the first
quarter of 1998. Cash used in investing activities during the first quarter of
1998 was partially offset by $8 million in proceeds from the sale of property.
FINANCING ACTIVITIES
Net cash provided by financing activities during the first quarter of 1999 was
$28 million compared to net cash used of $12 million in the year-ago quarter.
Net proceeds from short-term debt were $150 million compared to $70 million in
the prior-year quarter. The proceeds from short-term debt in the first quarter
of 1999 were primarily used for share repurchases, as the company spent $123
million compared to $94 million in the prior-year quarter.
Subsequent to quarter end, on October 23, 1998, the company issued notes in the
amount of $400 million. The notes mature on October 15, 2008 and bear interest
at a rate of 7.20% per annum. The interest rate on the notes may increase if,
prior to October 23, 2002, either Moody's Investor Services, Inc. or Standard &
Poor's Rating Services reduces the rating of the notes to below investment
grade. The company will use the net proceeds from the sale of the notes
primarily to repay $275 million outstanding under the company's $400 million
revolving credit facility, which remains available to the company until
September 12, 2001. The company intends to use the remaining portion of the net
proceeds from the sale of the notes for general corporate purposes, which may
include financing the company's current stock repurchase program and possible
acquisitions.
YEAR 2000
The company has a comprehensive Year 2000 project designed to identify and
assess the risks associated with its information systems, products, operations
and infrastructure, suppliers, and customers that are not Year 2000 compliant,
and to develop, implement, and test remediation and contingency plans to
mitigate these risks. The project comprises four phases: (1) identification of
risks, (2) assessment of risks, (3) development of remediation and contingency
plans, and (4) implementation and testing.
INFORMATION SYSTEMS. As part of an enterprisewide process reengineering
commenced in 1996, the company is replacing a substantial portion of its
existing information systems with a fully integrated, enterprise information
system, which its vendor (SAP America, Inc.) warrants to be Year 2000 compliant,
and that will support the majority of the company's operations, including major
plants in the United States and Europe. This project was undertaken without
regard to possible Year 2000 issues and has not been accelerated as a result of
Year 2000 issues. Therefore, the company does not expect to record Year
2000-related expenses in connection with the implementation of this system.
However, this system will not be fully implemented in certain of the company's
locations by the year 2000. A review of the company's information systems for
locations where this system will not have been implemented
16
<PAGE> 19
prior to January 1, 2000, has been completed and the company has initiated the
work necessary for the existing systems in these locations to become Year 2000
compliant.
In addition to the system described above, the company uses a different
standardized enterprise information system in its Asian, Latin American, and
certain other locations, and for sales-order and supply-chain activity in
certain plants in North America. The company is currently in the process of
implementing an upgrade for this system, which the vendor (QAD Inc.) warrants to
be Year 2000 compliant, and expects this upgrade to be completed by the fourth
quarter of fiscal 1999. Testing of all information systems will be conducted
over the next year. The company's global electronic data interchange
applications (through which the company communicates business transactions with
certain of its customers and suppliers) will be modified to be Year 2000
compliant by the end of the second quarter of fiscal 1999. The company is also
actively reviewing its hardware and systems infrastructure, such as networks, in
order to support the activities described above.
Based on the current status of the assessments and remediation plans made to
date, the company expects total Year 2000 related costs pertaining to its
information systems to be approximately $4 million.
PRODUCTS. The company has assessed the capabilities of most of its products sold
to customers and is in the process of developing remediation plans for Year 2000
compliance. Based on the assessments made to date, only a small number of the
company's products are affected by Year 2000 issues. The company intends to make
the products that it will continue to sell Year 2000 compliant within the next
six months and to make upgrades available for certain other products.
OPERATIONS AND INFRASTRUCTURE. Machinery and equipment and other items used in
the operations and facilities of the company have been inventoried and are
currently being assessed for Year 2000 compliance. The assessment process is
expected to be completed during the second quarter of fiscal 1999. The
assessment to date has not yielded any major areas of concern.
SUPPLIERS. The company is also in the process of evaluating its supplier base to
determine whether Year 2000 issues affecting suppliers will adversely impact the
company's operations. To mitigate this risk, the company has contacted its
suppliers to assess their Year 2000 readiness and will continue to monitor the
progress of its key suppliers. The company has a limited number of key suppliers
and expects to have the assessment of these key suppliers completed during the
second quarter of fiscal 1999.
CUSTOMERS. The company established a Global Year 2000 Desk at its headquarters
in California to handle all customer requests for compliance, survey, and other
general information related to its Year 2000 Programs.
GENERAL AND RISK FACTORS. The company's Year 2000 project is currently in the
assessment phase and, with respect to certain information systems and products,
in the remediation phase. The company believes that its greatest potential risks
for Year 2000 issues are associated with its information systems and systems
embedded in its operations and infrastructure. The company has not yet
determined the extent of contingency planning that may be required. Based on the
status of the assessments made and remediation plans developed to date, the
company is not in a position to state the total cost of remediation of all Year
2000 issues. The company does not currently expect the total costs to be
material, and it expects to be able to fund the total costs through operating
cash flows. However, the company has not yet completed its assessments,
developed
17
<PAGE> 20
remediation plans for all problems, developed any contingency plans, or
completely implemented or tested any of its remediation plans.
As the Year 2000 project continues, the company may discover additional Year
2000 problems, may not be able to develop, implement, or test remediation or
contingency plans, or may find that the costs of these activities exceed current
expectations and become material. In many cases, the company is relying on
assurances from suppliers that new and upgraded information systems and other
products will be Year 2000 compliant. The company plans to test certain
third-party products, but cannot be sure that its tests will be adequate or
that, if problems are identified, they will be addressed by the supplier in a
timely and satisfactory way.
Because the company uses a variety of information systems and has additional
systems embedded in its operations and infrastructure, the company cannot be
sure that all of its systems will work together in a Year 2000-compliant
fashion. Furthermore, the company cannot be sure that it will not suffer
business interruptions, either because of its own Year 2000 problems or those of
its customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the company. If the company
fails to satisfactorily resolve Year 2000 issues related to its products in a
timely manner, it could be exposed to liability to third parties.
The company is continuing to evaluate Year 2000-related risks and to design and
implement corrective actions. The risks associated with the Year 2000 problem
are pervasive and complex; they can be difficult to identify and to address, and
can result in material adverse consequences to the company. Even if the company,
in a timely manner, completes all of its assessments, identifies and tests
remediation plans believed to be adequate, and develops contingency plans
believed to be adequate, some problems may not be identified or corrected in
time to prevent material adverse consequences to the company.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Statements in this quarterly report on Form 10-Q that are not statements of
historical fact, including statements regarding revenue or earnings trends,
financial goals, litigation matters, acquisitions, restructuring actions, Year
2000 readiness, and currency fluctuations, economic trends, and the business
environment, are forward-looking statements. Forward-looking statements are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from the statements made. These risks and uncertainties
include those described below, as well as risk factors included in the company's
annual report on Form 10-K for the year ended June 30, 1998, on file with the
Securities and Exchange Commission.
FLUCTUATIONS IN FOREIGN EXCHANGE RATES MAY AFFECT THE COMPANY'S RESULTS.
Approximately two-thirds of the company's revenues result from sales outside the
United States, a significant portion of which are denominated in foreign
currencies. In addition, the company has several production facilities located
outside the United States. The company's financial results therefore can be
affected by changes in foreign currency exchange rates. To mitigate these
effects, the company hedges its transaction exposure (i.e., the effect on
earnings and cash flows of changes in foreign exchange rates on receivables and
payables denominated in foreign currencies). The company does not hedge its
foreign currency exposure in a manner that would entirely eliminate the effects
of changes in foreign exchange rates on the company's consolidated net income.
Accordingly, the company's reported revenues and net income have been and in the
future may be affected by changes in foreign currency exchange rates.
18
<PAGE> 21
IMPORTANCE OF INTERNATIONAL MARKETS. International markets provide the company
with significant growth opportunities. However, the following events could
adversely affect the company's financial results:
- periodic economic downturns in different regions of the world,
- changes in trade policies or tariffs,
- political instability, and
- fluctuations in exchange rates.
The deterioration of economic conditions in certain Asian countries has caused
revenues in Asia to fall below the company's expectations. Future results in
Asia will depend on an improvement in these economic conditions. Continuing
economic recession in Asia may lead to the cancellation of orders, pressure to
reduce prices in the region, and difficulty in collecting receivables owed to
the company or other factors that may adversely affect the company.
RESTRUCTURING ACTIONS MAY NOT ACHIEVE INTENDED RESULTS. The company continues to
implement a number of complex restructuring actions. Delay or difficulty in
implementing these actions or market factors could reduce the anticipated
benefit of these actions. The company's revenues, operating results, and
financial condition could be adversely affected by the company's ability to
manage effectively the transition to the new organizational structures, to
continually improve manufacturing processes, and to outsource certain
activities. There can be no assurance that the company will succeed in achieving
its goals or that it will do so without unintended adverse consequences.
PROBLEMS ASSOCIATED WITH YEAR 2000. As described above under Year 2000, the
company is continuing to evaluate Year 2000-related risks and to design and
implement corrective actions. The risks associated with the Year 2000 problem
are pervasive and complex; they can be difficult to identify and to address, and
can result in material adverse consequences to the company. Even if the company,
in a timely manner, completes all of its assessments, identifies and tests
remediation plans believed to be adequate, and develops contingency plans
believed to be adequate, some problems may not be identified or corrected in
time to prevent material adverse consequences to the company.
IMPLEMENTATION OF NEW INFORMATION SYSTEMS COULD CAUSE BUSINESS DISRUPTIONS. In
1996, the company began an enterprisewide process reengineering and
information-system implementation to redesign the company's supply chain and
other key business processes. This system will replace the company's core data
and information systems with a fully integrated, enterprise information system.
It will cover all of the company's major manufacturing sites and sales
locations. The company does not expect to fully implement the system in all
geographical areas and divisions by the year 2000. However, the company does
expect to complete the implementation of this system for a major portion of the
company's business by the end of calendar year 1999. The change in systems and
processes is substantial. During implementation of this new system, the change
could cause delays in:
- order processing,
- shipments of products,
- invoicing, and
- the accumulation and analysis of financial data.
There can be no assurance that these delays, if they occur, will not have an
adverse effect on the company's operating results or financial position.
19
<PAGE> 22
LITIGATION IS UNPREDICTABLE AND COSTLY. From time to time the company or its
subsidiaries, or both, become involved in lawsuits arising from various types of
commercial claims, including:
- product liability,
- unfair competition,
- antitrust,
- breach of contract,
- environmental, and
- intellectual property matters.
Currently, the company's principal product liability litigation involves a
variety of claims arising from the company's heat-tracing and freeze-protection
products. The company also sells other products in markets where product
liability issues could be material (for example, electronic interconnect
products--such as wire, cable, heat-shrinkable tubing, marking systems,
connectors, and other devices--for aerospace and automotive markets).
The company has a substantial investment in intellectual properties (consisting
of patents, trademarks, copyrights, and trade secrets). The company relies
significantly on the protection these intellectual property rights provide.
Accordingly, the company protects these rights and from time to time becomes
involved in issues of infringement or theft by third parties. The third parties
may assert related counterclaims against the company, including unfair
competition, antitrust or infringement claims. The company has been involved, as
both a defendant and a plaintiff, in intellectual property lawsuits and could
become involved in others in the future.
Litigation tends to be unpredictable and costly. Events outside the company's
control may affect the results of litigation. There is no assurance that
litigation will not have a material adverse effect on the company's future
financial position or results of operations.
NEW PRODUCTS AND ACQUISITIONS MAY NOT PRODUCE ANTICIPATED BENEFITS. The company
has historically achieved part of its revenue growth by developing or acquiring
new and innovative materials science technologies and products. The company
remains committed to internal research and development efforts, and will
continue to pursue the acquisition of new or compatible technologies and
businesses as an important part of the company's growth strategy. The company
also has entered into, and in the future may enter into, arrangements with other
companies to expand product offerings and to enhance its own manufacturing
capabilities. These arrangements may include minority equity investments in the
other companies. The company cannot predict success in its research and
development efforts, acquisitions of new technologies, products, or businesses,
or arrangements with third parties. Accordingly, there can be no assurance that:
- the company will successfully realize its objectives;
- the realization of these goals will not take longer or cost more
than anticipated; or
- there will not be unintended adverse financial or other
consequences from these actions.
OTHER MARKET FORCES CAN ADVERSELY AFFECT THE DEMAND FOR THE COMPANY'S PRODUCTS.
Changing market circumstances, such as fluctuations in demand and the
seasonality of certain product lines, may affect the company's operating
results. The company also sells certain of its products to customers in
industries and countries that are experiencing periods of rapid change. For
example:
20
<PAGE> 23
- the telecommunications industry is going through a period of
rapid technological change, and customers in this industry may
delay purchases of the company's products until they resolve
technology issues more clearly;
- foreign countries are privatizing many electric power utilities,
which may affect the purchasing policies of these utility
companies.
These types of market forces may adversely affect the company's operations and
financial performance.
CUSTOMER CONCENTRATION FOR ACCESS NETWORK ELECTRONICS PRODUCTS. The company no
longer pursues sales of its access network electronics products outside of North
America. Because these products are sold to operators of large telecommunication
systems, the customers and potential customers for these products are now
limited to the relatively few operators of such systems in North America. A
decision by one of these customers not to purchase the company's access network
electronics products, or to delay the purchase of these products, could have a
material impact on the company's sales of these products or the growth rate of
such sales.
GEOGRAPHIC AND PRODUCT MIX CHANGES MAY AFFECT THE COMPANY'S RESULTS OF
OPERATIONS. The company's results of operations vary by product line and by
geographic region. Changes in the company's geographic or product mix of sales
may therefore affect the company's gross profits.
THE COMPANY'S ANNUAL EFFECTIVE TAX RATE IS DIFFICULT TO ESTIMATE. The company
determines its provision for income taxes based on the company's level of
profitability in each jurisdiction in which it is subject to tax. It is
difficult for the company to predict the geographic distribution and level of
profitability in each jurisdiction. The company's geographic distribution and
level of profitability may therefore vary from forecasts. This type of variance
could cause the company's estimated annual effective tax rate in interim
quarters to vary from the actual annual effective tax rate for the year.
GENERAL. Because of the foregoing factors, in addition to other factors that
affect the company's operating results and financial position, investors should:
- not consider past financial performance or management's
expectations a reliable indicator of future performance, and
- not use historical trends to anticipate results or trends in
future periods.
In that regard, results of operations and financial condition could be adversely
affected by a number of factors in addition to those discussed above, including
overall economic conditions and lower than expected demand.
Further, the company's stock price is subject to volatility. Any of the factors
discussed above could have an adverse effect on the company's stock price. In
addition, the company's stock price could be adversely affected if the company's
revenues or earnings in any quarter fail to meet the investment community's
expectations, or if there are broader, negative market trends.
NO DUTY TO UPDATE. The company does not undertake an obligation to update its
forward-looking statements or risk factors to reflect future events or
circumstances.
21
<PAGE> 24
RAYCHEM CORPORATION
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
EXHIBIT NO. DESCRIPTION
10(y) Agreement and release between the company
and Arati Prabhakar
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The company filed one Current Report on Form 8-K during the
quarter ended September 30, 1998. The report was filed on August
19, 1998, and reported on the outcome on August 10, 1998, of the
trial of the action entitled Bourns, Inc. v. Raychem
Corporation.
22
<PAGE> 25
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: November 6, 1998
/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
Controller
(Principal Accounting Officer)
23
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
- --------- -----------
<S> <C>
10(y) Agreement and release between the company and Arati Prabhakar
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(y)
[RAYCHEM CORPORATION LETTERHEAD]
July 10, 1998
Arati Prabhakar
Re: Agreement and Release
Dear Arati:
This Agreement and Release (the "Agreement") is to confirm our
agreement with respect to the termination of your employment with Raychem
Corporation ("Raychem"). Please indicate your agreement by signing, dating, and
returning this Agreement to me no later than August 1, 1998.
We have agreed that your employment with Raychem will end as of the end
of the business day on September 1, 1998 or, if you elect to terminate your
employment voluntarily before such date, such earlier date (the "Termination
Date"). Thereafter, you will no longer be an employee of Raychem. In your final
paycheck on the Termination Date, you will be paid all earned and unpaid salary
together with any accrued and unused vacation pay, less deductions authorized or
required by law. Raychem will also pay to you, by September 1, 1998, the
guaranteed bonus for the period from July 1, 1997 to June 30, 1998, as outlined
in Raychem's offer letter to you dated March 11, 1997. In addition, to induce
Raychem to enter into this Agreement, you agree to enter into the Professional
Services Agreement attached as Exhibit 1. You agree that the consideration named
in this Agreement is sufficient to compensate you for the release given herein,
for any consulting services you may provide to Raychem pursuant to the
Professional Services Agreement, and for agreeing to all other terms set forth
in this Agreement. You also agree that the severance amounts set forth herein
are in lieu of any severance payments to which you would otherwise be entitled
under Raychem's Human Resources policies.
Commencing on September 1, 1998, you will also receive a severance
amount equal to (i) one (1) year of severance payments based on your current
salary of Two Hundred and Fifty Thousand Dollars ($250,000.00) regardless of
whether you obtain other employment during this period (the "Full Salary
Period"), and (ii) if you are not working at a new job or for yourself
(self-employed) during the one (1) year period commencing on September 1,
CONFIDENTIAL
<PAGE> 2
Arati Prabhakar
July 10, 1998
Page 2
1999, upon your written request as set forth below, up to an additional one (1)
year of such severance payments based on your current salary Two Hundred and
Fifty Thousand Dollars ($250,000.00) or, if you are working at a new job or for
yourself (self-employed) during the year commencing on September 1, 1999, and
your annual cash compensation and/or salary (including bonuses) from this
employment or self-employment is less than Two Hundred and Fifty Thousand
Dollars ($250,000.00), the difference between those two (2) figures (the
"Differential Salary Period"). Your written request to receive all or part of
the second year of such severance payments must be received by Raychem at least
seven (7) days prior to the date you would be eligible for such payments. Your
written request must include confirmation that you are not working or, if you
are, what your salary or compensation and expected bonus are. You also agree to
subsequently notify Raychem in writing within five (5) days after any changes in
such information (including changes in employment, salary, compensation and
bonus) and to certify to Raychem on a quarterly basis, and otherwise, as
requested by Raychem, the amount of compensation, salary and bonus from another
employer and/or self-employment you are receiving during the Differential Salary
Period. Payments pursuant to the Full Salary and the Differential Salary Period
are not eligible for deferral under the Raychem Executive Deferred Compensation
Plan. This severance benefit, minus deductions authorized or required by law,
will be paid in bi-weekly installments. All required notification must be sent
to Raychem's Corporate Legal Department, Attention General Counsel.
Information on health coverage and COBRA conversion rights will be
mailed to your home address. Your present Raychem medical benefits (for you and
your eligible covered dependents) will remain in effect, at standard staff
rates, until the earliest to occur of (i) one (1) year after the Termination
Date, or (ii) you secure other employment and you therefore become eligible for
medical insurance, or, you are eligible for medical insurance through any other
means, or (iii) your death, or (iv) you reach age sixty-five (65). Your present
Raychem dental benefits (for you and your eligible covered dependents) will
remain in effect, at standard staff rates, until the earliest to occur of (i)
one (1) year after the Termination Date, or (ii) you secure other employment and
you therefore become eligible for dental insurance, or, you are eligible for
dental insurance through any other means, or (iii) your death, or (iv) you reach
age sixty-five (65). You agree to notify Raychem in writing within five (5) days
after securing other employment or obtaining other medical or dental benefits.
For purposes of COBRA, the "qualifying event" shall be deemed to be the
Termination Date. COBRA coverage, to the extent required by law, will run
concurrently with the Full Salary Period and with the Differential Salary Period
if applicable, up to the end of the eighteen (18) month COBRA period. Your
spouse and/or dependent children will be entitled to COBRA benefits to the
extent provided by statute should your death occur during the period of your
COBRA coverage. The standard Raychem-paid life insurance benefits will remain in
effect on your behalf for one (1) year from the Termination Date.
CONFIDENTIAL
<PAGE> 3
Arati Prabhakar
July 10, 1998
Page 3
If you are terminating your employment with Raychem before age
fifty-five (55) and are vested in the Raychem Pension Plan, you will be offered
the option of receiving your accrued benefit as an annuity or a lump sum in the
first month of the second calendar quarter following your termination. If your
pension benefit amount as a lump sum is less than Five Thousand Dollars ($5,000)
then it will be distributed to you without the option to decline. At any time
after reaching retirement age (age 65 or older, or age 55 with ten (10) or more
years of service), you are eligible to receive your pension benefit as a normal
or early retirement benefit; at your option, the payment can be in the form of
an annuity or a lump sum.
Raychem will furnish to you through one (1) year from the Termination
Date, according to then current Raychem practices and policies:
- Financial planning services.
- The career transition services of either de Recat &
Associates, or Peller Marion & Associates, professional
outplacement firms, to support and enhance your job search
efforts.
Your outstanding stock options to purchase Raychem stock and restricted
stock, under the 1990 Incentive Plan (the "1990 Plan"), to the extent they are
unvested, will continue to vest through September 1, 1999. Any incentive stock
options shall convert to non-qualified stock options three (3) months following
the Termination Date. In exchange for the benefits provided to you under this
Agreement, you agree that the termination date for the 1990 Plan relating to all
outstanding stock options and restricted stock shall be September 1, 1999, and
any unvested options or restricted stock under the 1990 Plan will lapse as of
September 1, 1999. The post-termination exercise period of your options under
the 1990 Plan will begin on September 1, 1999, and your vested options under the
1990 Plan will expire three (3) months following September 1, 1999. Any
outstanding unvested options under stock option or incentive plans other than
the 1990 Plan will expire on your Termination Date (as defined in paragraph 2 of
this Agreement). All outstanding vested options under such other plans will
expire per the terms of such other plans. However, the provisions of this
Agreement shall not extend the exercisability of options to purchase Raychem
stock beyond the expiration date(s) stated in the relevant option agreement(s).
You agree to execute amendments to the Relocation Loan Agreement and
Promissory Note and any other documents necessary to amend the Deed of Trust.
Subject to the terms and conditions of the Loan Agreement and Promissory Note ,
as amended, you agree that the scheduled due date for repayment of the loan of
Four
CONFIDENTIAL
<PAGE> 4
Arati Prabhakar
July 10, 1998
Page 4
Hundred Thousand Dollars ($400,000), provided to you in conjunction with
the purchase of your house, will be August 30, 1999, and that prior to August
30, 1999, the loan shall not bear interest. You agree that Raychem-provided
mortgage interest/property tax differential (MID) will no longer be paid to you
by Raychem. Raychem will not require reimbursement of any portion of the MID
payment made to you in January, 1998 for the 1998 calendar year, despite your
September 1, 1998 termination date, but no further MID payments will be made to
you as of the Termination Date.
You will continue to be considered a designated insider for purposes of
trading in Raychem stock for the entire Full Salary Period, and, if receiving
severance payments, during the Differential Salary Period.
Any Raychem employee benefits not otherwise provided for in this
Agreement will no longer be available to you as of the Termination Date.
You agree that you will return all Raychem property to Richard Kashnow
or designee by the Termination Date. Raychem property includes but is not
limited to equipment, all samples, cases, brochures, papers, notes, and other
documents, and all copies thereof, relating to Raychem, its business, and its
customers that have been obtained by you during your employment, together with
other Raychem or Raychem-customer or supplier property in your possession.
You acknowledge your obligations under the Raychem Employee
Intellectual Property Agreement which still remains in effect. You also
acknowledge that a breach of that agreement and the disclosure of Raychem
proprietary information would cause irreparable harm to Raychem and entitle
Raychem to obtain injunctive relief without further proof of damage. We have
enclosed a copy of that agreement as Exhibit 2 for your reference.
As further consideration for the severance benefits set forth in this
Agreement, you agree that you will not, during the term of the Full Salary
Period and Differential Salary Period, if applicable, directly or indirectly,
anywhere in the United States, including any county of the state of California,
or in any foreign country in which, during such period, business is conducted by
Raychem or substantial customers of Raychem are located, enter into or engage in
any activity, as a sole proprietor, shareholder, employee, director, partner,
consultant, or otherwise, or in any way be concerned with the design,
development, use, manufacture and/or sale of any technology, product, product
line or component which is directly competitive with any technology based on
Raychem proprietary information, or any technology, product, product line or
component, which is in development, manufactured and/or
CONFIDENTIAL
<PAGE> 5
Arati Prabhakar
July 10, 1998
Page 5
sold by Raychem alone or jointly with third parties as of the Termination Date.
You also agree that during the term of the Full Salary Period and Differential
Salary Period, if applicable, you will not directly or indirectly solicit or
induce any other employee or consultant with Raychem to terminate their
employment or relationship with Raychem. Raychem and you acknowledge that the
provisions of this paragraph may or may not be enforceable under the laws of
certain states and/or certain countries. Raychem and you intend that this
paragraph be enforced, to the extent enforceable, in all jurisdictions worldwide
in which Raychem currently does business, and that lack of enforceability in any
one jurisdiction shall not impair enforcement in any other jurisdiction. Breach
of this provision shall entitle Raychem to terminate severance payments under
this Agreement in addition to any other legal remedies to which it may be
entitled.
Raychem Corporation is prepared to offer you the consideration set
forth herein, which is above and beyond the wages and benefits to which you
would otherwise be entitled, in exchange for your agreement to release all
claims, known or unknown, against Raychem Corporation, its parent, subsidiaries
and affiliates, and its past, present, and future officers, directors,
shareholders, agents, employees, attorneys, insurers, successors, and assigns
(collectively referred to in this Agreement as "Raychem") as of the date you
signed this Agreement. You are not eligible to receive the consideration
outlined herein unless you elect to sign this Agreement.
In consideration for the severance benefits set forth in this
Agreement, you, on behalf of yourself, your heirs, spouse, and assigns, hereby
completely release and forever discharge Raychem from any and all claims, of any
and every kind, nature, and character, known or unknown, foreseen or unforeseen,
based on any act or omission occurring prior to the Termination Date, including
but not limited to any claims arising out of your offer of employment, your
employment, any employment agreement, or termination of your employment with
Raychem or acts leading up to such termination, and any and all claims under
federal and state discrimination laws. The only exceptions are any claims that
you may have for unemployment compensation, any rights that you may have under
any Raychem Pension Plan, any Workers' Compensation benefits to which you may be
found entitled, any claims for amounts deferred pursuant to the Raychem
Executive Deferred Compensation Plan, any claims relating to the Raychem
TaxSaver Plus Plan, and any claims for indemnification, including any related
insurance coverage, to which you may be entitled in connection with your service
as an officer of Raychem (collectively referred to in this Agreement as "Exempt
Claims"). This Release shall not apply to your right to be indemnified to the
fullest extent allowed by Raychem's Articles and Bylaws, any indemnification
agreement between you and Raychem, or under applicable law with respect to any
claims, actions or proceedings based on or arising out of acts
CONFIDENTIAL
<PAGE> 6
Arati Prabhakar
July 10, 1998
Page 6
performed within the course and scope of your employment with Raychem.
This Agreement fully and finally extinguishes and discharges all claims
(except for Exempt Claims), whether known or not and you hereby agree to release
not only claims known but those unknown to you which arose out of your
employment with Raychem or and/or its termination. You therefore agree to waive
the provisions of California Civil Code Section 1532 which states:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
You fully understand that, if, in fact, any matter covered by this Agreement is
found hereafter to be other than or different from the fact now believed by you
to be true, you expressly accept and assume that this Agreement will be and
remain effective, notwithstanding such difference in the facts.
You agree neither to file nor to encourage or knowingly permit another
to file on your behalf any claim, charge, action, or complaint concerning any
matter referred to in this Agreement. If you have previously filed any such
claims (other than Workers' Compensation claims), you agree to take all
reasonable steps to cause them to be withdrawn without delay.
This Agreement constitutes the entire agreement between yourself and
Raychem with respect to any matters referred to in this Agreement and supersedes
any and all of the other oral or written agreements between yourself and
Raychem, with the exception of the Professional Services Agreement attached
hereto as Exhibit 1, the Raychem Employee Intellectual Property Agreement
attached hereto as Exhibit 2, and the Relocation Loan Agreement, as amended, and
the Promissory Note, as amended, and attached hereto as Exhibit 3, which remain
in full force and effect. No other consideration, agreements, representations,
oral statements, understandings, policies or course of conduct that are not
expressly set forth in this Agreement should be implied or are binding. You are
not relying upon any other agreement, representation, statement, omission,
understanding, policy or course of conduct that is not expressly set forth in
this Agreement. You understand and agree that this Agreement will not be deemed
or construed at any time or for any purposes as an admission of any liability or
wrongdoing by either yourself or Raychem. You also agree that if any provision
of this Agreement is deemed invalid, the remaining provisions will still be
given full force and effect. The terms and conditions of this Agreement will be
governed by the laws of California applicable to contracts made and performed
within California.
CONFIDENTIAL
<PAGE> 7
Arati Prabhakar
July 10, 1998
Page 7
In the event of any conflict between this Agreement and the
Professional Services Agreement attached hereto as Exhibit 1, this Agreement
shall govern and control.
Prior to execution of this Agreement, you should apprise yourself of
sufficient relevant information to intelligently exercise your own judgment. You
are advised to consult an attorney.
In order to obtain the consideration described in this Agreement, this
Agreement must be signed by you and returned to me by August 1, 1998.
Finally, you agree that you will not disclose to anyone (except for
your spouse, accountant, financial planner and/or lawyer) or allow anyone else
to disclose the existence of, reason for, or contents of this Agreement without
Raychem's prior written consent, unless required to do so by law.
Sincerely,
/s/ RICHARD A. KASHNOW
Richard A. Kashnow
Chairman of the Board, President and
Chief Executive Officer
================================================================================
EMPLOYEE'S ACCEPTANCE OF AGREEMENT, RELEASE AND BENEFITS
I HAVE CAREFULLY READ, FULLY UNDERSTAND, AND VOLUNTARILY AGREE TO ALL THE TERMS
OF THIS AGREEMENT AND RELEASE IN EXCHANGE FOR THE ADDITIONAL BENEFITS TO WHICH I
WOULD NOT OTHERWISE BE ENTITLED. THIS RELEASE IS EXECUTED VOLUNTARILY AND WITH
FULL KNOWLEDGE OF ITS SIGNIFICANCE.
JULY 30, 1998 /S/ ARATI PRABHAKAR
- ---------------------------------- ------------------------------------
Date
CONFIDENTIAL
<PAGE> 8
[RAYCHEM LOGO]
EXHIBIT 1 TO THE AGREEMENT AND RELEASE BETWEEN THE COMPANY
AND ARATI PRABHAKAR
PROFESSIONAL SERVICES AGREEMENT - ARATI PRABHAKAR
THIS PROFESSIONAL SERVICES AGREEMENT (hereinafter "Professional
Services Agreement") is effective as of September 2, 1998, (hereinafter
"Effective Date"), by and between RAYCHEM CORPORATION, a corporation organized
and existing under and by virtue of the laws of the State of Delaware, having a
place of business at 300 Constitution Drive, Menlo Park, California 94025-1164
(hereinafter "RAYCHEM"), and Arati Prabhakar (hereinafter "CONSULTANT").
NOW, THEREFORE, for and in consideration of the mutual covenants and
obligations assumed by the parties hereto, it is agreed as follows:
1. CONSULTANT, pursuant to the provisions of this Professional Services
Agreement, is retained to perform services as reasonably requested from
time to time by RAYCHEM, at such place or places and at such times as
shall be mutually agreeable. The services shall be carried out at the
direction of the Chief Executive Officer or designee.
2. Full and complete compensation for CONSULTANT's services and also for
the discharge of CONSULTANT's obligations hereunder shall be
CONSULTANT's consideration named in the Agreement and Release between
the parties dated July 10, 1998 (hereinafter "Agreement and Release"),
to which this Professional Services Agreement is attached as Exhibit 1.
A. RAYCHEM shall reimburse CONSULTANT for the expense of round
trip tourist class transportation, hotels and meals,
reasonably incurred by CONSULTANT in connection with any trip
made by CONSULTANT at the request of RAYCHEM, that have been
preapproved by the Chief Executive Officer or designee.
RAYCHEM shall reimburse CONSULTANT for any other reasonable
expenses actually incurred which are incidental to the
services performed hereunder. Expenses exceeding One Hundred
Dollars ($100.00) must be approved in advance by the Chief
Executive Officer or designee.
B. Invoices for expenses shall be submitted to the Chief
Executive Officer or designee within thirty (30) days. Payment
of CONSULTANT's invoice shall be made by RAYCHEM within thirty
(30) days of receipt thereof.
CONFIDENTIAL
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 2
3. CONSULTANT's relationship to RAYCHEM shall be that of an independent
contractor and nothing in this Professional Services Agreement shall be
construed to create an employer-employee relationship. Since CONSULTANT
will not be an employee of RAYCHEM, it is understood that CONSULTANT
will not be entitled to any benefits under RAYCHEM's retirement, group
insurance or medical plans or any other employee benefits except as
expressly provided in the Agreement and Release. In the performance of
all services hereunder, CONSULTANT shall comply with all applicable
laws and regulations.
4. CONSULTANT recognizes the vital importance to RAYCHEM of the
confidential nature of all proprietary information of Raychem
Corporation, its parent, subsidiaries and/or affiliates (hereinafter
"RAYCHEM GROUP"). In order to prevent what CONSULTANT agrees would
otherwise result in the inevitable disclosure of Proprietary
Information which would thereby cause irreparable harm to the RAYCHEM
GROUP, CONSULTANT agrees that CONSULTANT will not, without the prior
written consent of RAYCHEM, during the term of this Professional
Services Agreement including any renewal thereof, directly or
indirectly, anywhere in the State of California, or in any other State
of the United States or in any other country in which during such
period business is conducted by the RAYCHEM GROUP or substantial
customers of the RAYCHEM GROUP, enter into or engage in any activity as
a sole proprietor, shareholder, employee, director, partner, consultant
or otherwise which is in any way concerned with the design,
development, use, manufacture and/or sale of any technology, product,
product line or component in development, manufactured or sold by the
RAYCHEM GROUP. Further, CONSULTANT shall not directly or indirectly
solicit or induce any employee of the RAYCHEM GROUP to leave their
employment with the RAYCHEM GROUP. CONSULTANT further agrees that
CONSULTANT shall not, either during the term of this Professional
Services Agreement and any extension thereof, serve as an expert
witness for, or advisor to any third party in connection with any
litigation involving RAYCHEM without the express prior written consent
of RAYCHEM. This provision is in addition to any requirement of the
Raychem Employee Intellectual Property Agreement between RAYCHEM and
CONSULTANT and of any applicable policies and laws regarding trade
secrets.
5. RAYCHEM and CONSULTANT acknowledge that the provisions of Paragraph 4
may or may not be enforceable under the laws of certain states
CONFIDENTIAL
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 3
and/or certain countries. RAYCHEM and CONSULTANT intend that Paragraph
4 be enforced, to the extent enforceable, in all jurisdictions
worldwide in which the RAYCHEM GROUP currently does business, and that
lack of enforceability in any one jurisdiction shall not impair
enforcement in any other jurisdiction.
6. CONSULTANT understands that RAYCHEM does not desire to acquire from
CONSULTANT any secret or confidential know-how or information of
CONSULTANT or which CONSULTANT has acquired or shall hereafter acquire
from any third party. Accordingly, CONSULTANT represents and warrants
that CONSULTANT is free to divulge to RAYCHEM, without any obligation
to, or violation of any right of CONSULTANT or others, any and all
information, practices or techniques which CONSULTANT will describe,
demonstrate, divulge, or any other manner make known to RAYCHEM during
CONSULTANT's performance of services hereunder. CONSULTANT hereby
undertakes to exonerate, indemnify and hold harmless RAYCHEM from and
against any and all liability, loss, cost, expense, damage, claim or
demand for actual or alleged violation of the rights of CONSULTANT or
of the rights divulged to RAYCHEM in any trade secret, know-how or
information CONSULTANT has divulged to RAYCHEM in any trade secret,
know-how or other confidential information by reason of RAYCHEM's
receipt or use of the services or information described above, or
otherwise in connection therewith.
7. As used in this Professional Services Agreement, the term "Invention"
shall mean any and all discoveries, improvements, trade secrets,
processes, techniques, copyrightable material, computer programs,
formula, design and know-how, of any kind or nature, whether or not
patentable, and whether or not related to RAYCHEM's business, and which
are invented, conceived, discovered, developed or reduced to practice
by CONSULTANT and which in any way result from or arise out of
CONSULTANT's services hereunder and/or CONSULTANT's exposure to
RAYCHEM's proprietary information pursuant to Paragraph 7 of this
Professional Services Agreement.
CONSULTANT agrees that CONSULTANT will promptly and fully disclose to
RAYCHEM all Inventions. CONSULTANT also agrees to and hereby does
assign to RAYCHEM all right, title and interest in and to all
Inventions and CONSULTANT represents and warrants that CONSULTANT has
no contractual or other obligations to any third party which preclude
or in any way encumber CONSULTANT's right to assign to RAYCHEM the full
and
CONFIDENTIAL
<PAGE> 11
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 4
exclusive right, title and interest in and to any and all Inventions.
It is further understood and agreed that all Inventions will be and
remain the property of RAYCHEM whether or not disclosed, assigned or
patented.
CONSULTANT shall, if RAYCHEM shall so request, assist RAYCHEM in every
proper way to obtain for the sole benefit of RAYCHEM, patents on
Inventions in any and all countries. The decision to file (or not to
file) and/or continue to prosecute a patent application or applications
on any Inventions shall be in RAYCHEM's sole discretion.
8. The parties hereto acknowledge that during the course of CONSULTANT's
service to RAYCHEM pursuant to this Professional Services Agreement it
may be necessary or desirable for RAYCHEM to disclose to CONSULTANT
significant RAYCHEM proprietary information. Any information imparted
to RAYCHEM in confidence by a third party shall be deemed for purposes
of this Professional Services Agreement to constitute RAYCHEM
proprietary information. CONSULTANT fully understands that the
maintenance of RAYCHEM's proprietary information in strict confidence
and the confinement of its use to RAYCHEM is of vital importance to
RAYCHEM. CONSULTANT therefore agrees that all information and knowledge
divulged to CONSULTANT by RAYCHEM or which CONSULTANT acquires in
connection with or as a result of CONSULTANT's services hereunder shall
be regarded and treated by CONSULTANT as confidential. Without limiting
the generality of the foregoing, CONSULTANT recognizes that, unless and
until published, all features of the materials, apparatus, process and
application methods heretofore or hereafter used or developed by
RAYCHEM shall be regarded and treated by CONSULTANT as a trade secret
of RAYCHEM. CONSULTANT shall not use, nor shall CONSULTANT disclose,
any such information or knowledge to any person either during or after
the term of this Professional Services Agreement, except only to those
employees of RAYCHEM as may be necessary in the regular course of
CONSULTANT's duties hereunder, or except as otherwise authorized in
writing by RAYCHEM, unless such information or knowledge are, or
become, publicly known through no act or omission of CONSULTANT.
9. CONSULTANT recognizes that all records and copies of records, drawings,
models, apparatus, samples and the like which in any way relate to
RAYCHEM's technology, operations, investigations and business, and
which are made or received by CONSULTANT during the term of, or
otherwise
CONFIDENTIAL
<PAGE> 12
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 5
pursuant to, this Professional Services Agreement are and shall remain
the exclusive property of RAYCHEM. CONSULTANT shall keep such records
and/or copies thereof at all times in CONSULTANT's custody and subject
to CONSULTANT's control, and shall surrender the same to RAYCHEM
immediately upon the request of RAYCHEM.
10. CONSULTANT hereby undertakes to exonerate RAYCHEM, its officers,
directors, shareholders, agents, employees, attorneys, insurers,
successors and/or assigns from and against any and all liability, loss,
cost, damage, claims, demands for expenses of every kind on account of
any injuries (including death) to CONSULTANT or loss of or damage to
CONSULTANT's property arising out of or resulting in any manner from or
occurring in connection with CONSULTANT's performances of services
hereunder, except only if caused solely by the negligence of RAYCHEM or
its servants or employees.
11. CONSULTANT shall not assign this Professional Services Agreement or any
part thereof without RAYCHEM's prior written consent, and any such
purported assignment shall be void. This Professional Services
Agreement shall inure to the benefit of RAYCHEM's parent, subsidiaries,
successors and/or assigns.
12. This Professional Services Agreement shall be effective as of the date
first written above and shall terminate on September 1, 1999. This
Professional Services Agreement will be subject to a one (1) year
renewal at RAYCHEM's option, which renewal shall be automatic if, and
extend for the period that, CONSULTANT continues to receive
compensation from RAYCHEM pursuant to the Agreement and Release dated
July 10, 1998. Any act or omission by CONSULTANT constituting a
material breach of this Professional Services Agreement shall subject
this Professional Services Agreement to termination immediately by
RAYCHEM for good cause and shall automatically suspend all RAYCHEM
obligations to perform hereunder so long as CONSULTANT is in breach
hereof. This Professional Services Agreement shall terminate
automatically in the event of CONSULTANT's death or inability for any
reason to perform the services contemplated herein. On termination of
this Professional Services Agreement, for any reason, RAYCHEM's
obligation to pay any compensation, except for services or expenses
already properly accrued or incurred, shall forthwith cease and
terminate. Termination of this Professional Services Agreement for any
reason shall not affect
CONFIDENTIAL
<PAGE> 13
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 6
CONSULTANT's obligations under Paragraphs 4 through 10, inclusive,
hereof.
13. CONSULTANT represents and warrants that CONSULTANT has or will promptly
obtain an agreement containing provisions equivalent in all material
respects to the provisions contained in Paragraphs 4 through 10,
inclusive, hereof with all agents, employees or associates of
CONSULTANT who will be in any way involved either with RAYCHEM
proprietary information or otherwise in connection with the services
being performed hereunder. The obligations undertaken by CONSULTANT
pursuant to Paragraphs 4 through 10, inclusive, hereof shall extend to
the RAYCHEM GROUP and to its predecessors and successors in interest.
14. Any notices or communications hereunder shall be effective only if in
writing, addressed as follows:
If to RAYCHEM: RAYCHEM CORPORATION
Attn: Richard A. Kashnow
300 Constitution Drive
Mail Stop 120/7815
Menlo Park, California 94025-1164
with a copy to: RAYCHEM CORPORATION
Attn: Legal Department
Mail Stop 120/8502
300 Constitution Drive
Menlo Park, California 94025-1164
If to CONSULTANT: Arati Prabhakar
15. This Professional Services Agreement has been negotiated, executed and
delivered in the State of California. The parties hereto agree that all
questions pertaining to the validity and interpretation of this
Professional Services Agreement shall be determined in accordance with
the laws of the State of California applicable to contracts made within
the State of California.
16. This Professional Services Agreement, together with the Agreement and
Release dated July 10, 1998, and the Raychem Employee Intellectual
Property Agreement dated May 12, 1997, constitutes the entire agreement
between the parties and supersedes any and all of the other oral or
written agreements
CONFIDENTIAL
<PAGE> 14
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 7
between CONSULTANT and RAYCHEM. In the event of any conflict between
this Professional Services Agreement and the Agreement and Release, the
Agreement and Release will govern. Any changes in or modifications to
this Professional Services Agreement shall be effective only if in
writing and signed by the parties hereto. CONSULTANT represents that in
entering into this Professional Services Agreement, CONSULTANT has not
relied on any previous oral or implied representations, inducements or
understandings of any kind or nature whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Professional
Services Agreement to be effective as of the Effective Date.
RAYCHEM CORPORATION
by: /s/ RICHARD A. KASHNOW
------------------------------------
Richard A. Kashnow
Title: Chief Executive Officer
Date: JULY 10, 1998
------------------------------------
CONSULTANT
by: /s/ ARATI PRABHAKAR
------------------------------------
(Arati Prabhakar)
Social Security No.:
------------------------------------
Date: JULY 30, 1998
------------------------------------
Department/Account To Charge:
------------------------------------
CONFIDENTIAL
<PAGE> 15
[RAYCHEM LOGO]
EXHIBIT 3 TO THE AGREEMENT AND RELEASE BETWEEN THE COMPANY
AND ARATI PRABHAKAR
AMENDMENT TO
RELOCATION LOAN AGREEMENT
(SECURED BY DEED OF TRUST)
AND TO PROMISSORY NOTE
(SECURED BY DEED OF TRUST)
AMENDMENT TO RELOCATION LOAN AGREEMENT (SECURED BY DEED OF TRUST) AND
TO PROMISSORY NOTE (SECURED BY DEED OF TRUST) ("Amendment"), dated as of August
1, 1998, between Raychem Corporation, a Delaware corporation ("Raychem"), and
Arati Prabhakar ("Employee") and Patrick H. Windham (together with Employee, the
"Borrower").
R E C I T A L S
WHEREAS, Raychem and Borrower have previously entered into a Relocation
Loan Agreement (secured by Deed of Trust) dated as April 14, 1997 ("Loan
Agreement") pursuant to which Raychem provided Borrower a relocation loan
subject to the terms and conditions set forth in the Loan Agreement; and
WHEREAS, Borrower has previously entered into a Promissory Note
(secured by Deed of Trust) dated as April 14, 1997 ("Promissory Note") pursuant
to which Borrower promised to pay to Raychem the principal sum of Four Hundred
Thousand Dollars (US $400,000) (the "Loan") together with interest subject to
the terms and conditions set forth in the Promissory Note; and
WHEREAS, based on Employee's resignation effective September 1, 1998,
Raychem and Borrower now desire to modify the Loan Agreement and Promissory Note
to provide for, among other things, the repayment of the Loan and payment of
interest at a date later than that specified in the Loan Agreement and
Promissory Note.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties agree as follows:
SECTION 1. Amendments to Loan Agreement. The Loan Agreement is,
effective as of the date hereof, hereby amended as follows:
(a) The Loan Agreement is hereby amended by
adding a new
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 2
Section 1(c) to read in full as follows:
"1(c) The Second Loan will mature and
become entirely due and payable, and the Borrower agrees to pay the same, on
August 30, 1999 (the "Scheduled Due Date") or on such earlier date upon which
the Second Loan may become due under the terms and conditions of this Agreement
or the other documents evidencing or securing the Second Loan."
(b) The Loan Agreement is further hereby amended by
adding a new Section 1 (g) to read in full as follows:
"1(g) Notwithstanding the Scheduled Due
Date set forth in Section 1(c) above, if Employee's employment with Raychem is
terminated for any reason (including voluntary or involuntary termination, with
or without cause, disability, retirement, or death), the Second Loan shall
become entirely due and payable, and Borrower agrees to pay the same, on the
Scheduled Due Date."
(c) The Loan Agreement is further hereby amended by
adding a new Section 3(b) to read in full as follows:
"3(b) Effective as of the date of (i) any
failure of Borrower continuously to occupy the New Residence as Borrower's
principal residence, whether or not subsequently cured, (ii) any breach by
Borrower of any negative covenants set forth in Section 6 below, whether or not
subsequently cured, (iii) any breach by Borrower of the terms of the "due on
sale" clause referred to and set forth in Section 4(b) of the Note, which shall
include, without limitation, any conveyance by Employee of Employee's fee
interest in the New Residence to Employee's spouse or former spouse (whether or
not such spouse be a Borrower hereunder), or (iv) any breach by or default of
Borrower of or under any of the other terms, covenants, conditions,
representations or warranties set forth in any of the Loan Documents (as to
which interest shall cease to accrue upon the cure of such breach or default),
then the Second Loan shall bear interest
CONFIDENTIAL
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 3
at Nine Percent (9%) per annum, and thereafter all accrued interest shall be
payable in full on or before the first calendar day of each month."
(d) The Loan Agreement is further hereby amended by
deleting Section 7(e). SECTION 2. Amendments to Promissory Note. The Promissory
Note is, effective as of the date hereof, hereby amended as follows:
(a) The Promissory Note is hereby amended by
adding a new Section 2(a) to read in full as follows:
"2(a) The term of this Loan shall commence
upon the date hereof and shall expire on August 30, 1999 (the "Scheduled Due
Date"), at which time all amounts then owing and unpaid (including principal,
interest, and any other accrued and unpaid charges under any of the Loan
Documents) shall be immediately due and payable by Borrower to Payee in full."
(b) The Promissory Note is hereby further amended by
adding a new Section 2(c) to read in full as follows:
"2(c) Notwithstanding the Scheduled Due Date
stated above, if the employment of Employee (Employee being defined in the
Agreement) with Payee is terminated for any reason (including voluntary or
involuntary termination, with or without cause, disability, retirement, or
death), the term of this Note shall expire and all amounts then owing and unpaid
(including principal, interest, and any other accrued and unpaid charges under
any of the Loan Documents) shall become immediately due and payable by Borrower
to Payee in full on the Scheduled Due Date."
(c) The Promissory Note is further hereby amended by
adding a new Section 4(c) to read in full as follows:
"4(c) If any Event of Default set forth in
Section 7 of the Agreement should occur prior to the Scheduled Due Date, Payee
at its election, without
CONFIDENTIAL
<PAGE> 18
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 4
demand or notice and irrespective of the otherwise dated maturity hereof, may
accelerate the unpaid balance of principal plus accrued interest, if any, and in
the event of such acceleration the entire unpaid balance of principal plus any
accrued interest shall be immediately due and payable."
SECTION 3. Continued Effect of Deed of Trust. The parties to this
Amendment agree that the Deed of Trust referenced in the Loan Agreement, dated
as April 14, 1997, and Promissory Note, dated as April 14, 1997 and recorded at
the request of North American Title Insurance on April 18, 1997 in the official
records of San Mateo County (Document No. 97-044874), will continue in full
force and effect as stated in the Loan Agreement and Promissory Note as amended,
and the parties intend that the Loan Agreement and Promissory Note as amended
will continue to be secured by the Deed of Trust as set forth in such documents.
SECTION 4. Definition of Referenced Terms in Amendments. Any terms
defined in the Loan Agreement and Promissory Note that are referenced in the
foregoing amended Sections of the Loan Agreement and Promissory Note shall be
defined as set forth in the Loan Agreement and Promissory Note unless otherwise
specified.
SECTION 5. Governing Law. This Amendment, its validity, interpretation,
execution, and settlement of any disputes arising hereunder shall be governed by
and in accordance with the laws of the State of California.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by each of the parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
CONFIDENTIAL
<PAGE> 19
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Professional Services agreement - Arati Prabhakar
July 10, 1998
Page 5
Raychem: RAYCHEM CORPORATION
a Delaware Corporation
By: /s/ RICHARD A. KASHNOW
-----------------------
Richard A. Kashnow
Chief Executive Officer
Borrower: /s/ ARATI PRABHAKAR
-----------------------
Arati Prabhakar
/s/ PATRICK H. WINDHAM
-----------------------
Patrick H. Windham
CONFIDENTIAL
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED SEPTEMBER 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 164,103
<SECURITIES> 7,738
<RECEIVABLES> 351,722
<ALLOWANCES> 10,222
<INVENTORY> 275,212
<CURRENT-ASSETS> 931,181
<PP&E> 1,196,195
<DEPRECIATION> 700,923
<TOTAL-ASSETS> 1,722,802
<CURRENT-LIABILITIES> 641,292
<BONDS> 152,810
0
0
<COMMON> 90,028
<OTHER-SE> 705,429
<TOTAL-LIABILITY-AND-EQUITY> 1,722,802
<SALES> 446,065
<TOTAL-REVENUES> 446,746
<CGS> 238,539
<TOTAL-COSTS> 239,331
<OTHER-EXPENSES> 24,473
<LOSS-PROVISION> 824
<INTEREST-EXPENSE> 4,926
<INCOME-PRETAX> 58,846
<INCOME-TAX> 20,595
<INCOME-CONTINUING> 38,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,251
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
