C P CLARE CORP, 10-Q, 1999-08-11

C P CLARE CORP
10-Q, 1999-08-11
ELECTRONIC COMPONENTS, NEC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1999

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file no. 0-26092

C.P. CLARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 04-2561471
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)

78 CHERRY HILL DRIVE
BEVERLY, MASSACHUSETTS 01915
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

Registrant's telephone number, including area code: (978) 524-6700

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

As of August 4, 1999, there were 9,511,853, shares of Common Stock, $.01 par
value per share, outstanding.

<PAGE>

C.P. CLARE CORPORATION

TABLE OF CONTENTS

PAGE
----
PART I FINANCIAL INFORMATION:

<S> <C> <C>
Item 1. Financial Statements..............................................

Consolidated Condensed Balance Sheets............................. 1

Consolidated Condensed Statements of Operations................... 2

Consolidated Condensed Statements of Cash Flows................... 3

Notes to Consolidated Condensed Financial Statements.............. 4-11

Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations............................... 12-18

Item 3. Quantitative and Qualitative Disclosure About Market Risk......... 18

PART II OTHER INFORMATION:

Item 1. Legal Proceedings................................................. 19

Item 2. Changes in Securities and Use of Proceeds......................... 19

Item 3. Default Upon Senior Securities.................................... 19

Item 4. Submission of Matters to a Vote of Security Holders............... 19

Item 5. Other Information................................................. 19

Item 6. Exhibits and Reports on Form 8-K.................................. 19

Signatures .................................................................. 20

</TABLE>

<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 27, 1999 MARCH 31, 1999
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and investments (Note 5)...... $ 7,000 $ 7,796
Accounts receivable, less allowance for
doubtful accounts.................................. 21,217 18,672
Inventories (Note 6)................................. 22,384 23,842
Other current assets................................. 1,873 2,932
Deferred income taxes................................ 4,084 4,036
--------- ---------
Total current assets......................... 56,558 57,278

Property, plant and equipment, net..................... 39,416 40,275

Other assets:
Intangible assets, net of accumulated amortization
of $1,992 and $1,526 as of June 27, 1999 and
March 31, 1999, respectively....................... 10,648 11,244
Other................................................ 625 418
--------- ---------

$ 107,247 $ 109,215
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital
lease obligations.................................. $ 213 $ 248
Accounts payable..................................... 11,879 11,805
Accrued expenses..................................... 8,958 10,175
--------- ---------
Total current liabilities.................... 21,050 22,228

Long-term debt, net of current portion................. 247 282
Deferred income taxes.................................. 511 510
--------- ---------
Total liabilities............................ 21,808 23,020
--------- ---------

Contingencies (See note 8)

Stockholders' equity:
Preferred stock, $ .01 par value-
Authorized: 2,500,000 shares
Issued and outstanding: None......................... -- --
Common stock, $ .01 par value-
Authorized: 40,000,000 shares
Issued and outstanding: 9,459,629 shares and
9,454,339 shares as of June 27, 1999
and March 31, 1999, respectively.................... 95 95
Additional paid-in capital........................... 96,244 96,228
Deferred compensation................................ -- (62)
Accumulated deficit.................................. (9,650) (8,973)
Cumulative translation adjustment.................... (1,250) (1,093)
--------- ---------
Total stockholders' equity................... 85,439 86,195
--------- ---------

$ 107,247 $ 109,215
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.

1
<PAGE>

C.P. CLARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
JUNE 27, 1999 JUNE 28, 1998
------------- -------------
<S> <C> <C>
Net sales................................ $ 36,038 $ 36,694
Cost of sales............................ 27,512 25,514
---------- ----------
Gross profit........................ 8,526 11,180

Operating expenses:
Selling, general and administrative... 6,555 6,710
Research and development.............. 3,035 2,024
---------- ----------
Operating (loss) income.................. (1,064) 2,446

Interest income.......................... 26 247
Interest expense......................... (23) (23)
Other income, net........................ 29 11
---------- ----------
(Loss) income before (benefit) provision
for income taxes.................. (1,032) 2,681

(Benefit) provision for income taxes..... (354) 988
---------- ----------
Net (loss) income................... $ (678) $ 1,693
---------- ----------
---------- ----------
(Loss) earnings per common and common
share equivalent (Note 3)
Basic (loss) earnings per share.... $ (0.07) $ 0.18
---------- ----------
---------- ----------
Diluted (loss) earnings per share.. $ (0.07) $ 0.17
---------- ----------
---------- ----------

Weighted average common and common share
equivalent shares outstanding:
Basic.............................. 9,457,992 9,366,482
---------- ----------
---------- ----------
Diluted............................ 9,457,992 9,863,568
---------- ----------
---------- ----------

</TABLE>

The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.

<PAGE>

C.P. CLARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

FOR THE THREE MONTHS ENDED
----------------------------------
JUNE 27, 1999 JUNE 28, 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................................ $ (678) $ 1,693
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 2,172 1,716
Deferred income tax benefit......................................... -- (50)
Compensation expense associated with stock options.................. 62 17
Changes in assets and liabilities, net of acquisition of Micronix:
Accounts receivable.............................................. (2,546) 2,018
Inventories...................................................... 1,459 (1,156)
Other current assets............................................. 1,015 (284)
Other assets..................................................... 901 --
Accounts payable................................................. 74 (2,761)
Accrued expenses................................................. (1,370) (1,782)
--------- --------
Net cash provided by (used in) operating activities.............. 1,089 (589)
-------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net........................... (1,313) (3,045)
-------- --------
Net cash used in investing activities............................ (1,313) (3,045)
-------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants........................... 15 131
Payments of principal on long-term debt.................................. (580) --
Tax benefit of disqualifying disposition of incentive stock options...... -- 11
-------- --------
Net cash (used in) provided by financing activities.............. (565) 142
--------- --------

EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND INVESTMENTS....... (7) (8)
--------- ---------

NET DECREASE IN CASH, CASH EQUIVALENTS AND INVESTMENTS................... (796) (3,500)

Cash, cash equivalents and investments, beginning of period.............. 7,796 26,364
-------- --------

Cash, cash equivalents and investments, end of period.................... $ 7,000 $ 22,864
-------- --------
-------- --------

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................................... $ 23 $ --
-------- --------
Income taxes..................................................... $ 86 $ 708
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.

<PAGE>

C.P. CLARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 27, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. FISCAL PERIODS

The Company's fiscal year is comprised of either 52 or 53 weeks and ends on
the Sunday closest to March 31. Interim quarters are comprised of 13 weeks
unless otherwise noted, and end on the Sunday closest to June 30, September 30,
December 31 and March 31.

2. INTERIM FINANCIAL STATEMENTS

The unaudited interim consolidated condensed financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form
10-Q and Regulation S-X pertaining to interim financial statements. Accordingly,
these interim financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements reflect all normal, recurring adjustments
and accruals that management considers necessary for a fair presentation of the
Company's financial position as of June 27, 1999, and results of operations for
the three months ended June 27, 1999 and June 28, 1998. The results for the
interim periods presented are not necessarily indicative of results to be
expected for any future period. The financial statements should be read in
conjunction with the summary of significant accounting policies and notes to
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1999 as filed with the Securities
and Exchange Commission.

<PAGE>

3. (LOSS) EARNINGS PER SHARE

The Company calculates (loss) earnings per share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Basic (loss) earnings per share is calculated by dividing net (loss)
income by the weighted average number of common shares outstanding for the
period. Diluted (loss) earnings per share reflect the potential dilution of
stock options and warrants that could share in the earnings of the Company.

A reconciliation of basic and diluted shares outstanding, as required by
SFAS No. 128, is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
JUNE 27, 1999 JUNE 28, 1998
------------- -------------
<S> <C> <C>
Basic weighted average shares outstanding..... 9,457,992 9,366,482
Weighted average common share equivalents..... -- 497,086
-------- --------
Diluted weighted average shares
outstanding(2).............................. 9,457,992 9,863,568

</TABLE>

The following securities were not included in computing diluted earnings per
share because their effect would be anti-dilutive.

THREE MONTHS ENDED
--------------------------------
JUNE 27, 1999 JUNE 28, 1998
------------- -------------
<S> <C> <C>
Options to purchase common stock(1)........... 2,266,781 488,065
-------- -------

</TABLE>

(1) -- In accordance with SFAS No. 128, options to purchase common stock
were excluded from diluted weighted average shares, because the option price was
above the average stock price for the period.

(2) -- Other options and warrants to purchase common stock that are at or
below the average stock price for the period have been excluded, since their
inclusion would be anti-dilutive.

<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

4. ACQUISITION

On July 6, 1998, the Company acquired Micronix Integrated Systems, Inc.
("Clare-Micronix"), a designer and manufacturer of analog and mixed-signal
application specific integrated circuits. Pro forma information has not been
presented as Clare-Micronix operations prior to the acquisition by the
Company were not material.

5. CASH, CASH EQUIVALENTS AND INVESTMENTS

The Company considers all highly liquid investment instruments with
maturities of nine months or less to be cash equivalents. Short-term investments
are instruments with maturities of less than one year. The Company accounts for
its investments in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Investments at June 28, 1999
consisted principally of overnight commercial paper and at March 31, 1999
consisted principally of overnight and short-term tax exempt commercial paper
and tax exempt variable rate municipal bonds. The Company had the option to
require the issuers of the tax exempt variable rate municipal bonds to purchase
these investments upon 7 days notice. The Company deemed these investments to be
available for sale at March 31, 1999, and they are carried at cost which
approximates market value.

6. INVENTORIES

Inventories include materials, labor and manufacturing overhead, and are
stated at the lower of cost (first-in, first-out) or market and consist of the
following at June 27, 1999 and June 28, 1998:

<TABLE>
<CAPTION>
JUNE 27, 1999 MARCH 31, 1999
------------- --------------

<S> <C> <C>
Raw Material........................... $ 9,028 $10,259
Work in process........................ 7,796 8,227
Finished goods......................... 5,560 5,356
------- -------
$22,384 $23,842
------- -------
------- -------
</TABLE>

<PAGE>

7. RESTRUCTURING COSTS

In the second quarter of fiscal 1999, the Company announced a restructuring
of its operations, and recorded a non-recurring pretax charge of $4,000 in
accordance with Emerging Issues Task Force Issue ("EITF") 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The
non-recurring charge includes severance-related costs associated with a
workforce reduction of approximately 60 persons on a worldwide basis, half of
which are in manufacturing and the remainder in sales, general and
administrative. The balance of this charge includes a write-down of assets
associated with the closure of the Company's Wakefield, MA production facility,
completed in the fourth quarter of 1999. Also during the fourth quarter of
fiscal 1999, $300 of the restructuring charge was reversed due to persons
leaving through attrition. As a result, this amount was no longer identified as
a severance requirement.

The components of the restructuring costs were as follows:

Employee severance, benefits and related costs........ $ 2,094
Write-off and write-down of assets to be disposed..... 1,134
Lease termination and relocation costs................ 410
Other................................................. 62
-------
$ 3,700
-------
-------

</TABLE>

The total cash impact of the restructuring is $2,566, which the Company
anticipates to be paid by the end of the fourth quarter of fiscal 2000.
During the three months ended June 28, 1999, the Company paid $444 of
restructuring costs, related primarily to severance for employees terminated,
that were identified in the restructuring plan. Accrued restructuring costs
were $1,708 as of June 27, 1999.

<PAGE>

8. CONTINGENCIES

ENVIRONMENTAL MATTER

The Company accrues for estimated costs associated with known environmental
matters when such costs are probable and can be reasonably estimated. The actual
costs to be incurred for environmental remediation may vary from estimates,
given the inherent uncertainties in evaluating and estimating environmental
liabilities, including the possible effects of changing laws and regulations,
the stage of the remediation process and the magnitude of contamination found as
the remediation progresses. Management believes the ultimate disposition of
known environmental matters will not have a material adverse effect upon the
liquidity, capital resources, business or consolidated financial position of the
Company. However, one or more environmental matters could have a significant
negative impact on the Company's consolidated financial results for a particular
reporting period.

9. DERIVATIVE FINANCIAL INSTRUMENTS

SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" requires disclosure of any significant
derivative or other financial instruments. The Company hedges its net
intercompany trade balance (Belgian francs) which relates to trade sales to
third party customers in the ordinary course of business. At June 28, 1999, the
Company had no outstanding Belgian franc ("BF") or Mexican peso ("MXP") forward
contracts. At March 31, 1999, the Company had thirteen outstanding BF forward
contracts amounting to 215,740 BF or $5,908 with a gross deferred loss of $163
from the rollover of such contracts to the planned settlement date. Also, at
March 31, 1999, the Company had one outstanding MXP forward contract amounting
to 2,160 MXP or $255. The Mexican peso forward contract had no deferred gain or
loss. The forward contracts hedge currency transactional exposure resulting from
intercompany trade transactions.

10. NEW ACCOUNTING STANDARDS

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued, which establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair market value. In June, 1999, SFAS No. 137, "Deferral of
the effective date of SFAS No. 133 was adopted, which delays the effective
date of SFAS No. 133 from all fiscal quarters of fiscal years beginning after
June 15, 1999 to all fiscal quarters of all fiscal years beginning after June
15, 2000. Adoption of the statement is not expected to have a material impact
on the Company's consolidated financial position or results of operations.

<PAGE>

11. COMPREHENSIVE (LOSS) INCOME

The Company adopted SFAS No. 130 "Reporting Comprehensive Income," effective
April 1, 1998. SFAS No. 130 establishes standards for reporting and displays of
comprehensive (loss) income and its components in the financial statements. The
components of the Company's comprehensive (loss) income are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
JUNE 27, 1999 JUNE 28, 1998
------------- -------------
<S> <C> <C>
Net (loss) income............................ $(678) $ 1,693
Foreign currency translation adjustments,
Net of taxes............................... (157) 18
------ -------
Comprehensive (loss) income.................. $(835) $ 1,711
------ -------
------ -------
</TABLE>

12. FINANCIAL INFORMATION BY SEGMENT

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the fourth quarter of 1999. SFAS
No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to stockholders.
It also established standards for related disclosures about products and
services, and geographic areas. Operating segments are defined as components
of an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision making group is composed
of the Chief Executive Officer, members of Senior Management and the Board of
Directors.

The Company's reportable operating segments are Semiconductor and
Electromechanical products.

The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on gross profit. Revenues are attributed to geographic
areas based on where the customer is located. The Company does not measure
transfers of sales between Company segments. Segment information for the
quarter ended June 27, 1999 is as follows:

<PAGE>

ELECTRO-
SEMICONDUCTOR MECHANICAL CORPORATE TOTAL
------------- ---------- --------- ------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED-JUNE 27, 1999
Net product sales from external customers..... 14,800 21,238 - 36,038
Intersegment net sales........................ - - - -
Total net revenue........................ 14,800 21,238 - 36,038
Gross Profit.................................. 4,091 4,435 - 8,526
Depreciation and amortization................. 1,128 1,044 - 2,172
Interest income
External.................................... - - 26 26
Intersegment................................ - - - -
Total interest income.................... - - 26 26
Interest expense (external)
External.................................... - - 23 23
Intersegment................................ - - - -
Total interest expense................... - - 23 23
Income taxes.................................. - - (354) (354)
Property, plant and equipment................. 20,496 18,920 - 39,416

</TABLE>

ELECTRO-
SEMICONDUCTOR MECHANICAL CORPORATE TOTAL
------------- ---------- --------- ------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED-JUNE 28, 1998
Net product sales from external customers..... 20,392 16,302 - 36,694
Intersegment net sales........................ - - - -
Total net revenue........................ 20,392 16,302 - 36,694
Gross Profit.................................. 7,402 3,778 - 11,180
Depreciation and amortization................. 891 825 - 1,716
Interest income
External.................................... - - 247 247
Intersegment................................ - - - -
Total interest income.................... - - 247 247
Interest expense (external)
External.................................... - - 23 23
Intersegment................................ - - - -
Total interest expense................... - - 23 23
Income taxes.................................. - - 988 988
Property, plant and equipment................. 20,943 19,332 - 40,275

</TABLE>

Interest income and expense, restructuring, and income taxes are
considered corporate level activities and are therefore, not allocated to
segments. Management believes transfers between geographic areas are
accounted for on an arm's length basis.

Long-lived tangible assets by geographic area were as follows:

THREE MONTHS ENDED
JUNE 27, 1999
------------------

GEOGRAPHIC AREA
- - ---------------

<S> <C>
United States................................. $25,579
Belgium....................................... 227
France........................................ 14
Germany....................................... 16
Mexico........................................ $13,580
-------
$39,416
-------
-------

</TABLE>

<PAGE>

Revenues by geographic area for the quarter ended June 28, 1999 were as
follows:

THREE MONTHS ENDED
JUNE 27, 1999
------------------

GEOGRAPHIC AREA
- - ---------------
<S> <C>
United States................................. $21,951
France........................................ 1,219
Germany....................................... 1,473
Ireland....................................... 400
Italy......................................... 848
Netherlands................................... 296
Sweden........................................ 915
United Kingdom................................ 2,542
Other......................................... 6,594
-------
$36,038
-------
-------
</TABLE>

13. PROPOSED SALE OF CLARE EMG

On July 2, 1999, the Company signed a stock purchase agreement for the
divestiture of its Clare EMG business. The Company anticipates completing the
sale by the end of second fiscal quarter 2000. With annual revenues of $55
million, Clare EMG consists of the Clare-Remtech advanced magnetics division,
the legacy reed relay and surge arrester businesses, all manufacturing
operations in Mexico, a purchasing office in Taiwan, and C.P. Clare's
Arlington Heights, Ill. facility. Sumida Electric Co., Ltd. has agreed to
purchase Clare EMG, Inc. for approximately $36 million.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999,
as filed with the Securities and Exchange Commission. See "Trends and
Uncertainties" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.

RESULTS OF OPERATIONS

The following table sets forth the relative percentage that certain income
and expense items bear to net sales for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
JUNE 27, JUNE 28,
1999 1998
---------------- -------------
<S> <C> <C>
Net sales................................. 100.0% 100.0%
Cost of sales.............................. 76.3 69.5
----- -----
Gross profit............................ 23.7 30.5

Operating expenses:
Selling, general and administrative..... 18.2 18.3
Research and development................ 8.5 5.5
----- -----
Operating income (loss).................... (3.0) 6.7

Interest income............................ 0.1 0.7
Interest expense........................... (0.1) (0.1)
Other (expense) income net................. 0.1 --
----- -----

Income (loss) before income taxes.......... (2.9) 7.3
Provision (benefit) for income taxes....... (1.0) 2.7
------ -----
Net income (loss)....................... (1.9)% 4.6%
------ -----
------ -----

</TABLE>

<PAGE>

Net Sales. In the first quarter of fiscal 2000 revenues totaled $36.0
million compared with $36.7 million for the same period in fiscal 1999, a
decrease of 1.8%. First quarter revenues for the Company's semiconductor
products, including Clare-Micronix acquired in July, 1998, decreased 7.5%;
however, electromagnetic and other product revenues increased 2.4% in fiscal
2000 compared with the same period in the prior year. Lower revenues were
attributed to lower demand and average selling prices, principally for
semiconductor products.

Net sales by major product category were as follows:

THREE MONTHS ENDED
-----------------------------
JUNE 27, JUNE 28,
1999 1998
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Semiconductor products.................... $ 14.8 $ 16.0
Electromagnetic and other products........ 21.2 20.7

</TABLE>

The Company's electromagnetic products are primarily used in
telecommunication applications such as telephone switching gear and cellular
phones. The continued increased usage of cellular phones has been a growth
driver for the Company's dry reed switch business and the Company has expanded
production capacity for these products. The Company believes growth is dependent
on the market acceptance of new digital cellular phones, in which the Company's
customers utilize the reed switches.

Net sales to customers located outside of the United States decreased 7%
in the first quarter of fiscal 2000 to $14.6 million from $15.7 million in
the same period in fiscal 1999. Net sales to customers in Europe represented
25% and 29% of the Company's net sales for the first quarter ended June 27,
1999 and first quarter ended June 28, 1998, respectively. Net sales to
customers in Asia represent 13.6% and 13.3% of the Company's net sales for
the first quarter ended June 27, 1999 and first quarter ended June 28, 1998,
respectively. Annual sales for fiscal year ended March 31, 1999 were $143.9
This included approximately $55.0 of sales relating to the Clare EMG
business, which there is currently a signed stock purchase agreement for its
divestiture.

The Company monitors its currency exposure and international economic
developments and takes actions to reduce the Company's risk from exposures to
fluctuations in foreign currency markets. Due to the inherent uncertainty of
foreign exchange markets the Company cannot predict future events in this area.
The Company will continue to focus on new markets and expansion of certain
existing international markets.

Gross Profit. The Company's gross profit as a percentage of net sales
decreased to 23.7% in the first quarter of fiscal 2000 from 30.5% in the same
period of fiscal 1999. This decrease was principally due to underutilized plant
capacity in semiconductors and reed relay manufacturing and lower yields in
the production of dry reed switches.

Selling, General and Administrative Expense. Selling, general and
administrative ("S,G&A") expenses decreased $0.1 million or 2% to $6.6
million in the first quarter of fiscal 2000 from $6.7 million in the same
period in the prior fiscal year. Included in the first quarter of fiscal 2000
results were $0.9 million of expenses relating to Clare-Micronix operation
and goodwill and technology amortization related to the Clare-Micronix
acquisition. Excluding these items, S,G&A expenses were lower, principally
due to reduced staffing as part of the restructuring of the second quarter of
fiscal 1999.

Research and Development Expense. Research and development expense
increased to $3.0 million for the first quarter of fiscal 2000 from $2.0
million for the same period in fiscal 1999, due to new projects and the
Clare-Micronix acquisition.

<PAGE>

Interest Income. Interest income decreased by $0.2 million for the first
quarter of fiscal 2000 from the same period in fiscal 1999 due to lower cash
balances. The decrease in cash was primarily due to cash used for the
acquisition of Clare-Micronix in July 1998. Interest income is derived from
investments of the Company's cash in both commercial paper and short-term tax
exempt municipal bonds.

Interest Expense. Interest expense for the first quarter of fiscal 2000 was
approximately the same as in the first quarter of fiscal 1999.

Other Income. In the first quarter of fiscal 2000 and the same period in
fiscal 1999, other income consists principally of net foreign currency
transactional gains.

Income Taxes. In accordance with generally accepted accounting principles,
the Company has provided for income taxes at its estimated annual effective tax
rate. The Company has recorded a tax benefit in the first quarter of fiscal
2000 based on its anticipated benefit to be ultimately realized as a result
of its net operating losses. The Company's effective income tax rate for the
first quarter of fiscal 1999 of 37% is lower than the combined federal and
state tax rates due primarily to the utilization of tax credits and the
benefits associated with the Company's Foreign Sales Corporation.

TRENDS AND UNCERTAINTIES

Acquisition. On July 6, 1998, the Company acquired Micronix Integrated
Systems, Inc. ("Clare-Micronix"), a designer and manufacturer of analog and
mixed-signal application specific integrated circuits, located in Aliso Viejo,
California for approximately $16 million, excluding acquisition costs and
assumed liabilities. The Company has limited experience in integrating acquired
companies or technologies into its operations. Therefore, there can be no
assurance the Company will operate the acquired business effectively and that
the resulting profitability will be at anticipated levels. Also, there can be no
assurance that the Company will be able to retain key personnel, the loss of
which could have a material adverse effect on the Company's operating results.

<PAGE>

Competition. C.P. Clare competes with various global companies. Certain
competitors of the Company have greater manufacturing, engineering or financial
resources.

Customer Concentration. In the first quarter of fiscal 2000, the Company's
ten largest customers accounted for 28% of total net sales. The Company is
highly reliant upon continued revenues from its largest customers and any
material delay, cancellation or reduction of orders from these customers could
have a material adverse effect on the Company's future results.

Development of New Products. Technological change and new product
introductions characterize the markets for the Company's products. In
particular, the Company is dependent on the communications industry, which is
characterized by intense competition and rapid technological change. The Company
expects sales to the communications industry to continue to represent a
significant portion of its sales for the foreseeable future. A decline in demand
for communications related equipment such as facsimile machines, modems and
cellular telephones would cause a significant decline in demand for the
Company's products. The Company has invested heavily over the past several years
in the capital expenditures necessary to develop new products. Slower than
expected acceptance of new products will adversely affect the Company's
operating results. To remain competitive, the Company must continue to develop
new process and manufacturing capabilities to meet customer needs and introduce
new products that reduce size and increase functionality and performance. With
the addition of Clare-Micronix, the Company will need to develop and bring to
market the acquired technology and new products in the areas of high-voltage
analog and mixed-signal application specific integrated circuits. Development of
all these capabilities is expected to require significant additional capital
expenditures. The Company is currently limited by its existing capital
availability and may need to use its existing or new lines of credit, in order
to fund the capital expenditures required to develop new products. If the
Company is unable to access adequate sources of capital or is unable to design,
develop and introduce competitive new products, its operating results will be
adversely affected.

Fluctuations in Operating Results. The Company has experienced fluctuation
in its operating results in the past and its operating results may fluctuate in
the future. The Company has increased the scope and geographic area of its
operations. In addition, based on the fiscal 1999 capital expansions, the
Company has increased its operational fixed costs. This expansion also has
resulted in new and increased responsibilities for management personnel and has
placed pressures on the Company's operating systems. These operating systems
have been 85% updated and centralized, while the existing operating systems are
mostly phased out. The Company's future success will depend to a large part on
its ability to manage these changes and manage effectively its remote offices
and facilities.

Full Utilization of the New Wafer Fabrication Facility. The Company
completed construction of a larger, more advanced semiconductor facility in
Beverly, Massachusetts to address capacity constraints and operating
efficiencies in the production of its semiconductor products. To date, lower
demand in semiconductor products has not allowed the Company to fully utilize
the facility and has contributed to a decline in the Company's overall gross
margin rate. In addition, it is not expected that the new facility will be fully
utilized in the short term, as certain planned new semiconductor products,
including the Clare-Micronix products, will require significant additional
capital investment to be able to be produced in the fabrication facility.
Currently, these wafers and products are made utilizing outside foundries. A
delay or lack of capital investment in the new manufacturing fabrication
facility would have a material adverse effect on future operating results.

<PAGE>

International Operations. The Company's international operations are subject
to several risks including, but not limited to, fluctuations in the value of
foreign currencies, changes to import and export duties or regulations, greater
difficulty in collecting accounts receivable and labor unrest. While, to date,
these factors have not had a material effect on the Company's results, there can
be no assurance that there will not be such an impact in the future.

Liquidity. The Company's cash balance has remained consistent at around
$7,000 during the first three months of fiscal 2000. The Company maintains a
$10.0 million operating lease line as well as a $15.0 unsecured committed
revolving credit facility. If the Company is unable to access adequate sources
of capital this could have a material adverse effect on the Company's liquidity.

Markets. The Company continues to evaluate its operations and product
offerings, in order to invest in or potentially divest of certain business or
market opportunities.

New Systems. The Company is approximately 85% complete with the process
of implementing an Oracle Enterprise Resource Planning ("ERP") system for
certain applications and locations. The vendor has informed the Company that
this new system is compliant with year 2000 issues. This effort has consumed
significant resources of the Company and implementation of various
applications for the remaining locations is scheduled throughout fiscal year
2000. As a result of the systems transition, the Company may experience
business disruptions or compliance issues, which may have a material adverse
effect on the Company's results of operations.

Reliance on Key Suppliers. The Company relies on certain suppliers of raw
materials and services for sole source supply of critical items. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's demand needs effectively and on a timely basis. Also, the suppliers
could experience their own business disruption, including Year 2000, which could
have a material adverse effect on future results.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During the three months ended June 27, 1999, the Company's cash, cash
equivalents and investments decreased by $0.8 million. Operations provided
$1.1 million of cash during this period, mainly as a result of non-cash
adjustments offset by the net loss and decreases in net assets and
liabilities. The Company used $1.3 million for capital expenditures.
Financing activities used $0.6 million of cash during the period, primarily
due to the payment of principal of long-term debt.

At June 27, 1999, the Company had $0.5 million of outstanding debt
representing capital leases assumed when the Company acquired Clare-Micronix. In
fiscal 1999, the Company entered into a $15 million unsecured committed
revolving credit facility ("credit facility"). No borrowings have been made
against this credit facility. The credit facility required the Company to
maintain certain financial ratios. The Company, as of June 27, 1999, was in
compliance with all covenants.

The Company manages its foreign exchange exposure by monitoring its net
monetary position using natural hedges of its assets and liabilities denominated
in local currencies and entering into forward contract hedges with financial
institutions for trade transactions. There can be no assurance that this policy
will eliminate all currency exposure.

The Company believes that cash generated from operations, cash, cash
equivalents and investments and the anticipated proceeds of the Clare EMG
divestiture and amounts available under its credit agreement and operating
lease facilities will be sufficient to satisfy its working capital needs and
planned capital expenditures for the balance of this fiscal year. However,
there can be no assurance that events in the future will not require the
Company to seek additional capital sooner or, if so required, that adequate
capital will be available on terms acceptable to the Company.

YEAR 2000 ISSUE

The Company began an internal assessment of its operations, from information
and financial systems to each aspect of its manufacturing processes and
facilities, in order to determine the extent to which the Company may be
adversely affected by Year 2000 issues. The Company completed this activity by
its 1999 fiscal year end.

The Company is in the process of implementing an Oracle Enterprise Resource
Planning ("ERP") system, Version 10.7 Smart Client, for many applications and
sites, including: order entry, manufacturing and financial systems. The software
vendor has informed the Company that the new system is compliant with Year 2000
issues. To date, approximately 2,500 hours of employee time has been devoted to,
and approximately $3.0 million has been expended on systems upgrades directly
relating to the implementation.

In addition, the Company's other facilities, including Guadalajara and St.
Louis have other manufacturing and financial systems software. These systems are
being upgraded and / or replaced to gain compliance. The Company presently
believes that with

<PAGE>

modification to existing software and conversion to the new ERP system, the Year
2000 problem will not pose significant operational problems.

The Company's potential exposure extends beyond financial applications to
include suppliers, customers, facilities, manufacturing equipment and other
communication equipment. The Company has established a cross-functional team,
which is in the process of reviewing these issues and developing effective
strategies to minimize risk. The Company has begun to undertake several steps in
this review, including: evaluating all systems and equipment by site; sending
letters to all major vendors assessing their Year 2000 compliance status; and
making upgrades to systems or equipment, when applicable. The Company is
continuing this effort across all Company locations. To date, the Company has
received written assurances from over 80% of our significant vendors that they
are Year 2000 compliant.

The Company's products will not be impacted by the Year 2000 problem, since
they are not date-sensitive devices. Further, the Company has begun to confer
with significant customers to assure that various systems used for data and
information exchanges between them will be compatible following December 31,
1999.

Based on its initial assessments to date, the Company believes it will
not experience any material disruption as a result of Year 2000 issues in
internal manufacturing processes, information processing, interface with key
customers, or with processing orders and billing. However, further
assessments could find certain critical third party providers, such as those
supplying electricity, water, telephone service, and certain raw materials or
services may experience difficulties resulting in disruption of service or
supplies to the Company. A shutdown of the Company's operations at individual
facilities could occur for the duration of the disruption. The Company
continues to assess the need for a Year 2000 contingency plan. However, the
Company anticipates that its Year 2000 conversion program will be completed
far enough in advance of January 1, 2000 so as to formulate a contingency
plan at such time, if necessary. The Company expects its contingency plan, if
developed, would include, among other things, manual "work-arounds" for
hardware and software failures, as well as substitution of systems, if
required. There can be no assurance that Year 2000 issues will not have a
material adverse effect on the Company's business, results of operation and
financial condition. C.P. Clare supports the exchange of information
regarding the Year 2000 matters and designates the foregoing as Year 2000
Readiness Disclosures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

PRIMARY MARKET RISK EXPOSURES. The Company's primary market risk
exposures are in the areas of interest rate risk and foreign currency exchange
rate risk. The Company's primary interest rate risk would be related to
borrowings fluctuates with changes in short-term borrowing rates. There were
no borrowings from the Company's Revolving Credit Facility during the first
quarter of fiscal 2000 and the line is currently unused.

The Company is also exposed to currency exchange rate fluctuations as
they pertain to its operations in Europe. Operations in Europe were
denominated in Belgium Francs through March 31, 1999. The Company hedged its
currency exposure by entering in forward exchange contracts. The Company has
denominated its Europe operations in Euro, effective April 1, 1999. The
exchange rate between the U.S. dollar and Euro has fluctuated since the
Euro's inception January 1, 1999. The Company has not engaged in currency
hedging activities since April 1, 1999 and attempts to minimize exchange risk
by converting excess Euro funds to U.S. dollars as often as practicable.

The Company's does operate a maquiladora in Guadalajara, Mexico. Some of
the expenses of this facility are denominated in Mexican pesos. Expenses
denominated in Mexican pesos include local salaries, rents, utilities and
some operating supplies. The Company has not engaged in currency hedging
activities related to the Mexican peso and attempts to minimize exchange risk
by funding the operational expenses on a weekly basis.

<PAGE>

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to routine litigation incident to the conduct of its
business. None of such proceedings is considered material to the business or the
financial condition of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT NO. DESCRIPTION
----------- -----------

<S> <C>
27.0 Financial Data Schedule (Edgar)

</TABLE>

(b) Reports on Form 8-K

None

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

C.P. CLARE CORPORATION

By: /s/ Harry Andersen
------------------------------------
Harry Andersen
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER

DATE: AUGUST 11, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
BASIC AND DILUTED EARNINGS PERSHARE SUBSTITUTED FOR PRIMARY AND DILUTED EARNINGS
PER SHARE. IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
128, EARNINGS PER SHARE.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

</TABLE>