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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NO. 0-26092
------------------------
C.P. CLARE CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2561471
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
</TABLE>
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 October 20, 2000, there were 9,727,911 shares of Common Stock, $.01
par value per share, outstanding.
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C.P. CLARE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION:
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........ 4-8
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations................................. 9-12
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 12
PART II OTHER INFORMATION:
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities and Use of Proceeds................... 13
Item 3. Default Upon Senior Securities.............................. 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Other Information........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures.......................................................................... 14
</TABLE>
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 24, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and investments (Note 5)........... $ 25,858 $ 37,267
Accounts receivable, less allowance for doubtful
accounts................................................ 11,459 11,068
Inventories (Note 6)...................................... 15,662 11,406
Other current assets...................................... 1,401 1,636
Deferred income taxes..................................... 2,733 2,733
-------- --------
Total current assets.................................... 57,113 64,110
Property, plant and equipment, net.......................... 27,603 26,294
Other assets:
Intangibles, net of accumulated amortization of $4,381 and
$3,410, Respectively.................................... 10,037 9,354
Deferred income taxes..................................... 451 451
Other..................................................... 668 451
-------- --------
$ 95,872 $100,660
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 123 $ 139
Accounts payable.......................................... 6,991 5,151
Accrued expenses.......................................... 5,242 5,896
-------- --------
Total current liabilities............................... 12,356 11,186
Long-term debt, net of current portion...................... 217 146
-------- --------
Total liabilities....................................... 12,573 11,332
-------- --------
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: 9,625,962 shares and
9,591,266 shares as of September 24, 2000 and March 31,
2000, respectively...................................... 96 96
Additional paid-in capital................................ 97,129 96,895
Accumulated deficit....................................... (13,033) (7,210)
Cumulative translation adjustment......................... (728) (453)
Less: Treasury Stock (30,000 common shares, at cost)...... (165) --
-------- --------
Total stockholders' equity.............................. 83,299 89,328
-------- --------
$ 95,872 $100,660
======== ========
</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 SIX MONTHS ENDED
------------------------------- -------------------------------
SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 19,772 $ 28,934 $ 41,242 $ 64,972
Cost of sales.............................. 14,811 24,212 29,370 51,724
--------- --------- --------- ---------
Gross profit............................. 4,961 4,722 11,872 13,248
Operating expenses:
Selling, general and administrative...... 5,521 6,128 11,653 12,683
Research and development................. 3,675 3,628 6,718 6,662
Gain on disposal of business, net of
related restructuring and other costs
(Note 4)............................... -- (12,990) -- (12,990)
Restructuring costs (Note 8)............. -- (875) -- (875)
--------- --------- --------- ---------
Operating (loss) income.................... (4,235) 8,831 (6,499) 7,768
Interest income............................ 449 237 1,033 262
Interest expense........................... (91) (26) (131) (49)
Other income (expense), net................ -- 116 (225) 145
--------- --------- --------- ---------
(Loss) income before benefit for income
taxes................................ (3,877) 9,158 (5,822) 8,126
Benefit for income taxes............... -- (1,348) -- (1,702)
--------- --------- --------- ---------
Net (loss) income...................... $ (3,877) $ 10,506 $ (5,822) $ 9,828
========= ========= ========= =========
Earnings (loss) per common and common share
Equivalent (Note 3):
Basic (loss) earnings per share........ $ (0.40) $ 1.10 $ (0.61) $ 1.04
========= ========= ========= =========
Diluted (loss) earnings per share...... $ (0.40) $ 1.08 $ (0.61) $ 1.02
========= ========= ========= =========
Weighted average common and common share
Equivalent shares outstanding:
Basic.................................. 9,623,775 9,508,632 9,609,068 9,483,312
========= ========= ========= =========
Diluted................................ 9,623,775 9,705,008 9,609,068 9,621,303
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
2
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------------
SEPT. 24, 2000 SEPT. 26, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $ (5,822) $ 9,828
Adjustments to reconcile net (loss) income to net cash (used
in) provided by operating activities:
Gain on disposal of business.............................. -- (12,990)
Depreciation and amortization............................. 3,916 5,045
Non-cash portion of restructuring charge.................. -- (875)
Compensation expense associated with stock options........ -- 62
Changes in assets and liabilities, net of effect from
acquisition in 2000 and disposal in 1999:
Accounts receivable..................................... (390) 4,075
Inventories............................................. (4,058) 2,577
Other current assets.................................... 254 (215)
Other assets............................................ (217) (96)
Accounts payable........................................ 1,840 (4,435)
Accrued expenses and other liabilities.................. (676) (1,412)
-------- --------
Net cash (used in) provided by operating activities..... (5,153) 1,564
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net.............. (4,122) (3,666)
Net proceeds from disposal of business activities........... -- 33,115
Purchase of Teltone......................................... (1,987) --
-------- --------
Net cash (used in) provided by investing activities..... (6,109) 29,449
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from issuance of common stock.................. 187 238
Proceeds from exercise of options and warrants.............. 47 15
Purchase of treasury stock.................................. (165) --
Net Borrowings (payments) of principal on long-term debt.... 57 (140)
-------- --------
Net cash provided by financing activities............... 126 113
-------- --------
Effect Of Exchange Rates On Cash, Cash Equivalents And
Investments............................................... (275) 94
-------- --------
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND
INVESTMENTS............................................... (11,411) 31,220
Cash, cash equivalents and investments, beginning of
period.................................................... 37,267 7,796
-------- --------
Cash, cash equivalents and investments, end of period....... $ 25,856 $ 39,016
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 114 $ 3
======== ========
Income taxes............................................ $ 113 $ 93
======== ========
Sale of business:
Carrying amount of net assets sold...................... $ -- $(20,829)
Cash received........................................... -- 37,629
Expenses................................................ -- (3,810)
-------- --------
Gain on sale after expenses............................. $ -- $ 12,990
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
3
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 24, 2000
(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 September 24, 2000, and
results of operations for the six months ended September 24, 2000 and
September 26, 1999. 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, 2000 as filed with the Securities and Exchange Commission.
3. EARNINGS (LOSS) PER SHARE
The Company calculates earnings (loss) per share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted earnings (loss) 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 SIX MONTHS ENDED
------------------------------- -------------------------------
SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic weighted average shares
outstanding.............................. 9,623,775 9,508,632 9,609,068 9,483,312
Weighted average common share
equivalents.............................. -- 196,376 -- 137,991
--------- --------- --------- ---------
Diluted weighted average shares
outstanding.............................. 9,623,775 9,705,008 9,609,068 9,621,303
========= ========= ========= =========
</TABLE>
The following securities were not included in computing diluted earnings per
share because their effect would be anti-dilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Options to purchase common stock........... 1,898,069 1,669,245 1,380,073 2,225,307
</TABLE>
4
<PAGE>
4. DIVESTITURE
On August 20, 1999, the Company sold all of the issued and outstanding
shares of comon stock of Clare EMG, Inc. ("EMG"), a wholly owned subsidiary of
C.P. Clare, and certain assets to Sumida Electric Co., Ltd. ("Sumida"), for
$37,629 in cash. EMG included the Company's advanced magnetic winding, reed
relay, and surge arrestor product lines together with the second tier affiliate
Clare Mexicana S.A. de C.V.
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 September 24, 2000
consisted principally of overnight commercial paper and at March 31, 2000
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
held-to-maturity at September 24, 2000, as the Company had the ability and
intent to hold these investments until maturity. The investments are carried at
cost which approximates amortized cost. Investments classified as
held-to-maturity were $2,000 at June 25, 2000.
6. INVENTORIES
Inventories include materials, labor and manufacturing overhead, and are
stated at the lower of cost (first-in, first-out) or market and consisted of the
following at September 24, 2000 and March 31, 2000:
<TABLE>
<CAPTION>
SEPTEMBER 24, 2000 MARCH 31, 2000
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<S> <C> <C>
Raw Material.................................. $ 5,433 $ 3,200
Work in process............................... 7,649 5,858
Finished goods................................ 2,580 2,348
------- -------
$15,662 $11,406
======= =======
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consisted of the following at September 24, 2000 and
March 31, 2000:
<TABLE>
<CAPTION>
SEPTEMBER 24, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Payroll and benefits.......................... $1,871 $2,679
Restructuring (Note 8)........................ -- 149
Environmental remediation (Note 9)............ 848 854
Other......................................... 2,523 2,214
------ ------
$5,242 $5,896
====== ======
</TABLE>
8. RESTRUCTURING COSTS
In fiscal 1999, the Company announced a restructuring of its operations, and
recorded a non-recurring pretax charge of $3,700 in accordance with Emerging
Issues Task Force Issue ("EITF") 94-3. In fiscal 2000, the Company revised the
estimated cost of this restructuring by reversing $875. The revision reflects
lower than expected severance costs. The Company has paid all 1999 restructuring
expenses as of September 2000.
5
<PAGE>
9. 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.
10. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at fair value. The
statement requires that changes in the derivatives fair value be recognized in
earnings currently, unless specific hedge accounting criteria are met. Special
accounting or qualifying hedges allows derivative gains or losses to offset
related results on the hedged item in the income statement, and require that a
Company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The adoption of SFAS No. 133 did not
have an impact on the Company's results of operations, financial position or
cash flows.
In March 2000, the FASB issued FASB interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25 (Interpretation 44)". Interpretation No. 44 clarifies the
application of APB No. 25 in certain situations, as defined. Interpretation 44
is effective July 1, 2000 but is retroactive for certain events that occurred
after December 15, 1998. The Company does not expect that the adoption of
Interpretation 44 will materially affect its consolidated results of operations.
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition", in December 1999. The Company is required
to adopt this new accounting guidance through a cumulative charge to operations,
in accordance with Accounting Principles Board Opinion (APB) No. 20, "Accounting
Changes," no later than December 31, 2000. The Company believes that the
adoption of the guidance provided in SAB No. 101 will not have a material impact
on future operating results.
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 SIX MONTHS ENDED
------------------------------- -------------------------------
SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net (loss) income.......................... $(3,877) $10,506 $(5,822) $9,828
Foreign currency translation adjustments,
net of taxes............................. (315) 6 (274) 7
------- ------- ------- ------
Comprehensive (loss) income................ $(4,192) $10,512 $(6,096) $9,835
======= ======= ======= ======
</TABLE>
6
<PAGE>
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 Solid State Relays,
Integrated Circuits, Reed Switches and Electromechanical and other 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 quarters ended
September 24, 2000 and September 26, 1999 was as follows.
<TABLE>
<CAPTION>
ELECTRO-
SOLID STATE INTEGRATED REED MECHANICAL AND
RELAYS CIRCUITS SWITCHES OTHER CORPORATE TOTAL
----------- ---------- -------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED--SEPTEMBER 24, 2000
Net product sales...................... $12,597 $4,564 $ 2,611 $ -- $ -- $19,772
Gross Profit........................... 4,072 2,263 (1,374) -- -- 4,961
Depreciation and amortization.......... 1,183 686 193 -- -- 2,062
Interest income........................ -- -- -- -- 449 449
Interest expense....................... -- -- -- -- 91 91
Income taxes........................... -- -- -- -- -- --
Property, plant and equipment.......... 20,805 1,315 5,483 -- -- 27,603
SIX MONTHS ENDED--SEPTEMBER 24, 2000
Net product sales...................... $25,022 $8,338 $ 7,882 $ -- $ -- $41,242
Gross Profit........................... 7,862 4,393 (383) -- -- 11,872
Depreciation and amortization.......... 2,330 1,143 443 -- -- 3,916
Interest income........................ -- -- -- -- 1,033 1,033
Interest expense....................... -- -- -- -- 131 131
Income taxes........................... -- -- -- -- -- --
Property, plant and equipment.......... 20,805 1,315 5,483 -- -- 27,603
THREE MONTHS ENDED--SEPTEMBER 26, 1999
Net product sales...................... $12,309 $2,451 $ 6,023 $ 8,151 $ -- $28,934
Gross Profit........................... 2,407 1,253 1,051 11 -- 4,722
Depreciation and amortization.......... 1,562 634 278 399 -- 2,873
Interest income........................ -- -- -- -- 237 237
Interest expense....................... -- -- -- -- 26 26
Benefit for income taxes............... -- -- -- -- (1,348) (1,348)
Property, plant and equipment.......... 22,679 1,123 4,478 -- -- 28,280
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
ELECTRO-
SOLID STATE INTEGRATED REED MECHANICAL AND
RELAYS CIRCUITS SWITCHES OTHER CORPORATE TOTAL
----------- ---------- -------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED--SEPTEMBER 26, 1999
Net product sales...................... $24,095 $5,410 $12,581 $22,886 $ -- $64,972
Gross Profit........................... 4,857 2,913 2,870 2,608 -- 13,248
Depreciation and amortization.......... 2,240 1,181 601 1,023 -- 5,045
Interest income........................ -- -- -- -- 262 262
Interest expense....................... -- -- -- -- 49 49
Benefit for income taxes............... -- -- -- -- (1,702) (1,702)
Property, plant and equipment.......... 22,679 1,123 4,478 -- -- 28,280
</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
arms' length basis.
Long-lived tangible assets by geographic area were as follows:
<TABLE>
<CAPTION>
LONG-LIVED TANGIBLE ASSETS
-----------------------------------
GEOGRAPHIC AREA SEPTEMBER 24, 2000 MARCH 31, 2000
--------------- ------------------ --------------
<S> <C> <C>
United States................................. $27,472 $26,107
Other......................................... 131 187
------- -------
$27,603 $26,294
======= =======
</TABLE>
Revenues by geographic area for the three and nine months ended
September 24, 2000 and September 26, 1999 were as follows:
<TABLE>
<CAPTION>
REVENUE
-----------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
GEOGRAPHIC AREA SEPTEMBER 24, 2000 SEPTEMBER 26, 1999 SEPTEMBER 24, 2000 SEPTEMBER 26, 1999
--------------- ------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
United States............ $ 9,013 $12,640 $18,787 $34,951
France................... 830 794 1,842 2,013
Germany.................. 1,383 1,155 2,604 2,628
Ireland.................. 274 263 528 663
Italy.................... 207 340 579 1,188
Netherlands.............. 170 199 235 495
Sweden................... 858 956 1,865 1,871
United Kingdom........... 984 2,286 2,167 4,828
Japan.................... 19 484 602 768
Malaysia................. 2,037 2,802 3,441 4,443
Mexico................... 617 1,246 1,534 1,976
Taiwan................... 1,283 1,864 2,283 2,957
Other.................... 2,097 3,905 4,775 6,191
------- ------- ------- -------
$19,772 $28,934 $41,242 $64,972
======= ======= ======= =======
</TABLE>
13. ACQUISITION OF PRODUCT LINE
On August 25, 2000 the Company acquired certain tangible and intangible
assets related to Teltone Corporation's Integrated Circuit business for $1,987.
8
<PAGE>
ITEM 2.
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, 2000,
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 SIX MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 74.9 83.7 71.2 79.6
----- ----- ----- -----
Gross profit............................ 25.1 16.3 28.8 20.4
Operating expenses:
Selling, general and administrative..... 27.9 21.2 28.3 19.5
Research and development................ 18.6 12.5 16.3 10.3
Restructuring credit.................... -- (3.0) -- (1.4)
Gain on disposal of business............ -- (44.9) -- (20.0)
----- ----- ----- -----
Operating income (loss)................. (21.4) 30.5 (15.8) 12.0
Interest income......................... 2.3 0.8 2.5 0.4
Interest expense........................ (0.5) (0.1) (0.3) (0.1)
Other income (expense), net............. -- 0.4 (0.5) 0.2
----- ----- ----- -----
(Loss) income before income taxes....... (19.6) 31.6 (14.1) 12.5
Benefit for income taxes................ (0.0) (4.7) -- (2.6)
----- ----- ----- -----
Net (loss) income....................... (19.6)% 36.3% (14.1)% 15.1%
===== ===== ===== =====
</TABLE>
NET SALES. In the second quarter of fiscal 2001, revenues totaled
$19.8 million compared with $28.9 million for the same period in fiscal 2000, a
decrease of 32%. For the six months ended September 24, 2000, revenues were
$41.2 million compared with $65.0 million for the same period in the prior year,
a decrease of 37%. Lower sales were largely the result of the disposition of the
Company's electromagnetic product lines, which were sold to Sumida Electric in
August of 1999, as higher sales of semiconductor products were essentially
offset by lower demand for DYAD switches. For the three and six months ending
September 26, 1999, the revenue would have been $19.8 million and
$39.6 million, respectively, without electromagnetic products.
Net sales to customers located outside of the United States totaled
$10.0 million in the second quarter of fiscal 2001, or about 51% of total net
sales. Net sales to customers in Europe represented 29% and net sales to
customers in Asia represented 22% of total net sales for the second quarter
ended September 24, 2000.
9
<PAGE>
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. Because the Company ships and invoices
all of its business from the United States, 100% of sales into Asia and
approximately 75% of sales into Europe are U.S dollar denominated transactions
and are, therefore, not exposed to exchange risk. Although a portion of sales
into Europe are denominated in Euros, the related foreign currency assets are
partially naturally hedged by foreign currency liabilities for local sales
operations.
GROSS PROFIT. The Company's gross profit as a percentage of net sales was
25% in the second quarter of fiscal 2001 compared with 16% during the same
period in fiscal 2000. Gross profit as a percentage of net sales increased to
29% for the six months ended September 24, 2000 from 20% for the comparable
period ended September 26, 1999. The increase was primarily due to the
elimination of lower margin products included in the sale of EMG.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("S,G&A") expenses decreased $0.6 million or 10% to $5.5 million
in the second quarter of fiscal 2001 from $6.1 million for the same period in
the prior fiscal year. On a year-to-date basis, S,G&A expense totaled
$11.7 million, down $1.0 million from the prior year. The decrease was
attributable primarily to reduced employment and the elimination of the
electromagnetic products headquarters operation in Arlington Heights, Illinois.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was
$3.7 million for the second quarter of fiscal 2001 and $6.7 million on a
year-to-date basis. These amounts were essentially equal to the corresponding
periods in fiscal 2000 as the Company continued to invest in product design and
process technology to support new products such as application specific
integrated circuits (ASICs), the Line Card Access Switch (LCAS), LiteLink, and
display drivers.
RESTRUCTURING COSTS. In the second quarter of fiscal 1999, the Company
announced a restructuring of its operations, and recorded a charge of
$4.0 million. During the second quarter of fiscal 2000, $0.9 million of this
charge was reversed to reflect residuals received from the sale of some of the
Wakefield, MA assets and lower than anticipated severance costs. See Note 8 of
the Consolidated Condensed Financial Statements.
GAIN ON DISPOSAL OF BUSINESS. Gain on disposal of business totaled
$13 million during the second quarter of fiscal 2000 and represented the gain on
the sale of the reed relay, advanced magnetic winding, and surge arrestor
product lines to Sumida Electric Company of Tokyo, Japan. The amount consists of
the difference between the gross proceeds, less related selling and
restructuring costs, and the value of the assets sold. See Note 4 of the
Consolidated Condensed Financial Statements.
INTEREST INCOME. Interest income totaled $0.4 million and $1.0 million for
the second quarter and first six months of fiscal 2001, respectively. Interest
income is derived from investments in both commercial paper and short-term tax
exempt municipal bonds. Higher interest income compared with the prior fiscal
year resulted from higher cash balances, largely from the proceeds from the sale
of EMG.
OTHER INCOME. Other income consisted principally of net foreign currency
transactional gains and losses.
INCOME TAXES. In accordance with generally accepted accounting principles,
the Company has provided for income taxes at its estimated annual effective tax
rate. For the first six months of fiscal 2001, the Company did not record a tax
benefit for pre-tax losses because it is not likely that such a benefit will be
utilized in the foreseeable future.
10
<PAGE>
TRENDS AND UNCERTAINTIES
COMPETITION. Clare competes with various global companies. Certain
competitors of the Company have greater manufacturing, engineering or financial
resources.
CUSTOMER CONCENTRATION. In the second quarter of fiscal 2001, the Company's
ten largest customers accounted for 35.0% 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. 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 developing 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. In addition, because of recent 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. 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. Since its
completion in October 1997, demand for 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.
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. These
factors have not had a material effect on the Company's results; however, there
can be no assurance that there will not be such an impact in the future.
LIQUIDITY. The Company's ended the quarter with cash balances of
$25.9 million compared with $39.0 million at September 26, 1999. The Company
maintains a $15.0 secured committed revolving credit
11
<PAGE>
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.
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 disruption caused by
year 2000 issues, which could have a material adverse effect on future results.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 24, 2000, the Company's cash, cash
equivalents and investments decreased by $6.6 million, primarily for inventory
to support anticipated orders of LCAS, LiteLink, and embedded modem modules;
expansion of capacity in the Company's St. Louis switch factory; and acquisition
on the Teltone ASIC product line.
At September 24, 2000, the Company had $0.2 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. No borrowings have been made against this credit
facility.
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. 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None
12
<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
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
The Annual Meeting of Stockholders was held on September 21, 2000 to elect
two class II Directors to serve until the 2003 Annual Meeting of Stockholders
and until their successors are duly elected and qualified; to authorize a change
in the Company's name to Clare, Inc.; and to ratify the appointment of the
accounting firm of Arthur Andersen LLP as independent accountants for the
Company for the current year.
Proposal One: Election of Directors
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR WITHHELD
Andrew E. Lietz 9,178,656 60,197
John G. Turner 8,477,214 761,639
</TABLE>
Proposal Two: Change in Company Name
<TABLE>
<CAPTION>
<S> <C> <C>
For: 9,174,115
Against: 51,446
Abstain: 13,292
</TABLE>
Proposal Three: Appointment of Accounting Firm
<TABLE>
<CAPTION>
<S> <C> <C>
For: 9,210,449
Against: 21,236
Abstain: 6,868
</TABLE>
There were no Broker non votes.
ITEM 5. OTHER INFORMATION
On October 26, 1999, the Company's Board of Directors authorized a share
repurchase program to buy up to one million shares of the Company's common stock
up through October 26, 2000. As of September 24, 2000, 30,000 shares have been
repurchased through the program.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
27.0 Financial Data Schedule (Edgar)
</TABLE>
(b) Reports on Form 8-K
None.
13
<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.
<TABLE>
<S> <C> <C>
C.P. CLARE CORPORATION
By: /s/ HARRY ANDERSEN
-----------------------------------------
Harry Andersen
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
</TABLE>
November 8, 2000
14
