-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dfxbmcufo2N707b70nKGQ+2ZoT4YeqC5T2CK+MS1VD08fsDd1G36tlqzeTo67+3r 3JjnQn5b/KSqGKDAT23NHA== 0000891618-94-000205.txt : 19940929 0000891618-94-000205.hdr.sgml : 19940929 ACCESSION NUMBER: 0000891618-94-000205 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940928 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYCHEM CORP CENTRAL INDEX KEY: 0000082206 STANDARD INDUSTRIAL CLASSIFICATION: 3640 IRS NUMBER: 941369731 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08341 FILM NUMBER: 94550674 BUSINESS ADDRESS: STREET 1: 300 CONSTITUTION DR STREET 2: MS#120/8502 CITY: MENLO PARK STATE: CA ZIP: 94025-1164 BUSINESS PHONE: 4153613333 MAIL ADDRESS: STREET 1: 300 CONSTITUTION DRIVE STREET 2: #MS 120/8502 CITY: MENLO PARK STATE: CA ZIP: 94025-1164 FORMER COMPANY: FORMER CONFORMED NAME: RAYTHERM CORP DATE OF NAME CHANGE: 19720526 10-K 1 ANNUAL REPORT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JUNE 30, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 2-15299
RAYCHEM CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-1369731 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 94025-1164 300 CONSTITUTION DRIVE (ZIP CODE) MENLO PARK, CA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 361-4180 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED - ----------------------------------------------- ----------------------------------------------- Common Stock, $1 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by nonaffiliates of the registrant (assuming for these purposes, but without conceding, that all executive officers and directors are "affiliates" of the registrant) as of August 23, 1994, (based on the closing sale price as reported on the New York Stock Exchange on such date) was $1,729,105,997. Number of shares of Common Stock outstanding as of August 23, 1994: 43,344,332 DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV: Portions of the Annual Report to Stockholders for the fiscal year ended June 30, 1994 Part III: Portions of the Proxy Statement dated September 21, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS Raychem Corporation, founded in 1957, is a broadly based materials science company serving both domestic and international markets. The terms "company" or "Raychem" mean Raychem Corporation and its consolidated subsidiaries. The company develops, manufactures, and sells a variety of high-performance products used by customers in the aerospace, automotive, cable television, commercial electronics, communications, computer, construction, defense, industrial infrastructure, mass transit, medical, and telephone industries. The company's Raynet Corporation subsidiary ("Raynet") delivers fiber-optic distribution systems for voice, video, and data to telecommunications network operators. For information regarding restructuring actions, see the Note entitled "Restructuring and Divestitures" and the section entitled "Financial Review" of the company's 1994 Annual Report to Stockholders (the "1994 Annual Report"), which is incorporated herein by reference and is included in this filing as Exhibit 13. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The company's business is organized into four industry segments designated as electronics, industrial, telecommunications (collectively referred to as the "core business"), and Raynet. For financial and other information concerning the company's industry segments, see the Note entitled "Business Segments" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. (C) NARRATIVE DESCRIPTION OF BUSINESS For information regarding operating results, principal products produced, and industries served by the company's industry segments, see the Note entitled "Business Segments" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. For information regarding the status of Raynet, see the Note entitled "Raynet" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. METHODS OF DISTRIBUTION The products of the company's industry segments are marketed primarily through Raychem's worldwide sales force as well as through outside distribution channels both within and outside the United States. SOURCES AND AVAILABILITY OF RAW MATERIALS Materials required by the company's industry segments in their continuing manufacturing operations, or substitutes for such materials, are generally available from multiple sources worldwide. No significant delays have been experienced by the company in obtaining the materials needed to satisfy its requirements. PATENTS AND PROPRIETARY INFORMATION The company applies for patents in the United States and other countries, as appropriate, to protect its significant patentable developments. As of June 30, 1994, the company had in force 953 U.S. patents and 3,279 foreign patents, and had pending 285 U.S. patent applications and 2,829 foreign patent applications. Patents held by the company in the aggregate are of material importance in the operation of the company's business. Management, however, does not believe that any single patent, or group of related patents, is essential to the company's business as a whole or to that of any of its industry segments. Additionally, the 1 3 company owns and uses in its business a substantial body of proprietary information and numerous trademarks. WORKING CAPITAL Information relative to working capital is included in the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. CUSTOMERS The company's industry segments sell to many customers. Management does not believe that the loss of any one customer would have a materially adverse effect on the business of the company. Approximately 3% of the company's 1994 revenues were specifically identified by Raychem's customers for U.S. Government end use; however, the company believes a number of its distributors made sales for U.S. Government end use which were not reported to it. Additionally, the company made direct sales to the U.S. Government of less than 1%. BACKLOG The company's business is characterized by short lead times and the absence of a significant backlog. The company expects that substantially all of the backlog at June 30, 1994, will be shipped in fiscal 1995. Set forth below is the backlog at June 30, 1994 and 1993, for each of the company's industry segments.
JUNE 30, --------------- 1994 1993 ---- ---- (IN MILLIONS) Electronics................. $129 $120 Industrial.................. 48 50 Telecommunications.......... 83 126 Raynet...................... 15 43 ---- ---- Total $275 $339 ==== ====
GOVERNMENT CONTRACTS No material portion of the company's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. COMPETITION The company's key competitive elements in its core business include: developing products that provide innovative solutions to customers' technical problems; providing high product quality and performance; continually introducing new products as well as improvements to existing products; and providing ongoing customer support. While the products of the company's core industry segments are sold in highly competitive markets, the company's total sales are often a small fraction of total sales within the markets in which it operates. Raychem's products compete with those of a large number of companies and divisions within companies that are both larger and smaller than Raychem. The company's Raynet subsidiary is engaged in the development, manufacture, and sale of fiber-optic loop optical carrier systems and integrated operations support system software. Raynet's products compete with those of specialized telecommunications companies and affiliates of diversified international corporations that are both larger and smaller than Raychem. The competitive features of Raynet's market include emphasis 2 4 on product quality, price, and performance in the provision of telecommunications services for the local loop network. RESEARCH AND DEVELOPMENT For financial information on research and development expense, see the sections entitled "Consolidated Statement of Operations" and "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. ENVIRONMENTAL REGULATIONS For information regarding the effect of environmental regulations on the company, see the section entitled "Financial Review," the Note entitled "Summary of Significant Accounting Policies," and the Note entitled "Contingencies" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. Additional information regarding environmental administrative and judicial proceedings is set forth in Part I of this Form 10-K under the caption "Legal Proceedings." EMPLOYEES As of June 30, 1994, the company employed 10,769 people. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The company's international operations are conducted primarily through wholly owned subsidiaries that are responsible for sales, distribution and, in some cases, research, development, and manufacturing activities. At June 30, 1994, these operations employed approximately 5,537 people representing 51% of the company's total work force. The company's principal international operations are located in Western Europe. Although the company's Western European operations are subject to a number of risks, such as changes in foreign currency exchange rates, management believes that they do not involve significantly greater risks than the company's domestic operations. The company also operates in the Middle East, Asia, and Latin America. Although doing business in these parts of the world involves some degree of risk due to greater economic and political uncertainties, management believes that the company's spending and exposure levels are appropriate in the regions in which it conducts business. For additional information regarding the company's international and domestic operations and export sales, see the Note entitled "Worldwide Operations" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. ITEM 2. PROPERTIES The company's principal domestic facilities are located in Menlo Park and Redwood City, California, and in Fuquay-Varina, North Carolina. Additional facilities of significance are located in Belgium, France, Germany, Ireland, Japan, People's Republic of China, and the United Kingdom. The company owns and leases a total of 6,779,000 square feet of manufacturing, distribution, research and development, and sales and administrative facilities worldwide. 3 5 The approximate square footage of all property owned and leased by each of the company's industry segments and corporate as of June 30, 1994, is shown in the following table:
JUNE 30, 1994 ----------------------------------------------------------------- TELECOM- CONSOLIDATED (SQUARE FEET IN THOUSANDS) ELECTRONICS INDUSTRIAL MUNICATIONS RAYNET CORPORATE TOTAL - ---------------------------------------------------- ---------- ----------- ------ --------- ------------ Owned property: United States.......................... 356 158 273 -- 992 1,779 International.......................... 731 526 910 -- 4 2,171 ----------- ---------- ----------- ------ --------- ------ Total owned property........... 1,087 684 1,183 -- 996 3,950 ----------- ---------- ----------- ------ --------- ------ Leased property: United States.......................... 218 163 346 306 417 1,450 International.......................... 397 441 537 4 0 1,379 ----------- ---------- ----------- ------ --------- ------ Total leased property.......... 615 604 883 310 417 2,829 ----------- ---------- ----------- ------ --------- ------ Total owned and leased property..................... 1,702 1,288 2,066 310 1,413 6,779 ========= ======== ========== ===== ======== ===========
The company owns approximately 223 acres of land in the United States and 243 acres abroad for a total of 466 acres. Of this total, electronics uses approximately 139 acres; industrial, 79 acres; telecommunications, 188 acres; and corporate, 60 acres. The company's facilities are suitable for their respective uses and, in general, are adequate to support the current and anticipated volumes of business. The company conducts continuing reviews of its facilities under improvement programs aimed at modernization and cost reduction. For information on capital expenditures, see the section entitled "Financial Review" in the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. For information regarding leased properties, see the Note entitled "Commitments" in the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. ITEM 3. LEGAL PROCEEDINGS On July 6, 1994, the company and Communications Technology Corporation settled all claims and counterclaims in the company's lawsuit for patent infringement filed in the United States District Court, Northern District of California, on November 2, 1992. The settlement is subject to entry of consent judgment. On May 4, 1994, the United States District Court for the Northern District of California entered an Order Granting Summary Adjudication on Certain Issues and Continuing Motion As to Other Issues in the matter of Raychem Corporation v. Federal Insurance Company, a lawsuit filed by the company on December 16, 1991, seeking recovery from Federal, its insurer, of $8.25 million paid by the company in settlement of a class action securities suit. The Order finds in Raychem's favor that the indemnification of officers and directors for settlement payments and defense costs was "permitted by law," that any "allocation" for coverage purposes between the corporation and the officers and directors is improper, and that the officers and directors were acting in their official capacities insofar as the acts alleged to have occurred; further that although Federal has raised no genuine issue of material fact to the contrary, Federal may conduct discovery over a six-month period on whether Raychem's indemnification of the officers and directors was in good faith and whether settlement payments and defense costs were for matters insurable under the law. Raychem was also granted the right to re-notice its motion for partial summary judgment after six months. The company actively continues to pursue its claim that Federal acted in bad faith in connection with its handling of this claim. On March 8, 1994, a judgment was entered in the company's favor in a lawsuit filed on September 9, 1988, in the Supreme Court of Newfoundland, Canada, Trial Division, Bow Valley, et al. v. Saint John Shipbuilding and Raychem. The plaintiffs had alleged claims for damages arising out of a fire on an offshore drilling platform and made allegations attributing the cause and spread of the fire to heat-tracing and cladding products manufactured by the company. The decision has been appealed by the plaintiffs. The appeal will be 4 6 argued in November 1994. On November 30, 1993, a Petition by joint venturers of the plaintiffs in the Bow Valley lawsuit making similar claims was filed in the Supreme Court of Newfoundland, Canada, Trial Division, and was served on the company on March 25, 1994. A New Brunswick lawsuit filed by Saint John Shipbuilding against Raychem Canada, Ltd. arising out of the same incident has been stayed by prior agreement of the parties. On December 23, 1993, the company and Thomas and Betts Corporation settled all claims and counterclaims in the company's lawsuit for patent infringement filed in the United States District Court, Northern District of California, on August 25, 1992. On November 30, 1993, the company filed a complaint in the United States District Court, Northern District of California, against PSI Telecommunications, Inc. for patent infringement. On January 21, 1994, PSI Telecommunications, Inc. answered the complaint and filed a counterclaim against the company for declaratory judgment that the patent is invalid and not infringed, and amended its complaint and counterclaim on February 4, 1994. No monetary damages have been alleged. The company believes the counterclaim is without merit. On August 27, 1993, a Complaint entitled West County Landfill, Inc. v. Raychem International Corporation; FMC Corporation; Kaiser Aluminum & Chemical Corporation; Flint Ink Corporation; Stauffer Chemical Company; Rhone-Poulenc Basic Chemicals Co.; Rhone Poulenc Inc.; Pacific Gas & Electric Company; Union Oil Company of California; Chevron U.S.A., Inc.; Chevron Chemical Company; Shell Oil Company; Desoto, Inc.; Occidental Chemical Corporation; General Motors Corporation; Romic Chemical Corporation; United Airlines, Inc.; United States Department of Defense; United States Department of Navy was filed in the United States District Court, Northern District of California. The allegations contend that the defendants generated hazardous materials which were disposed of at a site operated by plaintiff. Raychem International Corporation is alleged to have done so during the period 1975 through 1979 and perhaps at other times. The complaint seeks recovery of response costs which plaintiff has allegedly incurred in an amount exceeding $15 million. On August 19, 1993, a Complaint entitled Creole Engineering Co. v. Raychem Corporation, Tri-Systems, and Tracer Construction Company was filed in the United States District Court, Northern District of California. The complaint seeks injunctive relief and monetary damages in excess of $5 million (prior to trebling) for violation of various statutes, including antitrust and unfair competition statutes, for breach of contract, and for other tortious acts. The complaint arises out of a distributor termination by Raychem. On June 29, 1993, a Second Amended Complaint entitled Unit Process Company; Brock, Easley, Inc.; Bylin Heating Systems, Inc.; and Fluid Flow Control Contractors v. Raychem Corporation; Debenham Electrical Supply Company, Inc.; and K.V.A. Electrical Supply Corp. was filed in the United States District Court, Northern District of California. The complaint seeks damages in excess of $5 million (prior to trebling) per claimant arising out of a distributor termination by Raychem Corporation and contains allegations of violations of federal antitrust statutes and various Washington State statutes. The plaintiffs have recently been granted leave to file a third amended complaint. The Unit Process and Creole Engineering actions will be heard as related actions before the same judge. On December 14, 1992, a Complaint entitled Culinary Foods, Inc., et al. v. Raychem Corporation was filed in the United States District Court, Northern District of Illinois, asserting liability against the company for alleged property damage and personal injury (a death) arising out of use of the company's FreezGard(R) product. The complaint seeks damages in excess of $50 million. The company intends to vigorously defend itself and has filed a response denying all liability. The matter has been tendered to the company's insurance carriers. On July 10, 1991, the company received written notice from the California Department of Health Services ("DHS") that it intends to issue an administrative order relating to the clean-up of soil contamination at the company's administrative and manufacturing site in Menlo Park, California. The company is currently negotiating with DHS regarding the proposed administrative order. To date, no administrative order has been issued by DHS. 5 7 The company has been named, among others, as an interested party in administrative proceedings instituted by the United States Environmental Protection Agency on March 23, 1989, and as a potentially responsible party in a matter initiated by the California Environmental Protection Agency on September 1, 1992, each alleging that the company may be liable for costs of correcting environmental conditions at certain hazardous waste sites. Legal proceedings tend to be unpredictable and costly. Based on currently available information, however, management believes that the resolution of pending claims, regulatory inquiries, and legal proceedings will not have a material adverse effect on the company's operating results or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None in the fourth quarter. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of all executive officers of the company as of June 30, 1994, their positions with the company and the date each was first elected as, or otherwise deemed to be, an executive officer of the registrant. This table is included as an unnumbered item in Part I of this Form 10-K.
DATE APPOINTED NAME AGE POSITION AN OFFICER - ------------------------------- ------------------------------- -------------- Robert J. Saldich........... 61 President, 1971 Chief Executive Officer and Director Harry O. Postlewait......... 60 Executive Vice President 1971 Charles J. Abbe............. 53 Senior Vice President, 1993 Electronics Michael T. Everett.......... 45 Senior Vice President, Asia 1987 Ralph H. Harnett............ 46 Senior Vice President, 1993 Telecommunications Raymond J. Sims............. 43 Senior Vice President 1988 and Chief Financial Officer James B. Spradling.......... 60 Senior Vice President, 1973 Industrial and Europe Joseph G. Wirth............. 58... Senior Vice President 1991 and Chief Technical Officer Stephen A. Balogh........... 47 Vice President, 1990 Human Resources Deidra D. Barsotti.......... 38 Vice President and Controller 1991 Eric Van Zele............... 46 Vice President 1994 Robert J. Vizas............. 47 Vice President, 1990 General Counsel and Secretary
There are no family relationships between any executive officers. All of the executive officers except Messrs. Wirth, Vizas and Abbe have been employed by or associated with the company in their present or other managerial and executive capacities for more than five years. Mr. Wirth was a Vice President at General Electric Company before becoming Senior Vice President and Chief Technical Officer of Raychem in 1991. Mr. Vizas was a member of the law firm of Heller, Ehrman, White & McAuliffe before becoming the Secretary and General Counsel of Raychem in 1990. Mr. Abbe was a Director at McKinsey & Company, Inc. before joining Raychem in 1989. 6 8 PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The section entitled "Quarterly Financial Data (Unaudited)" of the 1994 Annual Report is incorporated herein by reference and is included in this filing as Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA The section entitled "Ten-Year Summary" of the 1994 Annual Report is incorporated herein by reference and is included in this filing as Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The section entitled "Financial Review" of the 1994 Annual Report is incorporated herein by reference and is included in this filing as Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, together with the Notes thereto and the report thereon of Price Waterhouse LLP, dated July 20, 1994, and the section entitled "Quarterly Financial Data (Unaudited)" of the 1994 Annual Report are incorporated herein by reference and are included in this filing as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND DISCLOSURE MATTERS None. 7 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the company's directors is presented in the subsection entitled "Nominees" appearing on page 2 of the Proxy Statement dated September 21, 1994 (the "1994 Proxy Statement"), which is incorporated herein by reference. Information regarding the company's executive officers is set forth in Part I of this Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing on pages 5 to 9 of the 1994 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The subsection entitled "Stock Ownership" appearing on page 3 of the 1994 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The subsection entitled "Company Loans to Directors and Executive Officers" appearing on page 11 of the 1994 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements
PAGE IN 1994 ANNUAL REPORT* -------------- Consolidated Balance Sheet at June 30, 1994 and 1993.......... 18 Consolidated Statement of Operations for the three years ended 19 June 30, 1994............................................... Consolidated Statement of Stockholders' Equity for the three 20 years ended June 30, 1994................................... Consolidated Statement of Cash Flows for the three years ended 21 June 30, 1994............................................... Notes to Consolidated Financial Statements.................... 22-33 Report of Independent Accountants............................. 34 Quarterly Financial Data (Unaudited).......................... 35 Ten-Year Summary.............................................. 36-37 Financial Review.............................................. 10-17
- --------------- * Incorporated herein by reference and included in this filing as Exhibit 13. 8 10 (2) Financial Statement Schedules
PAGE IN 1994 FORM 10-K ------------ Report of Independent Accountants on Financial Statement Schedules................................... 13 II -- Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties....................................... 14-16 V -- Property, Plant and Equipment......................... 17 VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment................................... 18 VIII -- Valuation and Qualifying Accounts..................... 19 X -- Supplementary Income Statement Information............ 20
All other Financial Statement Schedules are omitted because they are not required or are not applicable, or the required information is included in the Consolidated Financial Statements or the Notes. 9 11 (3) Index to Exhibits
EXHIBIT NO. DESCRIPTION ----------- ----------------------------------------------------------------------------- 3(a) Amended and Restated Certificate of Incorporation(7) 3(b) Bylaws(2) 3(c) Certificate of Merger(2) 4(a) Rights Agreement(6) 4(b) Note Purchase Agreement dated as of February 15, 1991, as amended(8) 4(c) Credit Agreement dated January 1, 1992(8) 4(d) First Amendment to the Credit Agreement dated as of January 1, 1992(9) 10(a) Amended and Restated 1981 Incentive Stock Option Plan(3) 10(b) Amended and Restated 1981 Supplemental Stock Option Plan(3) 10(c) Executive Long Term Incentive Plan(4) 10(d) Bonus Deferral Plan(4) 10(e) Consulting Agreement dated as of October 1, 1981, between the company and J. Kenneth Jamieson(1) 10(f) Amended and Restated 1987 Directors Stock Option Plan(10) 10(g) Supplemental Executive Retirement Plan(5) 10(h) Raynet Corporation Common Stock Plan(5) 10(i) Amended and Restated 1990 Incentive Plan(10) 10(j) Consulting Agreement dated as of April 1, 1990, between the company and Paul M. Cook(7) 10(k) Consulting Agreement dated as of April 1, 1990, between Raynet Corporation and Robert M. Halperin (superseded by Exhibit 10(o))(7) 10(l) Supplementary Agreement dated as of April 1, 1990, between the company and Robert M. Halperin (superseded by Exhibit 10(o))(7) 10(m) Description of Bonus Plan(8) 10(n) Consulting Agreement dated as of January 25, 1994, between the company and Isaac Stein and Waverly Associates, Inc. 10(o) Consulting Agreement dated as of April 18, 1994, between Raynet Corporation and Robert M. Halperin 10(p) Raynet Corporation 1993 Common Stock Plan 13 Portions of the 1994 Annual Report to Stockholders 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 99(a) List of subsidiaries whose employees are participating in the Amended and Restated 1984 Employee Stock Purchase Plan for United States employees and employees of certain domestic and foreign subsidiaries. 99(b) List of subsidiaries whose employees are participating in the 1985 Supplemental Employee Stock Purchase Plan for employees of certain subsidiaries.
- --------------- (1) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended June 30, 1982, (File No. 2-15299) and incorporated by reference. (2) Filed as an exhibit to the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987, (File No. 2-15299) and incorporated by reference. (3) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended June 30, 1987, (File No. 2-15299) and incorporated by reference. (4) Filed as an exhibit to the company's Proxy Statement dated September 12, 1988, mailed to stockholders in connection with the 1988 Annual Meeting of Stockholders and incorporated by reference.
10 12 (5) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended June 30, 1988, (File No. 2-15299) and incorporated by reference. (6) Filed as an exhibit to the Registration Statement on Form 8-A filed by the company on February 3, 1989, (File No. 2-15299) and incorporated by reference. (7) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, (File No. 2-15299) and incorporated by reference. (8) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992, (File No. 2-15299) and incorporated by reference. (9) Filed as an exhibit to the company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, (File No. 2-15299) and incorporated by reference. (10) Filed as an exhibit to the company's Registration Statement on Form S-8 filed by the company on October 25, 1993, (Registration No. 33-50737) and incorporated by reference. (b) Reports on Form 8-K None.
11 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. RAYCHEM CORPORATION REGISTRANT By /s/ ROBERT J. SALDICH (Robert J. Saldich, President and Chief Executive Officer) Date: September 23, 1994 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Robert J. Saldich and Raymond J. Sims, or either of them, as his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------------------- /s/ ROBERT J. SALDICH President, Chief Executive September 23, 1994 (Robert J. Saldich) Officer and Director (Principal Executive Officer) /s/ RAYMOND J. SIMS Senior Vice President and September 23, 1994 (Raymond J. Sims) Chief Financial Officer (Principal Financial Officer) /s/ DEIDRA D. BARSOTTI Vice President and September 23, 1994 (Deidra D. Barsotti) Controller (Principal Accounting Officer) /s/ PAUL M. COOK Chairman of the Board September 23, 1994 (Paul M. Cook) /s/ RICHARD DULUDE Director September 23, 1994 (Richard Dulude) /s/ JAMES F. GIBBONS Director September 23, 1994 (James F. Gibbons) /s/ ROBERT M. HALPERIN Vice Chairman of the Board September 23, 1994 (Robert M. Halperin) /s/ JOHN P. MCTAGUE Director September 23, 1994 (John P. McTague) /s/ DEAN O. MORTON Director September 23, 1994 (Dean O. Morton) /s/ ISAAC STEIN Director September 23, 1994 (Isaac Stein) /s/ CYRIL J. YANSOUNI Director September 23, 1994 (Cyril J. Yansouni)
12 14 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of Raychem Corporation: Our audits of the consolidated financial statements referred to in our report dated July 20, 1994 appearing on page 17 of Exhibit 13 to this Form 10-K (which is incorporated herein by reference) also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP San Jose, California July 20, 1994 13 15 SCHEDULE II RAYCHEM CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEAR ENDED JUNE 30, 1994 (IN THOUSANDS) This schedule includes loans to employees and related parties who had aggregate indebtedness with respect to such loans greater than $100,000 at any time during the three most recent fiscal years. Balances at fiscal year-end are current if due within one year, noncurrent if due after one year. Loans were provided to listed individuals for various purposes during the three-year period ended June 30, 1994. Certain loans were made to employees to enable them to purchase Common Stock, primarily through the exercise of options, and to pay taxes incidental to such stock purchases. Common Stock loans made during the three-year period ended June 30, 1994, are typically repayable over a five-or eight-year term and bear interest at annual rates ranging from 5.0% to 9.1% as of June 30, 1994. Stock loans are collateralized by the Common Stock purchased by the employees except for listed loans to employees resident in the United Kingdom which are not collateralized. In addition, loans were provided to certain employees for housing, relocation, and other assistance with interest rates ranging from 0% to 9.0%.
BALANCE AT JUNE 30, DEDUCTIONS 1994 BALANCE AT ------------------------- ---------------------- NAME OF DEBTOR JULY 1, 1993 ADDITIONS COLLECTIONS WRITE-OFFS CURRENT NONCURRENT - ------------------------------------- --------- ----------- ---------- ------- ----------- H. Burkard............... $131 $ 5 $ 19 $ -- 1$9.... $ 98 E. Davis................. 920 -- 920 -- -- -- K. Dawes................. 242 -- -- -- -- 242 B. DeBrunier............. 197 -- 197 -- -- -- J. Gutierrez............. 181 -- 75 -- -- 106 G. Hunter................ 200 -- -- -- -- 200 R. Kelsch................ 500 -- -- -- -- 500 T. Melvin................ 250 -- 250 -- -- -- H. Postlewait............ 253 -- 20 -- -- 233 R. Saldich............... 243 11 51 -- 203 -- J. Spradling............. 161 75 20 -- -- 216 M. Wegenstein............ 135 -- 27 -- -- 108 J. Wirth................. 600 -- -- -- -- 600 W. Zahrt................. 145 -- -- -- -- 145 Former employees/related parties as a group..... 230 -- 230 -- -- --
14 16 SCHEDULE II (CONTINUED) RAYCHEM CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEAR ENDED JUNE 30, 1993 (IN THOUSANDS)
BALANCE AT JUNE 30, DEDUCTIONS 1993 BALANCE AT ------------------------- ---------------------- NAME OF DEBTOR JULY 1, 1992 ADDITIONS COLLECTIONS WRITE-OFFS CURRENT NONCURRENT - ------------------------------------- --------- ----------- ---------- ------- ----------- C. Bonwit................ $230 $-- $ -- $ -- $ -- $ 230 H. Burkard............... -- 131 -- -- 7 124 E. Davis................. 857 63 -- -- -- 920 K. Dawes................. -- 242 -- -- -- 242 B. DeBrunier............. 198 -- 1 -- -- 197 J. Gutierrez............. 176 5 -- -- -- 181 G. Hunter................ -- 200 -- -- -- 200 R. Kelsch................ -- 500 -- -- -- 500 A. Kranitz............... 107 -- 16 -- -- 91 F. L'Heritier............ 104 -- 21 -- 16 67 T. Melvin................ 250 -- -- -- -- 250 H. Postlewait............ -- 626 373 -- -- 253 R. Saldich............... 348 -- 105 -- 32 211 J. Spradling............. 180 -- 19 -- -- 161 J. Webb.................. 237 -- 143 5 17 72 M. Wegenstein............ 135 -- -- -- -- 135 W. Whitney............... 203 1 107 -- 15 82 J. Wirth................. 600 -- -- -- -- 600 W. Zahrt................. 145 -- -- -- -- 145 Former employees/related parties as a group..... 3,746 56 3,802 -- -- --
15 17 SCHEDULE II (CONTINUED) RAYCHEM CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEAR ENDED JUNE 30, 1992 (IN THOUSANDS)
BALANCE AT JUNE 30, DEDUCTIONS 1992 BALANCE AT ------------------------- ---------------------- NAME OF DEBTOR JULY 1, 1991 ADDITIONS COLLECTIONS WRITE-OFFS CURRENT NONCURRENT - ------------------------------------- --------- ----------- ---------- ------- ----------- S. Balogh................ $ 133 $ 3 $ 101 $ -- $ 7 $ 28 C. Bonwit................ 230 -- -- -- -- 230 E. Brown................. 250 2 241 -- 4 7 E. Davis................. 1,855 -- 998 -- -- 857 B. DeBrunier............. 198 -- -- -- -- 198 G. Delaney............... 141 -- 49 -- 92 -- T. Duerig................ 181 -- 181 -- -- -- J. Gutierrez............. 171 14 9 -- -- 176 E. Keible, Jr............ 306 -- 306 -- -- -- W. Kiely................. 225 4 229 -- -- -- A. Kranitz............... 120 2 15 -- -- 107 F. L'Heritier............ 100 4 -- -- 16 88 T. Melvin................ 250 -- -- -- -- 250 K. Meyer................. 189 -- 189 -- -- -- W. Mitchell.............. 141 -- 141 -- -- -- J. Mulryan............... 137 -- 137 -- -- -- H. Postlewait............ 376 -- 376 -- -- -- S. Rohaez................ 150 -- 150 -- -- -- R. Saldich............... 1,354 30 1,036 -- 62 286 J. Spradling............. 379 87 286 -- -- 180 D. Taft.................. 248 5 215 -- 38 -- C. Ward.................. 108 -- 10 -- -- 98 J. Webb.................. 254 19 36 -- 141 96 M. Wegenstein............ -- 135 -- -- -- 135 W. Whitney............... 267 9 73 -- 113 90 J. Wirth................. 600 -- -- -- -- 600 W. Zahrt................. 145 -- -- -- -- 145 Former employees/related parties as a group..... 7,836 199 4,289 -- 3,746 --
16 18 SCHEDULE V RAYCHEM CORPORATION AND SUBSIDIARIES PROPERTY, PLANT & EQUIPMENT YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
RECLASSI- BALANCE AT FICATIONS FOREIGN BEGINNING ADDITIONS RETIREMENTS BETWEEN CURRENCY BALANCE AT OF YEAR AT COST OR SALES ACCOUNTS TRANSLATION END OF YEAR ---------- ---------- ----------- -------- ----------- ----------- 1994: Land............................... $ 45,075 $ 950 $ 1,135 $ -- $ 1,950 $ 46,840 Buildings: In service....................... 321,100 2,984 2,747 23,184 7,853 352,374 Under construction............... 9,593 20,654 (195) (23,086 ) 181 7,537 ---------- ---------- ----------- -------- ----------- ----------- Subtotal.................... 330,693 23,638 2,552 98 8,034 359,911 Machinery & equipment: In service....................... 527,788 15,287 31,575 50,223 11,907 573,630 Under construction............... 23,059 54,231 152 (51,026 ) 247 26,359 ---------- ---------- ----------- -------- ----------- ----------- Subtotal.................... 550,847 69,518 31,727 (803 ) 12,154 599,989 Furniture & fixtures............... 42,355 5,199 1,142 (769 ) 1,120 46,763 Leasehold improvements............. 52,374 4,751 1,877 1,474 470 57,192 ---------- ---------- ----------- -------- ----------- ----------- Total....................... $1,021,344 $104,056 $38,433 $ -- $ 23,728 $1,110,695 ========== =========== ============ ========= =========== ============ 1993: Land............................... $ 49,000 $ -- $ 333 ($ 227 ) ($ 3,365) $ 45,075 Buildings: In service....................... 337,468 967 2,298 7,187 (22,224) 321,100 Under construction............... 3,376 13,720 606 (7,289 ) 392 9,593 ---------- ---------- ----------- -------- ----------- ----------- Subtotal.................... 340,844 14,687 2,904 (102 ) (21,832) 330,693 Machinery & equipment: In service....................... 521,842 14,738 28,922 56,260 (36,130) 527,788 Under construction............... 28,613 50,579 389 (54,423 ) (1,321) 23,059 ---------- ---------- ----------- -------- ----------- ----------- Subtotal.................... 550,455 65,317 29,311 1,837 (37,451) 550,847 Furniture & fixtures............... 43,487 3,658 2,282 (169 ) (2,339) 42,355 Leasehold improvements............. 57,808 5,883 5,754 (1,339 ) (4,224) 52,374 ---------- ---------- ----------- -------- ----------- ----------- Total....................... $1,041,594 $ 89,545 $40,584* $ -- ($ 69,211) $1,021,344 ========== =========== ============ ========= =========== ============ 1992: Land............................... $ 43,251 $ 1,115 $ 1,530 $ -- $ 6,164 $ 49,000 Buildings: In service....................... 287,218 1,123 7,387 29,749 26,765 337,468 Under construction............... 15,987 17,664 609 (29,841 ) 175 3,376 ---------- ---------- ----------- -------- ----------- ----------- Subtotal.................... 303,205 18,787 7,996 (92 ) 26,940 340,844 Machinery & equipment: In service....................... 448,855 12,360 30,858 54,141 37,344 521,842 Under construction............... 37,185 48,177 3,498 (54,256 ) 1,005 28,613 ---------- ---------- ----------- -------- ----------- ----------- Subtotal.................... 486,040 60,537 34,356 (115 ) 38,349 550,455 Furniture & fixtures............... 38,816 5,136 3,282 (38 ) 2,855 43,487 Leasehold improvements............. 47,475 8,315 1,563 245 3,336 57,808 ---------- ---------- ----------- -------- ----------- ----------- Total....................... $ 918,787 $ 93,890 $48,727** $ -- $ 77,644 $1,041,594 ========== =========== ============ ========= =========== ============
- ------------ * Includes property, plant and equipment write-downs of $2,791 related to restructuring and divestitures. ** Includes property, plant and equipment write-downs of $11,931 related to restructuring and divestitures. 17 19 SCHEDULE VI RAYCHEM CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
BALANCE ADDITIONS RECLASSI- AT CHARGED TO FICATIONS FOREIGN BEGINNING COSTS AND RETIREMENTS BETWEEN CURRENCY BALANCE AT OF YEAR EXPENSES OR SALES ACCOUNTS TRANSLATION END OF YEAR --------- ---------- ----------- --------- ----------- ----------- 1994: Buildings................... $ 112,824 $ 12,655 $ 2,396 $ -- $ 2,803 $ 125,886 Machinery & equipment....... 354,261 57,081 28,799 376 8,649 391,568 Furniture & fixtures........ 25,914 3,519 1,046 (376) 674 28,685 Leasehold improvements...... 26,532 4,914 1,571 -- 202 30,077 --------- ---------- ----------- --------- ----------- ----------- Total............. $ 519,531 $ 78,169 $33,812 $ -- $ 12,328 $ 576,216 ======== ========== =========== ========= ========== =========== 1993: Buildings................... $ 109,285 $ 12,936 $ 1,233 $ 436 ($ 8,600) $ 112,824 Machinery & equipment....... 349,508 56,450 25,203 (312) (26,182) 354,261 Furniture & fixtures........ 26,005 3,667 2,008 (17) (1,733) 25,914 Leasehold improvements...... 28,302 4,891 5,093 (107) (1,461) 26,532 --------- ---------- ----------- --------- ----------- ----------- Total............. $ 513,100 $ 77,944 $33,537* $ -- ($ 37,976) $ 519,531 ======== ========== =========== ========= ========== =========== 1992: Buildings................... $ 90,755 $ 12,682 $ 3,033 $ 1 $ 8,880 $ 109,285 Machinery & equipment....... 291,921 54,513 23,549 (295) 26,918 349,508 Furniture & fixtures........ 22,471 3,030 1,713 206 2,011 26,005 Leasehold improvements...... 24,130 4,428 1,347 88 1,003 28,302 --------- ---------- ----------- --------- ----------- ----------- Total............. $ 429,277 $ 74,653 $29,642** $ -- $ 38,812 $ 513,100 ======== ========== =========== ========= ========== ===========
- ------------ * Includes accumulated depreciation of property, plant and equipment of $1,422 related to restructuring and divestitures. ** Includes accumulated depreciation of property, plant and equipment of $5,826 related to restructuring and divestitures. 18 20 SCHEDULE VIII RAYCHEM CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS* YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO FOREIGN BEGINNING COSTS AND ACCOUNTS CURRENCY BALANCE AT DESCRIPTION OF YEAR EXPENSES WRITTEN OFF TRANSLATION END OF YEAR - ------------------------------------ ---------- ---------- ----------- ----------- ----------- 1994: Accounts receivable................. $8,557 $6,288 $ 2,395 $ (851) $11,599 ========= ========== ========== ========== =========== 1993: Accounts receivable................. $8,828 $3,626 $ 2,748 $(1,149) $ 8,557 ========= ========== ========== ========== =========== 1992: Accounts receivable................. $7,123 $3,629 $ 2,402 $ 478 $ 8,828 ========= ========== ========== ========== ===========
- ------------ * Allowances are deducted from assets to which they apply. 19 21 SCHEDULE X RAYCHEM CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
CHARGED TO COSTS AND EXPENSES: 1994 1993 1992 -------- -------- -------- Maintenance and repairs................................... $ 31,001 $ 30,372 $ 29,611 ======= ======= =======
20 EX-10 2 WAVERLY ASSOCIATES, BOARD OVERSIGHT COMMITTEE 1 EXHIBIT 10(N) January 25, 1994 Mr. Isaac Stein Waverley Associates 525 University Avenue Palo Alto, CA 94301 Dear Isaac: Thank you for taking on the responsibility of chairing the Board oversight committee for Raynet. Your compensation for chairing this effort will be $25,000 per year. In addition, you will receive a one time stock option grant of 10,000 shares in Raychem Corporation, subject to approval of the Board of Directors at the upcoming meeting. Given the current situation at Raynet, we would like you to spend a considerable amount of time as a consultant in addition to the committee meetings and obligations. Your duties will include consulting with Raynet management and Raychem management concerning financing alternatives and other Raynet related issues. Waverley Associates Inc. ("Waverley") has agreed to hold you available up to 20% of your time for these duties. Waverley will receive a retainer at the rate of $32,000 per quarter, commencing January 1 1994, for this assignment, against a fee of $3,000 per day. The arrangement will initially run until December 31, 1994, and we will then review it quarterly in advance to insure it is working as we intend. Waverley will receive a customary indemnity from Raychem for these consulting services covering liabilities and expenses, including costs of defense. Please sign and return the enclosed copy of this letter to confirm this arrangement, subject to Board approval at the upcoming meeting. Very truly yours, /s/ PAUL COOK - ------------------------------------------------------ Paul M. Cook Read and Agreed to /s/ ISAAC STEIN - ------------------------------------------------------ Isaac Stein 2 EXHIBIT 10(O) CONSULTING AGREEMENT This Consulting Agreement is entered into as April 18, 1994, between Raynet Corporation, a California corporation having its principal place of business at 155 Constitution Drive, Menlo Park, California 94025, and Robert M. Halperin ("Consultant"), an individual having a home address of 80 Reservoir Road, Atherton, California 94027. Consultant is a retired executive of Raychem Corporation (the parent of Raynet Corporation) whose consulting services are desired by Raynet Corporation, and Consultant wishes to offer such services. The parties therefore agree as follows: 1. Services. Consultant shall provide advice and counsel to Raynet Corporation, its parent, and affiliated companies (collectively, "Raynet") principally in connection with effecting a smooth transition in the sales, marketing and recruiting functions at Raynet, as requested by the Chief Executive Officer of Raynet Corporation or Robert J. Saldich. Consultant shall be available on a 20% time basis to fulfill his obligations under this Agreement. 2. Compensation. (a) Retainer. For the period from the date hereof through December 31, 1994, Consultant shall receive a retainer of $12,500 per each month of this Agreement, payable monthly in arrears, for the services described in Section 1 above. For the period from January 1, 1995 through November 30, 1995, Consultant shall receive a retainer of $6,250 per month, payable in the same manner. (b) Expenses. Raynet shall reimburse Consultant for reasonable expenses incurred in connection with the services provided under this Agreement. All expenses shall be substantiated by appropriate receipts. (c) Office and Secretary. From April 18, 1994 through June 30, 1994, Raynet shall provide to Consultant his current office and a secretary on Raynet promises. On or before June 30, 1994, Consultant shall vacate his office at Raynet. Raynet shall reimburse Consultant for (i) reasonable amounts paid to relocate Consultant's office to another location and (ii) for the rent and common area maintenance charges on an equivalent amount of space as Consultant currently occupies and for the cost of secretarial services in an amount not to exceed to the current cost of providing a secretary to Consultant. The reimbursement for rent and common area maintenance charges secretarial costs shall be at a rate of 100% for the period from July 1, 1994 through December 31, 1994 and at a rate of 50% for the period January 1, 1995 through November 30, 1995. Payment by Raynet shall be made within 10 business days of the submission of an invoice for the covered expenses. Raynet shall not be responsible for the costs of an office or secretarial services for Consultant following November 30, 1995. (d) Fringe Benefits. From the date hereof through December 31, 1994, Raynet shall provide Consultant with a car, life insurance, health insurance, and other standard fringe benefits under Raynet's standard benefit provisions in effect on April 18, 1994 (excluding any additional accrual of benefits under the Raychem Pension Plan and Supplemental Executive Retirement Plan). Such benefits shall be premised on a base compensation of $500,000 per year. Commencing January 1, 1995, the only fringe benefit that Raynet shall be required to provide Consultant is health insurance. Consultant shall be permitted to purchase life insurance and his car in accordance with normal company policies at the end of 1994. In the event that this Agreement is assumed by Raychem pursuant to Section 10 hereof, Consultant shall receive comparable benefits under Raychem's fringe benefit plans on the same basis. 3. Independent Contractors. The relationship of Raynet and Consultant established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall give Raynet the right to control the day-to-day affairs of Consultant or allow Consultant to create or assume any obligation on behalf of Raynet. Consultant 1 3 shall be directly responsible for payments to satisfy Consultant's obligations under all tax laws of every kind, workers' compensation laws, disability and unemployment insurance laws, and the Social Security Act. Raynet shall not withhold taxes or any other payroll deductions from any payments made to Consultant. 4. Inventions. All inventions, improvements, know-how, processes, and techniques that result from work performed by Consultant for Raynet or from access to Raynet Proprietary Information (as defined below) or property ("Inventions") shall be the property of Raynet. Consultant shall promptly disclose all Inventions in writing to Raynet. Consultant hereby assigns to Raynet, without consideration beyond that set forth in Section 2 above, Consultant's entire interest in all Inventions, and Raynet shall be the sole owner of all patents and proprietary rights. Consultant shall assist Raynet (at Raynet's expense) in obtaining and enforcing patents and other forms of trade secret protection on Inventions. "Proprietary Information" means all information related to Raynet's business unless (a) the information is publicly known through lawful means, or (b) the information was rightfully in Consultant's possession prior to the execution of this Agreement. Consultant hereby represents and warrants to Raynet that Consultant has no obligation to any third party that precludes or encumbers Consultant's right to assign to Raynet the full and exclusive right, title, and interest in and to all inventions. 5. Copyright. All writings (including photographs) and other copyrightable material produced by Consultant or Raynet in relation to this Agreement shall be the sole property of Raynet, and Raynet shall have the exclusive right to copyright such writings (including photographs) and other copyrightable material. Consultant hereby assigns to Raynet all original works of authorship that are produced by Consultant (solely or jointly with others) within the scope of this Agreement and that are protectable by copyrights. 6. Confidentiality. Consultant shall hold in confidence all of Raynet's Proprietary Information and all proprietary information entrusted by third parties to Raynet. Consultant shall not disclose, use, copy, publish, summarize, or remove from Raynet's premises any such Proprietary Information except as necessary to carry out Consultant's responsibilities under this Agreement. 7. Information from Consultant. Consultant shall not disclose to Raynet any information that Consultant deems to be confidential or with respect to which Consultant has a confidential obligation to any third party. Raynet shall not be obligated to retain in confidence any information received from Consultant. 8. Non-Competition. Consultant agrees that he will not, during the period in which he receives compensation under this Agreement, serve as a consultant to or employee of any entity engaged in the design, development, use, manufacture, or sale of any product or product line that is competitive with any product or product line manufactured or sold by Raynet or Raychem. 9. Term and Termination. (a) Term. This Agreement shall remain in effect until November 30, 1995 and may not be earlier terminated (even upon the death of Consultant), except by the mutual agreement of both parties. (c) Survival of Provisions. The provisions of Sections 2 (for any amounts due but not yet paid on termination), 3, 4, 5, 6, 7, 9, and 10 of this Agreement shall survive the termination of this Agreement for any reason. 10. General. (a) Entire Agreement. This Agreement is the entire agreement between the parties and supersedes any and all prior agreements between the parties with respect to the services described by this Agreement. This 2 4 Agreement shall not, however, limit or diminish (i) the fiduciary responsibility of Consultant for so long as he serves as a director of Raychem Corporation, or (ii) the standard compensation received by Consultant for his services as a non-employee director of Raychem. Consultant is presently a director and Chairman of the Board of Raynet. Consultant agrees that he will resign as a director and Chairman of Raynet on or before June 30, 1994. (b) Assignment. Neither party shall assign any right or obligation described in this Agreement without the other party's prior written consent. In the event of a sale or other disposition of the stock or business of Raynet, Raychem shall automatically assume the obligations of Raynet under this Agreement. (c) Limitation of Liability; Indemnification. In no event shall Raynet be liable to Consultant for any business expense (except as specifically set forth in Section 2 above), loss or profits and goodwill, or incidental, consequential, or indirect damages, however caused. Raynet agrees that it will indemnify Consultant to the fullest extent permitted by California law, consistent with the provisions of the Bylaws of Raynet and any indemnity agreements between Raynet and its officers and directors. (d) Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed within the State of California. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. RAYNET CORPORATION CONSULTANT /s/ ROBERT KELSCH /s/ R.M. HALPERIN Signature Robert M. Halperin Robert Kelsch Print Name President Title
The undersigned Raychem Corporation, the parent of Raynet Corporation, hereby guarantees performance of the foregoing agreement by Raynet Corporation. RAYCHEM CORPORATION /s/ ROBERT J. SALDICH Signature Robert J. Saldich Print Name President and CEO Title 3 EX-10 3 RAYNET CORP. 1993 COMMON STOCK PLAN 1 EXHIBIT 10(p) RAYNET CORPORATION 1993 COMMON STOCK PLAN 1. Purpose. The purposes of this Plan are: (a) to furnish incentives to directors, Officers and Employees of, and Consultants to, the Company and its Affiliates selected to participate because they are considered capable of responding by improving operations and increasing profits; (b) to encourage selected directors, Officers and Employees of, and Consultants to, the Company and its Affiliates to accept or continue engagement by the Company; and (c) to increase the interest of selected directors, officers and Employees of, and Consultants to, the Company and its Affiliates in the Company's welfare through their participation in the growth in the equity of the Company. To accomplish the foregoing objectives, this Plan provides both for the direct sale of Shares and for the grant of Options to purchase Shares. Options may be "nonstatutory options" or "incentive stock options" intended to qualify for treatment under Sections 421 and 422 of the Code. 2. Definitions. The following definitions apply to this Plan: "Administrator" shall mean the entity, either the Board or the Committee, responsible for administering this Plan, as provided in Section 3. "Affiliate" shall mean a corporation which is either a Subsidiary or a Parent of the Company. "Board" shall mean the Board of Directors of the Company, as constituted from time to time. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean Raynet Corporation, a California corporation. "Commission" shall mean the United States Securities and Exchange Commission, or any other successor federal agency. 2 "Common Stock" shall mean, for purposes of the Plan, the Company's Series A Common Stock, $0.01 par value per share, or, in the event of the redemption or conversion in whole of the Company's Series A Common Stock, shall mean Nonredeemable Common Stock or, in either case, any successor security, whether by conversion, redemption, merger or otherwise. "Committee" shall mean the committee, if any, appointed by the Board in accordance with Section 3.3 to administer this Plan. "Consultant" shall mean any person who is engaged by the Company or any Affiliate (or, in the case of a nonstatutory stock option, an affiliate of a Parent of the Company) to render consulting, advisory, or other valuable services and is compensated for such services, and shall include non-Employee directors of the Company or any Affiliate of the Company. "Disability" means permanent and total disability as determined by the Administrator for purposes of the Plan. "Employee" shall mean any person constituting an "employee" of the Company or any Subsidiary or Parent of the Company, including any director so employed, within the meaning of Section 3401 of the Code and regulations thereunder. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exercised Common Stock" shall mean the Shares issuable or issued upon exercise of Options or Purchase Rights. "Expiration Date" shall mean the last day of the term of an Option established under Section 7.4. "Fair Market Value" of the Common Stock shall have the meaning set forth in Section 3.4. "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. "Listing Application" shall mean a listing application on any national securities exchange or the NASDAQ National Market System. "Nonredeemable Common Stock" shall mean, for purposes of this Plan, the Common Shares of the Company designated "Common Stock" in the Company's Amended and Restated Articles of Incorporation. "Nonstatutory Stock Option" shall mean an Option not intended to qualify as an Incentive Stock Option. -2- 3 "Officer" shall mean, with respect to the Company or Parent, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or any Assistant Secretary of such Company or Parent. "Officers' Certificate" shall mean, with respect to the Company or Parent, a certificate signed by (a) the Chairman of the Board or the President of the Company or the Parent, as the case may be, and (b) another Officer of the Company or the Parent, as the case may be. "Option" shall mean a stock option granted pursuant to this Plan, and shall include both Incentive Stock Options and Nonstatutory Stock Options. "Option Agreement" shall mean the written agreement described in Section 7 evidencing the grant of an Option to an Employee or Consultant and containing the terms, conditions and restrictions pertaining to such Option. "Optionee" shall mean an Employee or Consultant who holds an Option. "Parent" shall mean a "parent corporation" of the Company, whether now or hereafter existing, within the meaning of Section 424(e) of the Code. "Plan" shall mean this Raynet Corporation 1993 Common Stock Plan. "Purchaser" shall mean an Employee or Consultant who is granted a Purchase Right. "Purchase Agreement" shall mean the written agreement described in Section 6 evidencing an Employee's or Consultant's acceptance of an offer to purchase Shares and the terms, conditions and restrictions pertaining to such purchase. "Purchase Right" shall mean a right to purchase Common Stock pursuant to this Plan. "Raychem" shall mean Raychem Corporation, a Delaware corporation. "Retirement" has the same meaning as in the Raynet Corporation Pension Plan as in effect from time to time. "Securities Act" shall mean the Securities Act of 1933, as amended. "Share" shall mean a share of Common Stock, as adjusted in accordance with Section 10. -3- 4 "Subsidiary" shall mean a "subsidiary corporation" of the Company, whether now or hereafter existing, within the meaning of Section 424(f) of the Code. "Termination" shall mean, for purposes of the Plan, with respect to a participant, that the participant has ceased to be, for any reason, an Employee of, or a Consultant to, the Company, a Subsidiary or an Affiliate. 3. Administration. 3.1 General. This Plan shall be administered by the Board except during such time as the Board delegates administration to a Committee pursuant to Section 3.3. 3.2 Powers. The Administrator shall grant Options and Purchase Rights to eligible Employees and Consultants. In particular and without limitation, the Administrator, subject to the terms of the Plan, shall: (a) select the Officers, Employees and Consultants to whom Options and Purchase Rights may be granted; (b) determine whether and to what extent Options and Purchase Rights are to be granted under the Plan; (c) determine the number of Shares to be covered by each Option and Purchase Right granted under the Plan; and (d) determine the terms and conditions of any Option and Purchase Right granted under the Plan and any related loans to be made by the Company, based upon factors determined by the Administrator. The Administrator may adopt, alter and repeal administrative rules, guidelines and practices governing the Plan as it from time to time shall deem advisable, may interpret the terms and provisions of the Plan, any Option, Purchase Right, Option Agreement or Purchase Agreement and may otherwise supervise the administration of the Plan. Any determination made by the Administrator pursuant to the Plan with respect to any Option or Purchase Right shall be made in its sole discretion at the time of the grant of the Option or Purchase Right or, unless in contravention of any express term of the Plan or Option or Purchase Right, at any later time. All decisions made by the Administrator under the Plan shall be binding on all persons, including the Company and Plan participants. 3.3 Committee. The Board, by resolution, may delegate administration of the Plan to a Committee composed of not less than two members of the Board. If administration is so delegated, the Committee shall have the administrative powers possessed by the Board under the Plan, subject to such -4- 5 constraints, not inconsistent with the Plan, as the Board may adopt from time to time. The Board at any time may revest in itself the administration of the Plan. 3.4 Fair Market Value. For purposes of the Plan, the Fair Market Value of Common Stock shall be determined as follows: (a) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System, its Fair Market Value shall be the closing sales price for such stock, or the closing bid if no sales were reported, as quoted on such system or exchange (or the largest such exchange) for the date the Fair Market Value is to be determined (or if there are no sales for such date, then for the last preceding business day on which there were sales), as reported in the Wall Street Journal or similar publication. (b) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the date the Fair Market Value is to be determined (or if there are no quoted prices for the date of grant, then for the last preceding business day on which there were quoted prices). (c) In the absence of an established market for the Common Stock, the Fair Market Value shall be the Appraised Value (as defined in Section 11.1), if available. (d) In the absence of an established market for the Common Stock and in the absence of an Appraised Value, the Fair Market Value shall be determined in good faith by the Administrator, with reference to the Company's net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Company's industry, the Company's position in the industry, the Company's management, and the values of stock of other corporations in the same or a similar line of business. 4. Eligibility. Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options and Purchase Rights may be granted to Employees and Consultants. 5. Shares Subject to Plan. 5.1 Aggregate Number. Subject to Section 10 (relating to adjustments upon changes in Shares), the Shares which may be issued pursuant to Options and Purchase Rights under the Plan shall not exceed in the aggregate 6,550,000 Shares. If an Option expires or become unexercisable for any reason without having been exercised in full, or in the case of a Purchase Right, if Shares are repurchased by the Company prior to conferring on -5- 6 their holder benefits of ownership other than voting rights or accumulated dividends that are not realized, the unpurchased or repurchased Shares which were subject thereto, unless the Plan shall have been terminated, will become available for future grant or sale under the Plan. Notwithstanding the foregoing, however, if Shares are issued upon exercise of an Option and later repurchased by the Company, such Shares shall not become available for future grant or sale under the Plan. 5.2 Restrictions. When it grants an Option or Purchase Right, the Company shall retain, for itself or others, in addition to any rights set forth in Section 11 or elsewhere in the Plan, such rights to repurchase, rights of first refusal and other transfer restrictions applicable to Shares acquired under the Option or Purchase Right, or shall impose such other restrictions on the Shares, or on the Optionee or Purchaser, as the Administrator may determine. The terms and conditions of any such rights or other restrictions shall be set forth in the relevant Option Agreement or Purchase Agreement, or in the Company's Articles of Incorporation, as amended from time to time. 5.3 Rights as Shareholder. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. An Optionee or Purchaser shall have no rights as a shareholder with respect to Shares acquired by exercise of an Option or Purchase Right until the issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of a stock certificate evidencing the Shares, which issuance shall be made as soon as is practicable. Subject to Section 10, no adjustment shall be made for dividends or other events for which the record date precedes the date the certificate is issued. 5.4 Certificates. At the Company's option, certificates issued to evidence Shares acquired by exercise of a Nonstatutory Stock Option or Purchase Right shall not include Shares acquired by exercise of an Incentive Stock Option. Certificates issued to evidence Shares acquired by exercise of an Incentive Stock Option shall, at the Company's option, be clearly identified as such. 6. Stock Purchase Rights. 6.1 Grant. As soon as is practical after the grant of a Purchase Right, the Administrator shall advise the grantee in writing of the terms, conditions and restrictions relating to the grant, including the number of shares of Exercised Common Stock, purchase price, and time within which the Purchase Right must be exercised, which shall in no event exceed 30 days from the date upon which the Administrator notifies the Purchaser of the grant. -6- 7 6.2 Purchase Agreement. Each sale of Shares pursuant to a Purchase Right shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company in a form, and containing terms, conditions, and restrictions, approved by the Administrator. The terms and conditions of the various Purchase Agreements under the Plan need not be identical. 6.3 Purchase Price. The purchase price of Shares under a Purchase Right shall not be less than the Fair Market Value of the Shares on the date the Purchase Right is granted. 7. Grant and Exercise of Options. 7.1 General. The Administrator may grant Options at any time before the Plan terminates. The Administrator shall specify the date of grant or, if it fails to, the date of grant shall be the date of the action taken by the Administrator to grant the Option. However, if an Option is approved in anticipation of employment, the date of grant shall be the date the intended Optionee is first treated as an Employee for payroll purposes. 7.2 Option Agreement. As soon as is practical after the grant of an Option, the Optionee and the Company shall enter into an Option Agreement which specifies the date of grant, the number of shares of Exercised Common Stock, the Option price, the other terms and conditions of the Option and any special restrictions on the shares of Exercised Common Stock. The terms and conditions of the Option Agreements under the Plan need not be identical. 7.3 Identification of Options. The status of each Option granted under the Plan as either an Incentive Stock Option or a Nonstatutory Stock Option shall be identified by the Administrator and clearly reflected in the applicable Option Agreement. 7.4 Option Term. The term of any Option shall not be greater than ten years from the date it is granted. If at the time the Company grants an Option, the Optionee owns (directly or by attribution) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the Option shall not be exercisable more than five years after the date of grant. 7.5 Purchase Price. The purchase price of Shares under each Option shall be not less than the Fair Market Value of the Common Stock on the date the Option is granted. If at the time the Company grants an Option, the Optionee owns (directly or by attribution) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the purchase price shall not be less than 110 percent of the Fair Market Value of the Common Stock on the date of grant. -7- 8 7.6 Transferability. No Option shall be transferable other than by devise or the laws of descent and distribution, and an Option shall be exercisable during the Optionee's lifetime only by the Optionee. 7.7 Limits on Exercise. Subject to the other provisions of this Plan, an Option shall be exercisable at such time and in such amounts as are specified in the Option Agreement; provided, that if no exemption from registration under the Securities Act is available to the Company with respect to any exercise and the underlying Exercised Common Stock has not been registered under the Securities Act at the time an Optionee tenders the documents approved by the Administrator for Option exercise, such Option or Options may not be exercised until the earlier of (a) the availability of such exemption, or (b) the effectiveness of such registration. The Administrator shall be entitled (but subject to the Optionee's consent except as provided in Section 10.3) to waive any limitation respecting the time at which all or any portion of an Option becomes exercisable. 7.8 Termination; Death; Disability. If for any reason other than death, Retirement or Disability, an Optionee ceases to be employed by the Company and its Affiliates (and, in the case of a Nonstatutory Stock Option, by an affiliate of a Parent), Options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months after the date of such Termination, or such other period of not less than thirty days as is specified in the Option Agreement (but in no event after the Expiration Date). If Termination is due to Retirement or to death or Disability, Options held at the date of Termination (to the extent then exercisable) may be exercised, in whole or in part, by the Optionee, by the Optionee's personal representative or by the person to whom the Option is transferred by devise or the laws of descent and distribution, at any time within three years of such date in the case of Retirement, or two years of such date in the case of death or Disability, or any lesser period specified in the Option Agreement (but in no event after the Expiration Date). 7.9 Leaves of Absence. For purposes of Section 7.8 above, an Optionee's employment shall not be deemed to terminate by reason of sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed 90 days or, if longer, if the Optionee's right to reemployment by the Company (or any Parent or Subsidiary or, in the case of a Nonstatutory Stock Option, an affiliate of a Parent) is guaranteed either contractually or by statute. 7.10 Disqualifying Dispositions. If Shares acquired by exercise of an Incentive Stock Option granted pursuant to the Plan are disposed of in a "disqualifying disposition" within the meaning of Section 422 of the Code, the holder of the Shares immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the disposition and -8- 9 shall provide such other information regarding the disposition as the Company may reasonably require. 7.11 Modification, Extension and Renewal of Options. Within the limitations of this Plan, the Administrator may modify, extend, reprice or review outstanding Options and may accept the cancellation of Options (to the extent not previously exercised) for the grant of new Options in substitution therefor. No modification shall, however, without the consent of the Optionee, alter or impair an Optionee's rights or obligations. 8. Payment and Taxes Upon Exercise of Options and Purchase Rights. 8.1 Delivery of Purchase Price. If, and only to the extent, authorized by the Administrator, Optionees and Purchasers may make all or any portion of any payment due to the Company (a) upon exercise of an Option or Purchase Right, or (b) with respect to federal, state, local or foreign tax payable in connection with an Option or Purchase Right, by delivery of (i) cash, (ii) check, or (iii) previously owned Shares, or (iv) a full recourse promissory note of the Optionee or Purchaser of Shares. No promissory note under the Plan shall have a term (including extensions) of more than five years or shall be of a principal amount exceeding 90 percent of the purchase price of the Exercised Common Stock. To the extent participants may make payments to the Company upon exercise of Options or Purchase Rights by the delivery of Shares, the Administrator, in its discretion, may permit participants constructively to deliver for any such payment Shares held by the participant for at least three months. Constructive delivery shall be effected by (a) identification by the participant of the Shares intended to be delivered constructively, (b) confirmation by the Company of the participant's ownership of such Shares (for example, by reference to the Company's stock records, or by some other means of verification), and (c) if applicable, upon exercise, delivery to the participant of a certificate for that number of Shares purchased less the number of Shares constructively delivered. Any Shares tendered pursuant to this Section 8.1 shall be valued by the Administrator as of the date they are tendered at their Fair Market Value on that date. 8.2 Tax Withholding. Unless the Administrator permits otherwise, the participant shall pay to the Company in cash, promptly when the amount of such obligations becomes determinable (the "Tax Date"), all applicable federal, state, local and foreign withholding taxes that the Administrator in its discretion determines to result, (a) from the lapse of restrictions imposed upon an Option or Purchase Right, (b) upon exercise of an Option or Purchase Right, or (c) from a transfer -9- 10 or other disposition of Shares acquired upon exercise of an Option or Purchase Right, or otherwise related to the Option or Purchase Right or the Shares acquired. A participant, to the extent, if any, authorized by the Administrator in its discretion, may make an election to (i) deliver to the Company a promissory note of the participant on the terms set forth in Section 8.1, (ii) to tender to the Company previously-owned Shares, or (iii) to have Shares withheld by the Company to pay the amount of tax that the Administrator in its discretion determines to be required to be withheld by the Company. Any election pursuant to clause (iii) above by an Optionee or Purchaser subject to Section 16 of the Exchange Act shall be subject to the following limitations: (1) such election must be made at least six months before the Tax Date and shall be irrevocable; or (2) such election (x) must be made in (or made earlier to take effect in) any 10-day period beginning on the third business day following the date of release for publication of the Company's quarterly or annual summary statements of earnings and shall be subject to approval by the Administrator at any time after such election has been made, and (y) the Shares must be held at least six months prior to the Tax Date. The right to so withhold Shares shall relate separately to each Option or Purchase Right. Any Shares tendered to or withheld by the Company will be valued at Fair Market Value on such date. The value of the Shares tendered or withheld may not exceed the required federal, state, local and foreign withholding tax obligations as computed by the Company. 9. Use of Proceeds. Proceeds from the sale of Shares pursuant to the Plan may be used by the Company for general corporate purposes. 10. Adjustment of Shares. 10.1 General. If any change is made in Common Stock subject to the Plan or subject to any Option or Purchase Right granted under the Plan (through merger, consolidation, reorganization, recapitalization, redemption, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise) appropriate adjustment may be made by the Administrator as to the maximum number of Shares subject to the Plan and the number and price of Shares subject to outstanding Options and Purchase Rights. 10.2 Certain Corporate Transactions - Purchase Rights. In the event of a dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving corporation, or other capital reorganization in which shares representing more than 50 percent of the shares of the Company -10- 11 entitled to vote are exchanged, any outstanding Purchase Rights shall terminate except when another corporation shall assume such Purchase Rights or substitute new purchase rights. 10.3 Certain Corporate Transactions - Options. In the event of dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving corporation, or other capital reorganization in which more than 50 percent of the shares of the Company entitled to vote are exchanged, unless another corporation shall assume such Options or substitute new options or unless otherwise determined by the Administrator, outstanding Options shall terminate upon such event. 11. Liquidity Events. 11.1 Certain Definitions. As used in this Section 11, the following terms shall have the following respective meanings: (a) Appraised Value shall mean fair market value determined, as of a time after achievement of the events listed in clauses (i) and (ii) of the definition of Company Milestone, by a nationally recognized investment banker or other comparable appraiser selected by the Board and approved by Raychem (i) valuing the Company on a going-concern basis assuming a public market for the Company after a Viable Offering as a majority-controlled subsidiary of Raychem, (ii) assuming the conversion of all preferred stock held by Raychem into Nonredeemable Common Stock and (iii) assuming the redemption of all Exercised Common Stock in exchange for the delivery of shares of Nonredeemable Common Stock. (b) Company Election Notice shall mean a written notice delivered pursuant to Section 11.2.1(c) by the Administrator, which such notice, in the event of Registration, if appropriate shall also constitute a notice of underwriting pursuant to Section 11.3.4(a). (c) Company Milestone shall mean that the Company has (i) aggregate revenues over the four most recent consecutive quarters of at least $500,000,000, (ii) pre-tax income (determined in accordance with generally accepted accounting principles and excluding accounting changes and nonrecurring transactions) over the same four quarters of at least $1,000, and (iii) an Appraised Value equal to at least $750,000,000. (d) Co-Sale Notice shall mean a written notice delivered pursuant to Section 11.6.3 by Raychem to the Company. (e) Initiating Holders shall mean, at any time, Securities Holders who in the aggregate hold at least 30 percent of the Registrable Securities. -11- 12 (f) Initiating Holders' Notice shall mean a written notice (the form of which may be obtained by written request to the Secretary of the Company) signed by Initiating Holders and delivered pursuant to Section 11.2.1(a) to the Company, constituting a request that a Liquidity Event be effected with respect to all or part of the Registrable Securities. The Initiating Holders' Notice may consist of several copies of the Initiating Holders' Notice signed in counterparts and shall be deemed given as of the date of receipt by the Secretary of the Company of the last counterpart needed to constitute a complete Initiating Holders' Notice. (g) Liquidity Event shall mean, at the option of the Board, either a Registration pursuant to Section 11.3 or a redemption by the Company pursuant to Section 11.4.1.1, or such other liquidity mechanism as may be adopted by the Board pursuant to Section 11.5. (h) Liquidity Event Notice shall mean a written notice delivered by the Administrator pursuant to Section 11.2.1(a). (i) Notice of Exercise shall mean a written notice (the form of which may be obtained by written request to the Secretary of the Company) delivered pursuant to Section 11.6.3.2 by a Securities Holder to the Company, stating the number of Registrable Securities such Securities Holder wishes to sell subject to the terms set forth in a Co-Sale Notice. (j) Preferred Stock shall mean the shares of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or any additional series of Preferred Shares issued by the Company. (k) Pro Rata Share shall have the meaning set forth in Section 11.6.2. (l) The terms Register, Registered and Registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act ("Registration Statement"), and the declaration or ordering of the effectiveness of such Registration Statement. (m) Registrable Securities shall mean any shares of Exercised Common Stock issued or issuable upon exercise of those Purchase Rights or Options which, in the sole judgment of the Administrator, will be vested in time to participate in any Liquidity Event or pursuant to exercise of any Right of Co-Sale. (n) Registration Expenses shall mean all expenses incurred by the Company in complying with Section 11.3 or Section 11.6.3.5, including, without limitation, all federal and state registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company and, if applicable, Raychem, blue sky fees and expenses, and the expense -12- 13 of any special audits incident to or required by any such Registration. (o) Repurchase Price Notice shall mean a written notice delivered pursuant to Section 11.4.1.1 by the Administrator. (p) Right of Co-Sale shall mean the right of Securities Holders to sell a Pro Rata Share of their Registrable Securities pursuant to the provisions of Section 11.6. (q) Securities Holder shall mean any Plan participant who is a holder of Registrable Securities which have not been sold to the public and any Plan participant who the Administrator, in its sole judgment, believes is likely to become a Securities Holder in time to participate in a contemplated Liquidity Event or to sell stock pursuant to a Right of Co-Sale, as appropriate. (r) Selling Expenses shall mean all underwriting discounts, selling commissions and other fees and expenses payable to selling brokers, dealer managers or similar securities industry professionals applicable to the sale of Registrable Securities pursuant to this Section 11. (s) Statement of Intent shall mean a signed statement delivered pursuant to Section 11.2.1(b) by a Securities Holder to the Secretary of the Company. (t) Viable Offering shall mean a public offering of a sufficient number of shares (which may require Raychem to offer to sell shares of Nonredeemable Common Stock owned by Raychem) to permit a successful offering of Nonredeemable Common Stock, as determined as of a specified date in the reasonable opinion of the nationally recognized underwriter or other comparable appraiser selected pursuant to Section 11.2.1(a) or Section 11.3.4(c), as appropriate. 11.2 Liquidity Demand Procedures 11.2.1 Request; Company Election. (a) Request for Registration. Subject to the terms of this Section 11, in the event that the Company shall receive from an Initiating Holders' Notice at any time after achievement of the events listed in clauses (i) and (ii) of the definition of Company Milestone, but prior to the date the Company registers a class of equity securities under Section 12 of the Exchange Act, the Administrator shall cause a nationally recognized investment banker or other comparable appraiser selected by the Board and approved by Raychem, to deliver to the Board, within 45 days of the Company's receipt of the Initiating Holders' Notice, a report containing such appraiser's determination (i) of the Appraised Value of the Company and (ii) of what constitutes a Viable Offering, in each case as of the -13- 14 date of issuance of such report. Upon receipt of such report, if the Appraised Value is equal to at least $750,000,000, the Administrator promptly shall deliver a Liquidity Event Notice to all Securities Holders. The Liquidity Event Notice shall indicate that, after receipt of a Statement of Intent from each Securities Holder as provided in paragraph (b) below, the Company shall use its best efforts to effect a Liquidity Event in accordance with the provisions of this Section 11. The Liquidity Event Notice shall be accompanied by a form of the Statement of Intent to be completed by each Securities Holder, and shall state the likely range of per share prices for the Liquidity Event, as estimated by the Administrator in its sole discretion, which estimate shall not constitute a guarantee or binding commitment as to the actual price per share for the Liquidity Event. (b) Statements of Intent. Within 15 days of the date of the Liquidity Event Notice, each Securities Holder who wishes to participate in the Liquidity Event shall deliver a Statement of Intent to the Company indicating the number of Registrable Securities that such holder wishes to offer for sale in the proposed Liquidity Event (and if no Statement of Intent is received within such time, such holder shall be deemed to have delivered a signed Statement of Intent indicating that such holder does not wish to participate in the proposed Liquidity Event). Each Statement of Intent shall constitute a binding commitment on the part of the Securities Holder signing such statement (i) subject to compliance with applicable securities laws, to exercise the vested Options necessary to provide the shares of Exercised Common Stock to be sold by such Securities Holder in the Liquidity Event (an "Exercise Commitment") and (ii) to sell the Exercised Common Stock indicated in such Statement of Intent if the Liquidity Event is a Registration (a "Sell Commitment"). A Sell Commitment shall be revocable if the Company elects to proceed with a redemption under Section 11.4.1.1 or with an alternative liquidity mechanism under Section 11.5, rather than with the Registration provisions of this Section 11.3. Subject only to applicable securities laws, an Exercise Commitment shall be binding in any Liquidity Event, and the Securities Holder shall be required to exercise at such time as the Administrator may reasonably require. (c) Company Election. The Administrator shall, as soon as practicable after receipt (or deemed receipt) of such Statements of Intent, deliver a Company Election Notice to the participating Securities Holders stating the Board's decision whether to proceed in accordance with the Registration provisions of this Section 11.3 or to proceed in accordance with the provisions of Section 11.4.1.1 or Section 11.5; and if the Board changes its decision on how to proceed, the Administrator shall promptly provide a revised Company Election Notice to the participating Securities Holders. (d) Updating Statements of Intent. The Administrator, in its sole discretion, may allow participation in a Liquidity Event by holders of Registrable Securities who become -14- 15 such holders after the date of a Liquidity Event Notice. Prior to the completion of a Liquidity Event, the Administrator, in its sole discretion, may permit Securities Holders to increase the number of shares covered by the Exercise and/or Sell Commitment of their Statements of Intent or may accept Statements of Intent from Securities Holders who have not previously submitted them. Any such Statements of Intent shall be subject to the provisions of paragraph (b) of this Section 11.2.1. (e) Limitation. Notwithstanding the foregoing, the Company shall not be obligated to take any action to effect a Liquidity Event more than once in any twelve-month period. 11.3 Registration. 11.3.1 Obligations of Company; Obligations of Raychem. If the Board elects to proceed in accordance with the Registration provisions of this Section 11.3, rather than with a redemption under Section 11.4.1.1 or an alternative liquidity mechanism under Section 11.5, the Company shall use its best efforts to effect Registration of the Registrable Securities specified in the Statements of Intent. By voting to approve this Plan as a shareholder of the Company, Raychem agrees to convert all of the Preferred Stock it holds at the time of such Registration and to offer in any such Registration, not less than a sufficient number of its shares of Nonredeemable Common Stock in order to cause such Registration to be a Viable Offering as determined by an underwriter selected pursuant to Section 11.3.4(c). The foregoing obligations of Raychem shall be binding upon Raychem from and after the date of such approval. 11.3.2 Right of Deferral of Registration. If the Board elects to proceed with the Registration provisions of this Section 11.3, and if the Administrator furnishes to all Securities Holders participating in such Registration an Officers' Certificate stating that, in the good faith judgment of the Board, it would be seriously detrimental to the Company for any Registration to be effected as requested under Section 11.2.1, the Company shall have the right, exercisable one time only with respect to each Registration requested pursuant to Section 11.2.1, to defer the filing of a Registration Statement with respect to such offering for a period of not more than 120 days. 11.3.3 Registration of Other Securities in Demand Registration. Any Registration Statement filed pursuant to the request of the Initiating Holders under this Section 11.3 with respect to only Registrable Securities may, subject to the provisions of Section 11.3.4, include securities issued by the Company other than Registrable Securities. -15- 16 11.3.4 Underwriting in Demand Registration. (a) Notice of Underwriting. Unless otherwise determined by the Company, the Registrable Securities covered by the request of the Initiating Holders shall be distributed by means of an underwriting, and the Company shall include such information in its Company Election Notice delivered pursuant to Section 11.2.1(c). The right of any Securities Holder to Registration pursuant to this Section 11.3 shall be conditioned upon such Securities Holder's agreement to participate in such underwriting and the inclusion of such Securities Holder's Registrable Securities in the underwriting to the extent provided herein. (b) Inclusion of Other Securities in Demand Registration. If the Company or holders of securities other than Registrable Securities request inclusion in a Registration under Section 11.3.1, the Company, to the extent the Board deems advisable and consistent with the goals of such Registration, shall offer to any or all of such holders of securities other than Registrable Securities that such securities other than Registrable Securities be included in the underwriting and may condition such offer on the acceptance by such persons of the terms of this Section 11.3 and may include securities to be issued by the Company in the underwriting. (c) Selection of Underwriter in Demand Registration. The Company shall, together with all Securities Holders proposing to distribute their Registrable Securities through such underwriting, and, if applicable, any other person selling securities in the Registration, enter into an underwriting agreement with the representative ("Underwriter's Representative") of the underwriter or underwriters selected for such underwriting by the Board and approved by Raychem. (d) Marketing Limitation in Demand Registration. In the event the Underwriter's Representative advises the Company and the Initiating Holders in writing that market factors (including, without limitation, the aggregate amounts of securities requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the amount of securities to be underwritten, then the Registrable Securities shall be excluded from such Registration, to the extent required by such limitation or by any registration rights granted to other persons, pro rata in accordance with the number of shares indicated in the Statements of Intent. 11.3.5 Blue Sky in Demand Registration. In the event of any Registration pursuant to this Section 11.3, the Company shall exercise its best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of such -16- 17 securities; provided, that (i) neither Raychem nor the Company shall be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, and (ii) notwithstanding anything in this Section 11 to the contrary, in the event any jurisdiction in which the Registrable Securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of securities be borne by selling holders, such expenses shall be payable pro rata by selling Securities Holders and any other sellers. 11.3.6 Expenses of Registration. All Registration Expenses incurred in connection with any Registration requested pursuant to Section 11.2.1 shall be borne by the Company. All Selling Expenses shall be borne by the holders of the securities Registered pro rata on the basis of the amount of securities Registered. 11.3.7 Registration Procedures. The Company shall keep each Securities Holder whose Registrable Securities are included in any Registration pursuant to this Section 11.3 advised as to the initiation and completion of such Registration. At its expense, the Company shall: (a) use its best efforts to keep such Registration effective for a period of 120 days or until the Securities Holder or Securities Holders have completed the distribution described in the Registration Statement relating thereto, whichever first occurs; (b) furnish such number of prospectuses (including preliminary prospectuses) and other documents and instruments as a Securities Holder from time to time may reasonably request; (c) use its best efforts to register the Common Stock under Section 12 of the Exchange Act; (d) use its best efforts to cause the Common Stock to be listed on a national securities exchange or the NASDAQ National Market System; and (e) to the extent not obtained prior thereto, use its best efforts to obtain approval of the Listing Application for any Registrable Securities being Registered. 11.3.8 Information Furnished by Securities Holder. It shall be a condition precedent to the Company's obligations under Sections 11.2 and 11.3 and to Raychem's obligations under Section 11.3.1 that each Securities Holder of Registrable Securities included in any Registration furnish to the Company such information regarding such Securities Holder and the distribution proposed by such Securities Holder as the Company may reasonably request. 11.3.9 Conversion prior to Registration. Pursuant to Article 2.1.2.2 of the Company's Amended and Restated Artiles of Incorporation, each share of Exercised Common Stock shall automatically be converted into one share of Nonredeemable Common Stock upon the closing of a Registered offering of the Company's Common Stock conducted pursuant to this Section 11.3. The Company shall provide instructions for surrender of the certificates representing the shares to be converted. On or before the date specified for surrender of certificates, each -17- 18 holder of shares to be converted shall surrender the certificate(s) representing such shares as provided and, subject to the closing of the Registered offering, shall thereupon be entitled to receive new certificate(s) representing the shares deliverable upon such conversion. Regardless of whether such certificates are surrendered, all shares of Exercised Common Stock shall be deemed converted as of the date of the closing. 11.3.10 Indemnification. 11.3.10.1 Company's Indemnification of Securities Holders. To the extent permitted by law, the Company agrees to indemnify each Securities Holder, with respect to which Registration, qualification or compliance of Registrable Securities has been effected pursuant to this Section 11, and each underwriter, if any, and each person who controls any underwriter against all claims, losses, damages or liabilities (or actions in respect thereof) to the extent such claims, losses, damages or liabilities arise out of or are based upon (a) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or Registration Statement or any amendment or supplement thereto or any document incorporated by reference therein or in any filing made in connection with the registration or qualification of the offering under the Blue Sky or other securities laws of any state, or (b) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (c) any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such Registration, qualification or compliance; and the Company agrees to reimburse each such Securities Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, that the indemnity contained in this Section 11.3.10.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld); and provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or action arises out of or is based upon any untrue statement (or alleged untrue statement) contained in, or omission (or alleged omission) from, written information furnished to the Company by such Securities Holder, underwriter, or controlling person and stated to be for use in connection with the offering of securities of the Company or relates to a prospectus that the Company was no longer obligated to keep current pursuant to this Section 11; provided, further that the indemnity set forth in this Section 11.3.10.1 shall not apply to the extent that any claims, losses, damages, liabilities or actions arise out of an untrue (or alleged untrue) statement or omission (or alleged omission) in a -18- 19 prospectus if such untrue (or alleged untrue) statement or omission (or alleged omission) is corrected in an amendment or supplement to the prospectus and if the Securities Holder or an underwriter fails to deliver such prospectus as so supplemented or amended. 11.3.10.2 Securities Holder's Indemnification of the Company. To the extent permitted by law, each Securities Holder will, if Registrable Securities held by such Securities Holder are included in the securities as to which such Registration, qualification or compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors and officers, each legal counsel and independent accountant of the Company, each underwriter, if any, of the Company's securities covered by such a Registration Statement, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other such Securities Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or Registration Statement or any amendment or supplement thereto or any document incorporated by reference therein or in any filing made in connection with the registration or qualification of the offering under the Blue Sky or other securities laws of any state, or are based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by such Securities Holder of any rule or regulation promulgated under the Securities Act applicable to such Securities Holder and relating to action or inaction required of such Securities Holder in connection with any such Registration, qualification or compliance; and will reimburse the Company, such Securities Holders, such directors, officers, legal counsel, independent accountants, underwriters or control persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in all cases to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Securities Holder and stated to be specifically for use in connection with the offering of Securities of the Company; provided, that each Securities Holder's liability under this Section 11.3.10.2 shall not exceed such Securities Holder's proceeds from the offering of securities made in connection with such Registration; and provided, further, that the indemnity set forth in this Section 11.3.10.2 shall not apply to the extent that any claims, losses, damages, liabilities or actions arise out of an untrue statement (or alleged untrue statement) in, or omission (or alleged omission) from, a prospectus if such untrue (or alleged untrue) statement or omission (or alleged omission) is corrected in an amendment or supplement to the prospectus and -19- 20 if the Company or an underwriter fails to deliver such prospectus as so supplemented or amended. 11.3.10.3 Indemnification Procedure. Promptly after receipt by an indemnified party under this Section 11.3.10 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 11.3.10, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim; provided, that the indemnifying party shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld; provided further, that if either party reasonably determines that there may be a conflict among the position of the Company and the Securities Holders in conducting the defense of such action, suit or proceeding by reason of recognized claims for indemnity under this Section 11.3.10, then counsel for such party shall be entitled to conduct the defense of such party to the extent reasonably determined by such counsel to be necessary to protect the interest of such party. The failure to notify an indemnifying party reasonably promptly of the commencement of any such action, if materially prejudicial to the ability of the indemnifying party to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 11.3.10, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise other than under this Section 11.3.10. 11.3.10.4 Contribution. If the indemnification provided for in this Section 11.3.10 from an indemnifying party is unavailable to an indemnified party hereunder in respect to any claims, losses, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such claims, losses, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the statements or omissions which result in such claims, losses, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be -20- 21 deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action, suit, proceeding or claim. Contribution pursuant to this Section 11.3.10.4 shall not be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 11.3.10.4. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 11.4 Repurchase of Registrable Securities. 11.4.1 By the Company. The Company may call for redemption or otherwise repurchase shares of Exercised Common Stock from the holders thereof as follows: 11.4.1.1 Liquidity Event Redemption. (a) The Board may elect, in accordance with Section 11.2.1, to have the Company redeem all of the Registrable Securities indicated in the Statements of Intent delivered or deemed delivered pursuant to Section 11.2.1 at their Appraised Value as of the date of redemption. Any such redemption shall constitute a redemption pursuant to Article 2.1.1 of the Company's Amended and Restated Articles of Incorporation. (b) The closing of a redemption pursuant to this Section 11.4.1.1 shall take place as soon as reasonably practicable after the date of the Liquidity Event Notice, but (unless otherwise determined by the Administrator) not less than six months after the Registrable Securities have been "at risk" as such term is used by the accounting profession, as determined by the Administrator in its sole discretion; provided that if the Company determines that it must Register the sale to Plan participants of some or all of the shares of Exercised Common Stock to be included in the redemption, then the closing shall not take place prior to the effective date of a Registration Statement covering such shares. (c) At least 20 days prior to the closing of any redemption pursuant to this Section 11.4.1.1, the Company shall deliver to each Securities Holder who has delivered, pursuant to Section 11.2.1(b), a Statement of Intent indicating a desire to sell Registrable Securities, a Repurchase Price Notice stating the per share price for the redemption. Such Securities Holders shall be required to tender any Registrable Securities they wish to have redeemed within 10 days of delivery of the Repurchase Price Notice and the Company shall redeem Registrable Securities so tendered on the closing date. 11.4.1.2 Employment or Consulting Termination Repurchase. The Administrator may elect to have the Company purchase Registrable Securities held by a Plan -21- 22 participant at the time of such participant's Termination (or acquired after such Termination during the exercise period of any Option or Purchase Right), by written notice to any such participant or, in the event that such participant's Termination is due to death or permanent and total disability, to such participant's representative or transferee. Such purchase shall be made within the period ending on the later of (a) 90 days after the date of Termination or (b) 30 days after the expiration of the exercise period for such participant's Option or Purchase Rights, and shall be made at the higher of (i) the exercise price per Share or (ii) Fair Market Value as of the date of Termination; provided that if there has been an appraisal of the Common Stock made by an investment banker of national reputation or comparable appraiser within three months of the date of such determination, the Administrator may determine that such appraised value is the Fair Market Value as of the date of such Termination. 11.4.1.3 Repurchase Programs. The Board may, at any time and from time to time, establish one or more programs pursuant to which the Company may offer to redeem or otherwise repurchase shares of Exercised Common Stock at a price not less than Fair Market Value. 11.4.2 Repurchase Closing. On the date of any redemption or other repurchase pursuant to Section 11.4.1, the Company shall transfer to each Plan participant participating in such redemption or other repurchase by Company check or wire transfer the amount of the redemption or repurchase price (any such wire transfer shall be to an account designated by such Plan participant in a written notice to the Administrator at least ten days in advance), against delivery by such Plan participant of the Exercised Common Stock being redeemed or otherwise repurchased (or, if applicable, the Option Agreement or the Purchase Agreement) to the Company or designee of the Company. 11.5 Alternate Liquidity Mechanism. The Board may adopt a liquidity mechanism other than Registration pursuant to Section 11.3 or redemption pursuant to Section 11.4.1.1; provided, however, that the Board determines, in its sole discretion, that such alternate liquidity mechanism is not, in the aggregate, materially less favorable to Securities Holders than the liquidity mechanisms of Section 11.3 and Section 11.4.1.1; and provided, further, that the Company shall have filed an amendment to the Application for Qualification of Securities filed with the California Department of Corporations with respect to the Plan setting forth the terms and conditions of such alternate liquidity mechanism and shall have received a permit therefor from the Department. Any such alternative liquidity mechanism, if a purchase of Shares by the Company for cash at Fair Market Value, shall constitute a redemption pursuant to Article 2.1.1 of the Company's Amended and Restated Articles of Incorporation. -22- 23 11.6 Right of Co-Sale. 11.6.1 Co-Sale Right. In the event that Raychem proposes to sell, or otherwise dispose of for value in a single transaction, Company securities consisting of at least 25 percent of the then outstanding Shares calculated on an as-if-converted fully diluted basis either (a) prior to the occurrence of the Company Milestone if the sale price (on a common equivalent basis) is greater than $6.00 per share or (b) at any time after the occurrence of the Company Milestone regardless of the sale price, each Securities Holder shall have a right of Right of Co-Sale to sell a Pro Rata Share of Registrable Securities held by such Securities Holder on the same terms as Raychem proposes to transfer such Company securities held by Raychem. Notwithstanding the foregoing, Raychem shall not be deemed to sell a Company security (and hence no Right of Co-Sale shall arise with respect to such Company security) to the extent that Raychem has invested an amount equivalent to the proceeds of the sale of such Company security in the Company within six months before such sale or Raychem has committed to invest an amount equivalent to the proceeds of the sale of such Company security in the Company within six months after such sale. 11.6.2 Pro-Rata Share. A Securities Holder's Pro Rata Share shall be that proportion which the number of shares of Registrable Securities held by such Securities Holder bears to the sum of (x) the total number of Registrable Securities held by all Securities Holders plus (y) the total number of shares of Common Stock and Nonredeemable Common Stock held by Raychem (or issuable to Raychem upon conversion of Company Preferred Stock or other convertible securities held by Raychem). 11.6.3 Mechanics of Co-Sale. 11.6.3.1 Notice of Co-Sale. At least 30 days before the proposed date of a sale or transfer by Raychem of Company securities that would give rise to the Right of Co-Sale under Section 11.6.1, Raychem shall deliver a Co-Sale Notice to the Company. The Co-Sale Notice shall describe the proposed transfer, including the number and class of Company securities proposed to be transferred, the proposed transfer price or consideration to be paid, and the name and address of the proposed transferee. The Company shall promptly forward to each Securities Holder a copy of the Co-Sale Notice. Each Securities Holder shall have the right to sell to the proposed transferee (or, upon the unwillingness of any prospective transferee to purchase directly from such Securities Holder, to Raychem) its Pro Rata Share of its Registrable Securities (determined as of the date the Co-Sale Notice is delivered to the Company) subject to the terms and conditions set forth in the Co-Sale Notice. 11.6.3.2 Notice of Exercise. A Securities Holder shall exercise its Right of Co-Sale by delivering a Notice of Exercise to the Company within 15 days after the delivery of -23- 24 the Co-Sale Notice by the Company to the Securities Holders. The Secretary of the Company promptly shall forward each such Notice of Exercise received to Raychem. 11.6.3.3 Inclusion of Shares in Co-Sale. Raychem shall assign to each Securities Holder who exercises its Right of Co-Sale as much of its interest in the agreement of sale with the prospective transferee or transferees as such holder shall be entitled to and shall accept. To the extent that any prospective transferee or transferees prohibit such assignment or otherwise refuse to purchase Registrable Securities from a Securities Holder, Raychem shall not sell to such prospective transferee or transferees any Company securities unless and until, simultaneously with such sale, Raychem shall purchase such Registrable Securities from such Securities Holder for the same consideration and on the same terms and conditions as the proposed transfer described in the Co-Sale Notice. 11.6.3.4 Conclusion of Co-Sale. If none of the Securities Holders elects to exercise the Right of Co-Sale with respect to the Company securities subject to the Co-Sale Notice, Raychem may, not later than 90 days following delivery to the Company of the Co-Sale Notice, conclude a transfer of Company securities on terms and conditions no more favorable to Raychem than those described in the Co-Sale Notice. Any other proposed transfer of any Company securities by Raychem, shall again be subject to the Right of Co-Sale and shall require compliance by Raychem with the procedures described in this Section 11.6.3. 11.6.3.5 Registered Offering. If the Right of Co-Sale arises in connection with a sale of Company securities in an underwritten Registered offering, the following provisions shall apply: (a) Selection of Underwriter. Raychem shall, together with all Securities Holders proposing to distribute their Registrable Securities through such underwriting, and, if applicable, any other person selling securities in the Registration, enter into an underwriting agreement with the representative ("Underwriter's Representative") of the underwriter or underwriters selected for such underwriting by the Board and approved by Raychem. (b) Marketing Limitation. In the event the Underwriter's Representative advises Raychem that market factors require a limitation on the amount of securities to be underwritten (or on the number of securities to be included in the offering by persons other than Raychem), then Registrable Securities shall be excluded from such Registration to the extent so required pro rata in accordance with the number of shares indicated in the Notices of Exercise. (c) Expenses of Registration. All Registration Expenses incurred in connection with a Registered Offering shall be borne by the Company. All Selling Expenses -24- 25 shall be borne by the holders of the securities Registered pro rata on the basis of the amount of securities Registered. (d) Information Furnished by Securities Holder. It shall be a condition precedent to the Company's obligations and Raychem's obligations under this Section 11.6.3.5 that each Securities Holder of Registrable Securities included in any Registration furnish to the Company or Raychem such information regarding such Securities Holder and the distribution proposed by such Securities Holder as the Company or Raychem may reasonably request. 11.6.3.6 Conversion Prior to Co-Sale. Pursuant Article 2.1.2.2 of the Company's Amended and Restated Articles of Incorporation, all shares of Common Stock to be sold pursuant to the exercise of the Right of Co-Sale shall be automatically converted into Nonredeemable Common Stock on a one-for-one basis. The Company shall provide instructions to all Securities Holders exercising their Right of Co-Sale for surrender to the Company of the certificates representing the shares to be converted. On or before the date specified for surrender of certificates, each holder of shares to be converted shall surrender the certificate(s) representing such shares as provided and, subject to the satisfaction of the conditions set forth below, shall thereupon be entitled to receive new certificate(s) representing the shares deliverable upon such conversion. Regardless of whether such certificates are surrendered, such shares shall be deemed converted as of the date of the closing. Any such conversion shall be conditioned upon the closing of an underwritten public offering or the closing of such other sale or transfer of Company securities as described in the Co-Sale Notice. 11.6.3.7 Raychem's Obligations. By voting to approve this Plan as a shareholder of the Company, Raychem agrees to bound by the obligations of Raychem provided in this Section 11.6 from and after the date of such approval. 11.7 Subordination; Lock Ups. 11.7.1 Subordination of Rights. The rights of the Securities Holders and Plan participants under this Section 11 shall in all cases be subject to any rights of any shareholder of the Company (or any holder of securities convertible into equity securities of the Company) other than Raychem, whether a holder upon adoption of the Plan or a party who thereafter becomes such a holder. Any inconsistency between the rights of the Securities Holders and Plan participants set forth in the Plan, any Option Agreement or any Purchase Agreement and the rights of any such third party shall be interpreted to give full effect and priority to the rights of such third party. 11.7.2 Lock Up of Shares. Exercised Common Stock (including without limitation Registrable Securities or other securities that are either excluded from an underwriting by -25- 26 reason of Section 11.2.4(d) or Section 11.6.3.5(b) or otherwise not included in a Registration of Shares) shall be withheld from the market by their holders for a period not to exceed 180 days if the managing underwriter of a Registration so requests and determines advisable to effect a Registered offering. 11.8 Restrictions on Transfer. The Company does not intend that a trading market develop in its Shares other than with the consent of the Company, and has provided the rights granted in this Section 11 to provide liquidity mechanisms for the shares of Exercised Common Stock granted under this Plan. Accordingly, until such time as the rights granted to Plan participants under this Section 11 have terminated (as provided in Section 11.10), and except as provided by the terms and conditions set forth in the relevant Option Agreement or Purchase Agreement, Shares issued under this Plan (or any interest in any thereof) may not be sold, pledged or otherwise transferred other than either (a) by devise or in accordance with the laws of descent and distribution or (b) in accordance with the provisions of this Section 11. 11.9 Notices. 11.9.1 Forms. The Secretary of the Company shall maintain forms for each of the notices to be delivered by Securities Holders pursuant to this Section 11, including, without limitation, the Initiating Holders' Notice, the Statement of Intent, and the Notice of Exercise, a copy of which such forms shall be provided to Securities Holders promptly upon their written request. 11.9.2 Delivery. Any notice pursuant to this Section 11 to be given by Securities Holders to the Company shall be delivered to the Secretary of the Company at the Company's principal office. Any notice pursuant to this Section 11 to be given by the Administrator or by the Company to Securities Holders shall be delivered to the address shown for each Securities Holder on the books of the transfer agent for the Common Stock and/or Options. All notices shall be in writing and delivered, telecopied or mailed by first class mail, postage prepaid. Any such notice shall be deemed effectively given when actually received if hand delivered or telecopied or two business days after mailing if mailed as aforesaid. 11.10 Termination. Unless otherwise determined by the Board in its sole discretion, the provisions of this Section 11 shall terminate at such time as a Listing Application for the Nonredeemable Common Stock has been declared effective. 11.11 Amendment. Any term of this Section 11 relating to tax, securities or accounting rules or regulations may be altered by the Administrator to the extent that changes in such rules or regulations require or allow. Any other term of this Section 11 may be amended with the written consent of Raychem and the Board and the approval by written consent or affirmative vote -26- 27 of the holders of at least 51% of the Registrable Securities. Any term of this Section 11 may be waived with the written consent of Raychem and the Board and by approval by written consent or affirmative vote or holders of at least 51% of the Registrable Securities or, if such waiver is sought after Statements of Intent have been delivered or deemed delivered, at least 51% of the Registrable Securities held by those Securities Holders who indicate in such Statements of Intent the intent to participate in the Liquidity Event. If required by Section 16, such amendment or waiver shall also require the approval of the Company's shareholders as provided therein. 11.12 Assignment. The Company's rights under this Section 11 shall be freely assignable and its duties shall be freely delegable in whole or in part, including without limitation to Raychem and/or any other shareholder of the Company. The rights of the Plan participants under this Section 11 shall not be assignable unless such assignment has been approved in writing by the Company. 12. No Right to Employment. This Plan shall not confer upon any Optionee or Purchaser any right with respect to continuation of employment by or the rendition of consulting services to the Company, nor shall it interfere in any way with the Company's right to terminate the employment or services of any Optionee or Purchaser at any time with or without cause. 13. Legal Requirements. Notwithstanding any of the provisions of this Plan, the Company shall not be obligated to offer or sell any Shares unless the Shares are at that time effectively registered or exempt from registration under the federal securities laws and the offer and sale of the Shares are otherwise in compliance with all applicable securities laws. Except to the extent provided in Section 11, the Company shall have no obligation to register the Shares under the federal securities laws or take whatever other steps may be necessary to enable the Shares to be offered, sold or transferred under federal or other securities laws. Upon exercise of an Option or Purchase Right, an Optionee may be required to furnish representations or undertakings deemed appropriate by the Company to enable the offer and sale of the Shares or subsequent transfers of any interest in the Shares to comply with applicable securities laws. 14. Legends. Certificates evidencing Shares issued pursuant to this Plan shall bear any legend required by, or useful for purposes of compliance with, applicable securities laws, this Plan or the Option Agreement or Purchase Agreement. Each certificate representing Shares issued pursuant to this Plan shall bear a legend to the foregoing effect (and reflecting the provisions of Sections 11.7.2 and 11.8) reading substantially as follows: SALE, PLEDGE OR OTHER DISPOSITION OR TRANSFER OF ANY INTEREST IN THE SECURITIES REPRESENTED -27- 28 BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF THE COMMON STOCK PLAN AND/OR A RELATED STOCK OPTION OR PURCHASE AGREEMENT UNDER WHICH THESE SECURITIES WERE ISSUED. IN ADDITION, IN ACCORDANCE WITH THE TERMS OF SUCH PLAN, SALE OR OTHER TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE RESTRICTED BY THE TERMS OF AN UNDERWRITER LOCK UP AGREEMENT. A COPY OF THE PLAN AND ANY SUCH AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE. 15. Financial Information. The Company shall provide during the period an Option is outstanding to each holder of such Option a copy of the financial statements of the Company as prepared either by the Company or independent certified public accountants of the Company. Such financial statements shall include, at a minimum, a balance sheet and an income statement and shall be delivered as soon as practicable following the end of the Company's fiscal year. 16. Amendments. 16.1 General. The Administrator may amend this Plan from time to time, subject to the limitation, however, that except as provided in Section 10 (relating to adjustments upon changes in Shares), no amendment shall be effective unless approved, within 12 months before or after the date of adoption by the Administrator, by the written consent of holders of a majority of the voting power of the outstanding shares of the Company or the affirmative vote of the holders of a majority of the voting power of outstanding shares represented, in person or by proxy, and entitled to vote at a duly held meeting where (a) shareholder approval is required to preserve incentive stock option treatment for federal income tax purposes, (b) from and after such time as the Company registers a class of equity securities under Section 12 of the Exchange Act, shareholder approval shall be required to meet the exemptions provided by Rule 16b-3, or any successor rule thereto, or (c) the Board otherwise concludes that shareholder approval is advisable. The Administrator may amend or alter any Option or Purchase Right, but no amendment or alteration shall be made which would impair the rights of a participant under an outstanding Option or Purchase Right without such participant's consent. 16.2 Tax Benefits. It is expressly contemplated that the Administrator may amend this Plan in any respect necessary to provide Employees with the maximum benefits provided or to be provided under the provisions of the Code relating to stock options or to bring this Plan or Incentive Stock Options granted hereunder into compliance therewith. 16.3 Outstanding Options and Purchase Rights. Rights and obligations under any Option or Purchase Right granted before -28- 29 an amendment of this Plan shall not be altered or impaired by the amendment, except with the consent of the Optionee or Purchaser. 17. Termination or Suspension of Plan. The Administrator at any time may suspend or terminate this Plan. This Plan, unless sooner terminated, shall terminate on April 7, 2003. No Option or Purchase Right may be granted under this Plan while this Plan is suspended or after it is terminated. Rights and obligations under any Option Agreement or Purchase Agreement granted while this Plan is in effect shall not be altered or impaired by suspension or termination of this Plan, except with the consent of the Optionee or Purchaser. 18. Shareholder Approval. This Plan is subject to approval, by written consent of a majority of shareholders of the Company or affirmative vote of the holders of a majority of the voting power of outstanding shares of the Company represented, in person or by proxy, and entitled to vote at a duly held shareholders' meeting within 12 months after the date the Board approves this Plan. Options and Purchase Rights may be granted, but not exercised, before such shareholder approval. If the shareholders fail to approve this Plan within the required time period, any Options and Purchase Rights granted under this Plan shall be void, and no additional Options or Purchase Rights shall be granted. -29- EX-13 4 CONSOLIDATED BALANCE SHEET 1 EXHIBIT 13 CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------------------------- =============================================================================================== JUNE 30 (in thousands except share data) 1994 1993 - ----------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 78,090 $ 133,946 Accounts receivable, net of allowances for doubtful accounts of $11,599 in 1994 and $8,557 in 1993 312,624 245,344 Inventories: Raw materials 99,129 79,528 Work in process 55,406 49,819 Finished goods 93,254 96,565 --------- --------- Total inventories 247,789 225,912 Prepaid taxes 40,014 58,450 Other current assets 57,425 51,767 - ----------------------------------------------------------------------------------------------- Total current assets 735,942 715,419 - ----------------------------------------------------------------------------------------------- Property, plant and equipment: Land 46,840 45,075 Buildings 359,911 330,693 Machinery and equipment 646,752 593,202 Leasehold improvements 57,192 52,374 --------- --------- Total property, plant and equipment 1,110,695 1,021,344 Less accumulated depreciation and amortization 576,216 519,531 - ----------------------------------------------------------------------------------------------- Net property, plant and equipment 534,479 501,813 - ----------------------------------------------------------------------------------------------- Other assets 128,594 115,038 - ----------------------------------------------------------------------------------------------- Total assets $1,399,015 $1,332,270 =============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 26,986 $ 38,557 Accounts payable 83,136 66,301 Compensation and benefits 91,422 81,837 Other accrued liabilities 93,151 99,697 Income taxes 25,515 25,052 Current maturities of long-term debt 3,881 3,152 - ----------------------------------------------------------------------------------------------- Total current liabilities 324,091 314,596 - ----------------------------------------------------------------------------------------------- Long-term debt 244,681 233,853 - ----------------------------------------------------------------------------------------------- Deferred income taxes 27,433 29,481 - ----------------------------------------------------------------------------------------------- Other long-term liabilities 65,625 62,398 - ----------------------------------------------------------------------------------------------- Minority interest 4,261 2,438 - ----------------------------------------------------------------------------------------------- Stockholders' equity: Preferred Stock, $1.00 par value - Authorized: 15,000,000; Issued: none - - Common Stock, $1.00 par value - Authorized: 72,150,000; Issued: 1994 - 43,005,786; 1993 - 41,874,773 43,006 41,875 Additional contributed capital 354,660 321,512 Retained earnings 319,905 331,850 Currency translation 16,077 (5,100) Notes receivable from sale of stock (724) (633) - ----------------------------------------------------------------------------------------------- Total stockholders' equity 732,924 689,504 - ----------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,399,015 $1,332,270 ===============================================================================================
See accompanying notes to consolidated financial statements. 1 2 CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------------- =================================================================================================== YEARS ENDED JUNE 30 (in thousands except share data) 1994 1993 1992 - --------------------------------------------------------------------------------------------------- Revenues $1,461,532 $1,385,730 $1,301,601 Cost of goods sold 779,820 710,820 671,988 Research and development expense 136,619 128,992 140,077 Selling, distribution and administrative expense 491,563 479,889 437,113 Provision for restructuring and divestitures - - 43,300 Interest expense, net 12,762 14,867 14,595 Gain on sale of land - - (31,600) Other expense, net 7,023 11,578 5,293 - --------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary item and changes in accounting principles 33,745 39,584 20,835 Provision for income taxes 32,066 31,659 37,393 - --------------------------------------------------------------------------------------------------- Income (loss) before extraordinary item and changes in accounting principles 1,679 7,925 (16,558) Extraordinary item - funding of class action litigation settlement, net of $0 income taxes - - (8,250) Cumulative effect of changes in accounting principles, net of $0 income taxes - 1,700 - - --------------------------------------------------------------------------------------------------- Net income (loss) $ 1,679 $ 9,625 $ (24,808) =================================================================================================== Earnings (loss) per common share: Income (loss) before extraordinary item and changes in accounting principles $ 0.04 $ 0.19 $ (0.43) Extraordinary item - - (0.21) Changes in accounting principles - 0.04 - - --------------------------------------------------------------------------------------------------- Net income (loss) $ 0.04 $ 0.23 $ (0.64) =================================================================================================== Average number of common shares outstanding 43,290,797 42,232,289 39,030,049 ===================================================================================================
See accompanying notes to consolidated financial statements. 2 3 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------- ================================================================================================================= NOTES ADDITIONAL CURRENCY RECEIVABLE COMMON CONTRIBUTED RETAINED TRANS- FROM SALE (in thousands except share data) STOCK CAPITAL EARNINGS LATION OF STOCK TOTAL - ----------------------------------------------------------------------------------------------------------------- Balance June 30, 1991 $38,241 $255,784 $374,056 $ (7,756) $(8,352) $651,973 - ----------------------------------------------------------------------------------------------------------------- Net loss - - (24,808) - - (24,808) Common Stock issued (2,118,271 shares) net of repurchases (117,608 shares) 2,001 31,538 (1,381) - (146) 32,012 Cash dividends ($0.32 per share of Common Stock) - - (12,486) - - (12,486) Currency translation - - - 63,259 - 63,259 Repayments of notes receivable - - - - 5,238 5,238 - ----------------------------------------------------------------------------------------------------------------- Balance June 30, 1992 40,242 287,322 335,381 55,503 (3,260) 715,188 - ----------------------------------------------------------------------------------------------------------------- Net income - - 9,625 - - 9,625 Common Stock issued (1,632,990 shares) 1,633 34,190 - - (253) 35,570 Cash dividends ($0.32 per share of Common Stock) - - (13,156) - - (13,156) Currency translation - - - (60,603) - (60,603) Repayments of notes receivable - - - - 2,880 2,880 - ----------------------------------------------------------------------------------------------------------------- Balance June 30, 1993 41,875 321,512 331,850 (5,100) (633) 689,504 - ----------------------------------------------------------------------------------------------------------------- Net income - - 1,679 - - 1,679 Common Stock issued (1,131,013 shares) 1,131 33,148 - - (208) 34,071 Cash dividends ($0.32 per share of Common Stock) - - (13,624) - - (13,624) Currency translation - - - 21,177 - 21,177 Repayments of notes receivable - - - - 117 117 - ----------------------------------------------------------------------------------------------------------------- Balance June 30, 1994 $43,006 $354,660 $319,905 $16,077 $ (724) $732,924 =================================================================================================================
See accompanying notes to consolidated financial statements. 3 4 CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------- ===================================================================================================================== YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 1,679 $ 9,625 $ (24,808) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for restructuring and divestitures, net of payments (6,163) (18,802) 29,101 Changes in accounting principles - (1,700) - Depreciation and amortization 86,265 80,643 78,051 Deferred income tax benefit (4,723) (1,377) (15,082) Gain on sale of land - - (31,600) Gain on sale of investment (870) (3,609) (11,255) Net loss on disposal of other property, plant and equipment 127 84 517 Changes in certain assets and liabilities net of effects from restructuring and divestitures: Accounts receivable (61,340) 9,536 (2,792) Inventories (14,734) (19,590) 21,930 Accounts payable and accrued liabilities 25,317 33,195 5,617 Income taxes 17,329 (57,182) 12,396 Other assets and liabilities (17,103) 25,652 3,123 - --------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 25,784 56,475 65,198 - --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in property, plant and equipment (104,056) (89,545) (92,817) Disposition of property, plant and equipment 4,494 6,963 43,144 Repurchase of Raynet minority interest - (30,000) - Proceeds from sale of investment 873 3,774 12,455 - --------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (98,689) (108,808) (37,218) - --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net (payment of) proceeds from short-term debt (11,503) 18,936 (2,445) Proceeds from long-term debt 17,405 9,219 4,373 Payments of long-term debt (8,242) (6,529) (10,572) Common Stock repurchased - - (3,396) Common Stock issued under employee benefit plans 34,071 35,570 35,408 Proceeds from repayments of stockholder notes receivable 117 2,880 5,238 Cash dividends (13,624) (13,156) (12,486) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 18,224 46,920 16,120 - --------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (1,175) (9,503) 5,933 - --------------------------------------------------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents (55,856) (14,916) 50,033 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 133,946 148,862 98,829 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 78,090 $ 133,946 $148,862 ===================================================================================================================== Supplemental Disclosures Cash paid for: Interest (net of amounts capitalized) $ 19,197 $ 26,583 $ 26,614 Income taxes (net of refunds) 6,991 60,479 32,038 =====================================================================================================================
See accompanying notes to consolidated financial statements. 4 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of all wholly owned and majority owned subsidiaries. Investments in entities owned 20% or more but less than majority owned and not otherwise controlled by the company are accounted for under the equity method. Other securities and investments are carried at the lower of cost or market. All significant intercompany accounts and transactions are eliminated. REVENUE RECOGNITION Revenue from product sales is recognized when the earnings process is complete. This generally occurs at the time product is shipped. Revenue on certain Raynet Corporation (Raynet) contracts is recognized upon installation and acceptance by the customer. Other revenues are principally from licensing and royalty arrangements. License and royalty revenues are recognized according to the terms of the specific agreements. Effective in 1993, the company reclassified royalty and license income from "other expense, net" to "revenues." Prior-period amounts have been reclassified to conform to this presentation. The following table details total revenues:
- --------------------------------------------------------------------------------------- YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - --------------------------------------------------------------------------------------- Product sales $1,456,986 $1,371,198 $1,296,301 Other revenues 4,546 14,532 5,300 - --------------------------------------------------------------------------------------- Total revenues $1,461,532 $1,385,730 $1,301,601 - ---------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION Assets and liabilities of operations outside the United States, except for operations in highly inflationary economies (principally in Latin America), are translated into U.S. dollars using current exchange rates, and the effects of foreign currency translation adjustments are deferred and included as a component of "stockholders' equity." For operations in highly inflationary economies, foreign currency translation adjustments are included in "other expense, net." INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined principally using the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Effective July 1, 1990, the company adopted the straight-line method of depreciation for property, plant and equipment placed in service on or after that date. Fixed assets placed in service prior to 1991 continue to be depreciated using principally accelerated methods. Property, plant and equipment are depreciated over the estimated useful lives of the individual assets and, for leasehold improvements, over the terms of their respective leases, if shorter. INTANGIBLE ASSETS Goodwill represents the excess of purchase price over the fair value of identifiable net assets of businesses acquired and is amortized on a straight-line basis over periods not exceeding 20 years. Patents and trademarks are amortized on a straight-line basis over their legal or estimated useful lives, whichever is shorter. SOFTWARE CAPITALIZATION The company capitalizes software development costs as resulting products become technologically feasible. Capitalized software development costs are amortized over a period not to exceed three years, commencing when the products are available for general release to customers on a volume basis. At both June 30, 1994 and 1993, the company had $11 million in net capitalized software development costs. For the years ended June 30, 1994 and 1993, amortization of software development costs was $4 million and $1 million, respectively (none in 1992). INCOME TAXES The company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109), effective as of July 1, 1992. FAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The standard was adopted on a prospective basis, and amounts presented for prior years have not been restated. The cumulative effect of adopting the standard as of July 1, 1992, was a $4 million, or $0.10 per share, increase in 1993 net income. 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Prior to 1993, the provision for income taxes was based on income (loss) before income taxes, extraordinary item and cumulative effect of changes in accounting principles recorded in accordance with the company's accounting practices, as reflected in the financial statements. For those years, the income tax effects of timing differences between financial and taxable earnings were reflected in the balance sheet as prepaid or deferred income taxes. Research and development credits reduce the company's tax provision in the year in which the credits are utilized for income tax purposes. In years prior to 1993, such credits reduced the tax provision in the year in which they arose, subject to statutory limitations based on tax liability. EARNINGS (LOSS) PER COMMON SHARE Primary earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and, where dilutive, common equivalent shares outstanding. NEW ACCOUNTING STANDARD In November 1992, the Financial Accounting Standards Board issued Statement No. 112, "Employers' Accounting for Postemployment Benefits." The statement changes the method of accounting for certain postemployment benefits from a cash basis to an accrual basis. The statement must be adopted in the first quarter of 1995. The company expects this change in accounting principle to result in a $1 million to $2 million charge to earnings. The ongoing effect on expense and cash flow is not expected to be material. ENVIRONMENTAL COSTS Environmental expenditures are expensed or capitalized as appropriate. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less at the date of purchase are classified as cash equivalents. FINANCIAL PRESENTATION Certain prior-year amounts have been reclassified to conform with the 1994 financial statement presentation. FINANCIAL INSTRUMENTS FORWARD FOREIGN EXCHANGE CONTRACTS The company enters into forward foreign exchange contracts to hedge certain foreign currency denominated receivables and payables. The related gains and losses are included in "other expense, net," as they arise. The company also enters into forward foreign exchange contracts to hedge a portion of its foreign equity. The gains and losses on these contracts are included in "stockholders' equity." Forward foreign exchange contracts at June 30, 1994 and 1993, generally have maturities of less than six months and relate primarily to major Western currencies. Counterparties to the transactions are typically large international financial institutions. At June 30, 1994 and 1993, the company had approximately $586 million and $366 million, respectively, in forward foreign exchange contracts outstanding. INTEREST RATE SWAP AGREEMENT On December 8, 1992, the company entered into a three-year interest rate swap agreement for a notional principal amount of $100 million, involving the exchange of fixed and floating interest payment obligations. On December 8, 1993, the company terminated the swap agreement. In addition to the financial risk that varied during the life of this swap agreement in relation to market interest rates, the company was subject to credit risk exposure from nonperformance by the counterparty to the swap agreement. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the company to significant concentrations of credit risk consist primarily of cash and trade accounts receivable. The company maintains cash and cash equivalents and certain other financial instruments with various financial institutions. These financial institutions are located throughout the world, and the company's policy is designed to limit exposure to any one institution. The company's periodic evaluations of the relative credit standing of these financial institutions are considered in the company's investment strategy. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the company's customer base and their dispersion across many different industries and countries. Credit risk to certain countries is further limited through the use of irrevocable letters of credit and bank guarantees. As of June 30, 1994 and 1993, the company had no significant concentrations of credit risk. FAIR VALUE OF FINANCIAL INSTRUMENTS For certain of the company's financial instruments, including cash and cash equivalents, accounts receivable, notes payable to banks, accounts payable, and other accrued liabilities, the carrying amounts approximate fair 6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) value due to their short maturities. Consequently, such instruments are not included in the following table, which provides information regarding the estimated fair values of other financial instruments.
- ----------------------------------------------------------------------------------------------------------------- 1994 1993 ------------------------- ------------------------- JUNE 30 CARRYING FAIR CARRYING FAIR ASSET (LIABILITY) (in thousands) AMOUNT VALUE AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------- Long term debt, including current maturities and accrued interest of $6,685 in 1994 and 1993 $(255,247) $(261,405) $(243,690) $(265,039) Forward foreign exchange contracts $ 1,216 $ 1,216 $ (5,659) $ (5,659) Interest rate swap $ - $ - $ 139 $ 3,298 - -----------------------------------------------------------------------------------------------------------------
The fair value of long-term debt is estimated using discounted cash flow analysis, based on the incremental borrowing rates currently available to the company for bank loans with similar terms and maturity. For forward foreign exchange contracts, the estimated fair value is primarily based on quoted market prices of comparable contracts. The estimated fair value of the interest rate swap is based on its quoted market price as provided by the financial institution that was the counterparty to the swap. INCOME TAXES As discussed in the "Summary of Significant Accounting Policies," the company adopted FAS 109 effective July 1, 1992. Income (loss) before income taxes, extraordinary item and changes in accounting principles consisted of the following components:
- ----------------------------------------------------------------------------------------------------------- YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------- U.S. operations, including Puerto Rico $(102,200) $(74,736) $(111,501) Non-U.S. operations 135,945 114,320 132,336 - ----------------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary item and changes in accounting principles $ 33,745 $ 39,584 $ 20,835 - ----------------------------------------------------------------------------------------------------------- The provision for income taxes included: - ----------------------------------------------------------------------------------------------------------- YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------- Current tax (benefit): U.S. federal, including Puerto Rico $ 1,194 $(2,398) $ 2,792 U.S. state and local 775 743 361 Non-U.S. 34,820 34,691 49,322 - ----------------------------------------------------------------------------------------------------------- Total current tax 36,789 33,036 52,475 - ----------------------------------------------------------------------------------------------------------- Deferred (benefit) tax: U.S. federal, including Puerto Rico (2,419) 1,419 (1,246) Non-U.S. (2,304) (2,796) (13,836) - ----------------------------------------------------------------------------------------------------------- Total deferred tax benefit (4,723) (1,377) (15,082) - ----------------------------------------------------------------------------------------------------------- Provision for income taxes $32,066 $31,659 $37,393 - -----------------------------------------------------------------------------------------------------------
The company has provided for U.S. federal income taxes and foreign withholding taxes on the portion of the undistributed earnings of non-U.S. subsidiaries expected to be remitted. Undistributed earnings intended to be reinvested indefinitely in foreign subsidiaries were approximately $309 million at June 30, 1994. If these earnings were distributed, foreign withholding taxes would be imposed; however, foreign tax credits would become available to substantially reduce any resulting U.S. income tax liability. Income from operations in certain countries is subject to reduced tax rates as a result of satisfying certain commitments regarding employment and capital investment. The exemption grants for these operations will expire at various dates through 2010. The income tax benefits related to the tax status of these operations are estimated to be $5 million for 1994, 1993, and 1992. 7 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The company's provision for income taxes differed from the amount computed by applying the statutory U.S. federal income tax rate to income before income taxes, extraordinary item and changes in accounting principles as follows:
- ---------------------------------------------------------------------------------------------- YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - ---------------------------------------------------------------------------------------------- Tax determined by applying U.S. statutory rate to income before income taxes, extraordinary item and changes in accounting principles $11,811 $13,459 $ 7,084 Tax benefit of deferred deductions, net operating losses, and net foreign and minimum tax credits to be carried forward to future years 31,025 30,932 37,778 Tax rate differences and foreign tax credits, net of withholding taxes (9,572) (12,443) (5,472) State and local taxes, net of federal income tax benefits 497 51 253 Adjustment of prior years' taxes 210 (2,395) (3,646) Other items, net (1,905) 2,055 1,396 - ---------------------------------------------------------------------------------------------- Provision for income taxes $32,066 $31,659 $37,393 - ----------------------------------------------------------------------------------------------
For tax return purposes at June 30, 1994, the company has unrecognized U.S. federal and state tax benefits of approximately $223 million due to deferred deductions and tax credit carryforwards expiring in 1997 through 2009. For years prior to 1993, deferred taxes resulted from differences in the timing of revenue and expense recognition for tax return and financial statement purposes. The source and tax effect of these differences were as follows:
- ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 1992 (in thousands) - ---------------------------------------------------------------------------------------------- Depreciation and amortization $ 127 Corporation taxes, net of withholding taxes, not currently refundable (12,036) Restructuring and divestitures accruals (4,102) Inventory-related transactions 751 Other items, net 178 - ---------------------------------------------------------------------------------------------- Total deferred tax benefit $(15,082) - ----------------------------------------------------------------------------------------------
U.S. federal tax return examinations have been completed for years through 1989. The company believes adequate provisions for income tax have been recorded for all years. 8 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Deferred tax liabilities (assets) under FAS 109 comprised the following:
- ------------------------------------------------------------------------------------------------------- June 30, June 30, July 1, (in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------------------------------- Liabilities: Difference between book and tax bases of assets $ - $ 1,487 $ 18,630 Retirement benefits 1,668 2,658 4,045 Other 13,127 11,434 4,427 - ------------------------------------------------------------------------------------------------------- Gross deferred tax liabilities 14,795 15,579 27,102 - ------------------------------------------------------------------------------------------------------- Assets: Compensation and benefits accrual (3,412) (2,748) (4,647) Asset reserves (16,662) (7,473) (8,570) Restructuring and divestitures accruals (5,109) (10,484) (9,431) Capitalization of research and experimental costs, net of amortization (167,576) (176,829) (149,249) Difference between book and tax bases of investments (2,215) (1,918) - Net operating loss carryforwards (12,124) - - General business credits (14,670) (9,056) (9,056) Minimum tax credit (3,277) (3,167) (3,167) Foreign tax credit (5,900) - - Difference between book and tax bases of assets (275) - - Other (9,055) (13,874) (9,377) - ------------------------------------------------------------------------------------------------------- Gross deferred tax assets (240,275) (225,549) (193,497) - ------------------------------------------------------------------------------------------------------- Deferred tax asset valuation allowance 229,787 210,404 171,891 - ------------------------------------------------------------------------------------------------------- Net deferred tax liability $ 4,307 $ 434 $ 5,496 - -------------------------------------------------------------------------------------------------------
The net change in the total valuation allowance for the year ended June 30, 1994, was an increase of $19 million. The deferred tax asset valuation allowance is primarily attributed to U.S. federal and state deferred tax assets. Management believes sufficient uncertainty exists regarding the realizability of these items that a valuation allowance is required. EXTRAORDINARY ITEM - SETTLEMENT OF CLASS ACTION LITIGATION In the second quarter of 1992, the company and its insurer reached settlement with the plaintiffs in a class action securities suit. The company and its insurer together funded a total of $20 million for the settlement. The company's funding in this matter, totaling $8 million, or $0.21 per common share, was reported as an extraordinary charge. The company expects to recover a portion of this funding, either through litigation or when a definitive agreement is reached with its insurer, and has filed suit against its insurer to resolve this issue. There is no tax benefit recognized for the extraordinary item because it increases U.S. losses. SALE OF ASSETS In 1993, the company sold its remaining equity interest in Mitek Surgical Products, Inc. (Mitek) for $4 million, resulting in a pretax gain of $4 million. In 1992, the company realized a gain of $11 million from the sale of Mitek stock for $13 million. These gains were included in "other expense, net." In the third quarter of 1992, the company sold 57 acres of undeveloped land at its headquarters in Menlo Park, California, for $39 million, resulting in a pretax gain of $32 million. RESTRUCTURING AND DIVESTITURES During the fourth quarter of 1992, the company recorded a pretax restructuring charge of $30 million for the repositioning of certain businesses and facilities, principally in the electronics business segment. In the second quarter of 1992, the company provided a pretax charge of $8 million to discontinue the operations of the Taliq subsidiary. Taliq ceased commercial operations in January 1993. During the first quarter of 1992, the company decided to discontinue the operations of its High Density Interconnect (HDI) business, resulting in a $5 million pretax charge. HDI was shut down in February 1992. 9 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) RAYNET REPURCHASE OF MINORITY INTEREST On June 24, 1993, the company repurchased all of the convertible preferred stock in Raynet International Inc. (RNI), a subsidiary of Raynet Corporation (Raynet), previously held by BellSouth Enterprises Inc. (BSE). As a result of this $30 million purchase, Raynet and RNI are now essentially wholly owned by Raychem and its consolidated subsidiaries. The RNI preferred stock was previously recorded as a minority interest. Accordingly, at June 30, 1994 and 1993, there remains no minority interest related to the RNI preferred stock. The excess of Raychem's cost over the fair value of the preferred stock has been recorded as "goodwill" and is being amortized over a five-year period. Goodwill amortization expense was $1 million in 1994 (none in 1993). The company and Raynet remain in an agreement with BSE that requires Raynet to pay BSE a royalty based on revenues from certain codeveloped fiber- optic products. The royalty is based on a variable rate subject to meeting certain annual royalty payment levels. Royalty expense under the agreement was $3 million and $1 million in 1994 and 1993, respectively. SUBSEQUENT EVENT In July 1994, the company announced the signing of a memorandum of understanding with Ericsson, a Swedish telecommunications company, to create a joint venture that will design, manufacture, and market fiber-optic access network systems worldwide. The joint venture, to be headquartered in Menlo Park, California, will assume the business operations of Raynet. The joint venture will be owned 51% by Ericsson and 49% by Raychem and will commence during calendar 1994, subject to completing definitive agreements, obtaining regulatory approvals, and restructuring Raynet's existing technology agreement with BSE. If consummated, these transactions are anticipated to result in a net charge to earnings. The company's interest in the joint venture will be subject to ongoing payments to BSE. OTHER POSTRETIREMENT BENEFITS The company provides postretirement health care benefits to U.S. employees who qualify for the company's defined benefit pension plan and retire on or after age 55, until the employees reach age 65. Such benefits are limited to allowing retirees to continue their participation in the company's group medical plan. Eligible retirees pay monthly premiums, thus reducing the cost to the company. The company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106), effective July 1, 1992. This statement requires accrual accounting for all postretirement benefits other than pensions. The company elected to immediately recognize the transition obligation as the cumulative effect of a change in accounting principle, resulting in a decrease to 1993 net income of $2 million, or $0.06 per share. Prior to the adoption of FAS 106, the cost of providing medical and dental benefits to early retirees was expensed as incurred. The cash cost of these benefits was not significant in 1992. In both 1993 and 1994, the cost of these benefits (determined in accordance with FAS 106) was $0.4 million, comprising a service cost of $0.2 million and interest cost of $0.2 million. The following table sets forth components of the accumulated postretirement benefit obligation:
- --------------------------------------------------------------------------------------------- JUNE 30 (in thousands) 1994 1993 - --------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation attributable to: Retirees $ 500 $ 50 Fully eligible employees 600 700 Other active employees 1,600 2,000 - --------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 2,700 2,750 Unrecognized net gain (loss) 233 (95) - --------------------------------------------------------------------------------------------- Accrued postretirement benefit obligation $2,933 $2,655 - ---------------------------------------------------------------------------------------------
The assumed discount rate used to measure the accumulated postretirement benefit obligation as of June 30, 1994 and 1993, was 8.25%. The assumed health care cost trend rate for 1995 is 11%, grading down to an ultimate rate in 2003 of 6%. A one percentage point increase in the assumed health care cost trend rate for each future year increases annual net periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of June 30, 1994, by $0.1 million and $0.4 million, respectively. 10 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) RETIREMENT BENEFITS The company has noncontributory defined benefit pension plans that cover substantially all U.S. employees and a number of its employees in foreign countries. The benefits for these plans are based primarily on years of service and employee compensation. The company funds these pension plans when legally or contractually required, or earlier. Plan assets for the U.S. and non-U.S. defined benefit pension plans generally consist of publicly traded securities, bonds, and cash investments. Amortization of prior service cost is calculated on a straight-line basis over the expected future years of service of the plans' active participants. On January 1, 1993, the U.S. plan was amended to update the years used to calculate past service benefits. The amendment generated an unrecognized prior service cost of $5 million. In the fourth quarter of 1992, the company included a $1 million pension expense, related to early retirements, in the provision for restructuring and divestitures. The assumptions used to measure the projected benefit obligation and to compute the expected long-term return on assets for the company's defined benefit pension plans are as follows:
- ------------------------------------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------- U.S. plans: Discount rate 8.25% 8.25% 8.5% Average increase in compensation levels 5.25% 5.5% 6% Expected long-term return on assets 9% 9% 9% Non-U.S. plans: Discount rates 6%-8.5% 6%-9.5% 6%-10% Average increase in compensation levels 4%-6.9% 6%-7% 6%-7% Expected long-term return on assets 7.5%-9.5% 8%-10% 9%-10% - -------------------------------------------------------------------------------------------------------------
Net periodic pension cost, excluding the effects of the restructuring program discussed above, includes the following components:
============================================================================================================================ U.S. PLANS NON U.S. PLANS ------------------------------- -------------------------------- YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 6,161 $ 5,479 $ 4,557 $ 7,477 $ 7,154 $ 7,132 Interest cost on projected benefit obligation 8,091 7,061 5,990 10,148 8,809 8,183 Actual loss (return) on plan assets 165 (10,927) (5,283) (14,055) (15,488) (3,042) Net amortization and deferral (6,697) 4,828 (737) 5,607 7,744 (5,415) - ---------------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 7,720 $ 6,441 $ 4,527 $ 9,177 $ 8,219 $ 6,858 - ----------------------------------------------------------------------------------------------------------------------------
The following table sets forth the funded status of the plans:
- ------------------------------------------------------------------------------------------------------------------------------ ASSETS EXCEED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEED ASSETS --------------------------------------------- ------------------------------------------ U.S. PLANS NON-U.S. PLANS U.S. PLANS NON-U.S. PLANS ------------------ ---------------------- ------------------ ------------------- JUNE 30 (in thousands) 1994 1993 1994 1993 1994 1993 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ (93,365) $ - $ (55,629) $(39,714) $(1,776) $ (81,883) $(33,232) $(24,130) - ------------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation $ (98,025) $ - $ (56,687) $(40,471) $(1,808) $ (90,578) $(35,200) $(25,321) - ------------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation $(107,694) $ - $(107,740) $(78,816) $(3,141) $(102,231) $(42,021) $(33,282) Plan assets at fair value 98,915 - 105,038 78,659 - 82,961 - - - ------------------------------------------------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (8,779) - (2,702) (157) (3,141) (19,270) (42,021) (33,282) Unrecognized net loss (gain) 21,961 - 2,096 (329) (620) 12,284 (3,698) (5,525) Unrecognized net transition (asset) liability (3,204) - (8,942) (9,723) 675 (3,799) - (397) Unrecognized prior service cost 10,747 - 3,174 3,333 3,161 15,932 - - Adjustment required to recognize additional minimum liability - - - - (2,211) (12,775) - - - ------------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 20,725 $ - $ (6,374) $ (6,876) $(2,136) $ (7,628) $(45,719) $(39,204) - -------------------------------------------------------------------------------------------------------------------------------
11 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STOCK REPURCHASE OF COMMON STOCK During 1992, the company repurchased 118,000 shares of common stock from former Series B stockholders for an aggregate price of $3 million. The stockholders used the proceeds to retire their outstanding Series B loans. All of the repurchased shares have been reissued under the employee stock purchase and stock option plans at an aggregate price of $2 million. The $1 million difference between the repurchase and reissuance prices was treated as a reduction of retained earnings. EMPLOYEE STOCK PURCHASE PLANS The company's employee stock purchase plans provide that eligible employees may contribute up to 15% of their base earnings toward the quarterly purchase of the company's Common Stock. The employees' purchase price is derived from a formula based on the fair market value of the Common Stock. No compensation expense is recorded in connection with the plans. During the past three years, shares issued under the plans were 901,000 in 1994, 1,188,000 in 1993, and 1,792,000 in 1992. At June 30, 1994, a total of 4,979 of the 9,843 eligible employees were participants in the plans. In 1992, the stockholders approved amendments to the employee stock purchase plans to increase the aggregate number of shares issuable under the plans by 1,600,000. In 1993, the stockholders approved an amendment to the employee stock purchase plans to reduce the maximum enrollment period from 27 months to 12 months and to increase the aggregate number of shares issuable under the plans by 1,400,000. On October 27, 1993, the stockholders approved another amendment to the employee stock purchase plans to increase the aggregate number of shares issuable under the plans by 700,000. The total number of shares reserved for future issuance under the plans was 938,000 at June 30, 1994. STOCK OPTION AND INCENTIVE PLANS The company has various stock option and management incentive plans for selected employees, officers, directors, and consultants. The plans provide for awards in the form of stock options, stock appreciation rights, stock purchase rights, convertible debentures, and performance shares. As of June 30, 1994, only stock options had been awarded under the plans. Options to purchase Common Stock have been granted at no less than fair market value on the date of grant. On October 27, 1993, the stockholders approved an amendment to the 1990 Incentive Plan to increase by 1,700,000 shares the aggregate number of shares issuable under the plan. At June 30, l994, 808 optionees held options for the purchase of Common Stock with expiration dates occurring between July 1, 1994, and June 30, 2004, with an average exercise price of $33 per share. The following table summarizes Raychem option activity during 1994, 1993, and 1992:
- ------------------------------------------------------------------------------------------ OPTION SHARES, JUNE 30 (in thousands except per share data) 1994 1993 1992 - ------------------------------------------------------------------------------------------ Outstanding at beginning of year 4,896 4,299 3,972 Granted 894 1,188 871 Exercised (232) (453) (343) Expired or cancelled (347) (138) (201) - ------------------------------------------------------------------------------------------ Outstanding at end of year 5,211 4,896 4,299 - ------------------------------------------------------------------------------------------ Exercisable 2,676 2,284 1,902 - ------------------------------------------------------------------------------------------ Available for future grant 1,792 710 1,860 - ------------------------------------------------------------------------------------------ Option price per share Exercised $21-$41 $17-$41 $18-$36 Outstanding $17-$45 $17-$45 $17-$45 - ------------------------------------------------------------------------------------------
The company has a separate stock option plan for employees of Raynet. The plan provides for the issuance of up to 8,150,000 shares of common stock of Raynet. If all such shares were issued, they would constitute 10% of the aggregate Raynet common shares outstanding on a fully diluted basis. 12 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) WORLDWIDE OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------- UNITED ASIA REST OF CONSOLIDATED (in thousands) STATES EUROPE PACIFIC WORLD CONSOLIDATION TOTAL - ----------------------------------------------------------------------------------------------------------------------------- Revenues from unaffiliated customers (a) 1994 $562,199 $587,196 $179,060 $133,077 $ - $1,461,532 1993 487,958 644,547 127,090 126,135 - 1,385,730 1992 452,497 639,195 100,063 109,846 - 1,301,601 - ----------------------------------------------------------------------------------------------------------------------------- Revenues between geographic areas (b) 1994 199,331 141,493 8,427 142 (349,393) - 1993 169,586 183,176 4,700 55(c) (357,517) - 1992 145,770 177,871 3,224 22,041 (348,906) - - ----------------------------------------------------------------------------------------------------------------------------- Total revenues 1994 761,530 728,689 187,487 133,219 (349,393) 1,461,532 1993 657,544 827,723 131,790 126,190 (357,517) 1,385,730 1992 598,267 817,066 103,287 131,887 (348,906) 1,301,601 - ----------------------------------------------------------------------------------------------------------------------------- Operating income (loss) before 1994 (80,764) 120,825 2,026 11,443 - 53,530 provision for restructuring and 1993 (64,039) 115,476 2,514 12,078 - 66,029 divestitures 1992 (93,787) 115,573 8,831 21,806 - 52,423 - ----------------------------------------------------------------------------------------------------------------------------- Operating income (loss) including 1994 (80,764) 120,825 2,026 11,443 - 53,530 provision for restructuring and 1993 (64,039) 115,476 2,514 12,078 - 66,029 divestitures 1992 (126,034) 105,047 8,831 21,279 - 9,123 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes, 1994 (102,200) 108,345 15,686 11,914 - 33,745 extraordinary item and changes in 1993 (74,736) 93,967 6,282 14,071 - 39,584 accounting principles 1992 (111,501) 110,264 5,572 16,500 - 20,835 - ----------------------------------------------------------------------------------------------------------------------------- Identifiable assets 1994 433,155 452,888 139,947 56,328 - 1,082,318 1993 426,920 416,147 85,698 46,910 - 975,675 1992 385,483 527,153 54,499 47,239 - 1,014,374 - ----------------------------------------------------------------------------------------------------------------------------- Corporate assets 1994 201,762 67,581 32,542 14,812 - 316,697 1993 203,758 105,346 26,011 21,480 - 356,595 1992 209,999 135,539 19,010 13,684 - 378,232 - ----------------------------------------------------------------------------------------------------------------------------- Total assets 1994 634,917 520,469 172,489 71,140 - 1,399,015 1993 630,678 521,493 111,709 68,390 - 1,332,270 1992 595,482 662,692 73,509 60,923 - 1,392,606 - -----------------------------------------------------------------------------------------------------------------------------
(a) Revenues from unaffiliated customers in each geographic area reflect only local shipments and exclude direct exports from other geographic areas. (b) Revenues between geographic areas are recorded on the basis of arms-length prices established by the company. (c) Beginning in 1993, revenues originating from the company's Tijuana, Mexico facility are reported as originating in the United States due to a change in the cross-border product transfer agreement between the United States and Mexico. [ARTWORK] 13 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) INTEREST Interest expense, net, consists of the following components:
- ------------------------------------------------------------------------------------- YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------------- Interest expense incurred $22,318 $26,991 $28,423 Interest expense capitalized (1,172) (362) (1,794) Interest income (8,384) (11,762) (12,034) - ------------------------------------------------------------------------------------- Interest expense, net $12,762 $14,867 $14,595 - -------------------------------------------------------------------------------------
EXCHANGE GAINS AND LOSSES The company recognized net foreign currency losses of $5 million, $10 million and $7 million in 1994, 1993, and 1992, respectively. These amounts, which are included in "other expense, net," arose primarily from foreign currency transactions and the translation of monetary assets and liabilities in highly inflationary countries. BUSINESS SEGMENTS The electronics business segment serves the aerospace, automotive, defense, mass transit, computer, communications, medical, and other industries. The industrial business segment serves industrial infrastructure customers, including electric, gas, and water utilities; industrial plants and pipelines; and commercial construction. The telecommunications business segment serves the telephone and cable television industries. The company's Raynet subsidiary delivers fiber-optic distribution systems for voice, video, and data to telecommunications network operators.
========================================================================================================================== TELECOM- CONSOLIDATED (in thousands) ELECTRONICS INDUSTRIAL MUNICATIONS RAYNET CORPORATE TOTAL - -------------------------------------------------------------------------------------------------------------------------- Revenues(a) 1994 $521,890 $451,814 $430,044 $ 57,784 $ - $1,461,532 1993 503,168 443,390 429,501 9,671 - 1,385,730 1992 493,917 412,777 378,313 16,594 - 1,301,601 - -------------------------------------------------------------------------------------------------------------------------- Operating income (loss) before 1994 88,070 77,800 76,485 (100,416) (88,409) 53,530 provision for restructuring and 1993 64,334 80,869 87,191 (88,946) (77,419) 66,029 divestitures 1992 32,012 82,039 86,153 (84,742) (63,039) 52,423 - -------------------------------------------------------------------------------------------------------------------------- Operating income (loss) including 1994 88,070 77,800 76,485 (100,416) (88,409) 53,530 provision for restructuring and 1993 64,334 80,869 87,191 (88,946) (77,419) 66,029 divestitures 1992 (5,488) 78,739 86,153 (86,142) (64,139) 9,123 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes, 1994 - - - - - 33,745 extraordinary item and changes 1993 - - - - - 39,584 in accounting principles 1992 - - - - - 20,835 - -------------------------------------------------------------------------------------------------------------------------- Identifiable assets 1994 381,863 300,320 290,591 109,544 316,697 1,399,015 1993 341,578 279,367 275,100 79,630 356,595 1,332,270 1992 387,820 324,336 248,124 54,094 378,232 1,392,606 - -------------------------------------------------------------------------------------------------------------------------- Capital expenditures 1994 33,211 20,415 26,967 10,758 12,705 104,056 1993 17,508 14,758 24,411 11,036 21,832 89,545 1992 32,439 16,229 17,923 13,134 13,092 92,817 - -------------------------------------------------------------------------------------------------------------------------- Depreciation and amortization 1994 24,672 16,715 17,795 14,806 12,277 86,265 1993 23,531 14,030 20,687 10,259 12,136 80,643 1992 25,431 13,737 20,060 7,481 11,342 78,051 - --------------------------------------------------------------------------------------------------------------------------
(a) Revenues between segments are immaterial. 14 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DEBT STRUCTURE Long-term debt consists of the following:
- ------------------------------------------------------------------------------------ JUNE 30 (in thousands) 1994 1993 - ------------------------------------------------------------------------------------ 3.3% to 17.5% notes payable to banks and others requiring payments in varying amounts through 2008 $ 37,062 $ 24,505 9.55% privately placed senior notes, payable in 1996 210,000 210,000 Industrial Revenue Bond due in equal quarterly installments through 1996. The interest rate, which fluctuates according to lender's prime rate, was 4.1% at June 30, 1994. 1,500 2,500 - ------------------------------------------------------------------------------------ Total long-term debt 248,562 237,005 - ------------------------------------------------------------------------------------ Less current maturities 3,881 3,152 - ------------------------------------------------------------------------------------ Long-term portion $244,681 $233,853 - ------------------------------------------------------------------------------------
Long-term debt maturing during the five years subsequent to June 30, 1994, is as follows: 1995 - $4 million; 1996 - $212 million; 1997 - $1 million; 1998 - $1 million; 1999 - $17 million; and thereafter - $14 million. Assets pledged as security for long-term debt totaled $23 million at June 30, 1994. The company entered into a $210 million private placement debt agreement in February 1991. This agreement and most of the company's short-term borrowing arrangements include covenants which, among other things, include a minimum net worth requirement, a dividend restriction, and a fixed charge coverage ratio. In December 1992, the company entered into a three-year interest rate swap agreement which effectively converted $100 million of notional principal amount from a fixed rate to a floating rate. Under the agreement, which was to mature on December 8, 1995, the company made payments to a counterparty at variable rates based on LIBOR, reset every six months, and in return received payments based on a fixed rate of 5.715%. The LIBOR rate for the period from December 8, 1992, to June 7, 1993, was 3.875%, and the LIBOR rate for the period from June 8, 1993, to December 8, 1993, was 3.4375%. The effect of the interest rate swap agreement was to reduce interest expense in both 1994 and 1993 by $1 million. On December 8, 1993, the company terminated this agreement which resulted in a deferred gain of $3 million to be amortized over the remaining life of the hedged debt. In 1994, $1 million of the gain was recognized as a reduction of interest expense. Information regarding short-term debt is as follows:
- ------------------------------------------------------------------------------------------------------ YEARS ENDED JUNE 30 (in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------------------------------ Total lines of credit at June 30 $483,073 $448,651 $467,049 Available unused credit lines at June 30 $437,856 $394,636 $422,103 - ------------------------------------------------------------------------------------------------------ Outstanding during the year at month-end: Maximum amount outstanding $ 28,884 $ 43,370 $ 24,875 Average amount outstanding $ 21,549 $ 30,205 $ 21,210 Weighted average interest rate 9.5% 10.0% 12.1% - ------------------------------------------------------------------------------------------------------ Weighted average interest rate at June 30: Highly inflationary economies 15.1% 9.8% 15.3% Other countries 9.4% 7.3% 12.3% Worldwide average 9.5% 7.5% 12.4% - ------------------------------------------------------------------------------------------------------
In addition to short-term borrowings, lines of credit are used for letters of credit, debt guarantees, and other purposes. The company had no significant compensating balance requirements or capital lease obligations at June 30, 1994. 15 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) COMMITMENTS Total rental expense was $39 million in both 1994 and 1993, and $37 million in 1992. The company had commitments at June 30, 1994, to expend approximately $18 million for the construction or acquisition of additional property, plant and equipment. Annual future minimum lease payments at June 30, 1994, under noncancelable operating leases are as follows: 1995 - $28 million; 1996 - $22 million; 1997 - $16 million; 1998 - $12 million; 1999 - $11 million; and thereafter - $52 million. CONTINGENCIES The company has been named, among others, as a potentially responsible party ("PRP") in administrative proceedings alleging that it may be liable for the costs of correcting environmental conditions at certain hazardous waste sites. At all of the sites, the company is alleged to be a de minimis generator of hazardous wastes, and the company believes that it has limited or no liability for cleanup costs at these sites. The company has also been notified by a state environmental agency that it may be required to investigate the need for remedial work at one of its manufacturing sites. The company is currently conducting such investigations on a voluntary basis. Additionally, the company and its subsidiaries have been named as defendants in lawsuits arising from various commercial matters, including product liability and private cost recovery for environmental cleanup expenses. The principal product liability litigation involves a variety of claims arising from the company's heat-tracing and freeze-protection products. The single environmental cost recovery lawsuit in which Raychem has been named as a defendant, along with sixteen other corporate and governmental codefendants, involves the disposal of waste materials at the West Contra Costa County Landfill in Richmond, California. Legal proceedings tend to be unpredictable and costly. Based on currently available information, however, management believes that the resolution of pending claims, regulatory inquiries, and legal proceedings will not have a material adverse effect on the company's operating results or financial position. 16 17 REPORT OF INDEPENDENT ACCOUNTANTS ================================================================================ TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RAYCHEM CORPORATION In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Raychem Corporation and its subsidiaries at June 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in the notes to consolidated financial statements, the company changed its methods of accounting for income taxes and nonpension postretirement benefits in 1993. PRICE WATERHOUSE LLP San Jose, California July 20, 1994 17 18 QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------- =============================================================================================================== QUARTER ENDED (in thousands except share data) SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 - --------------------------------------------------------------------------------------------------------------- FISCAL 1994: Revenues $355,432 $353,835 $361,278 $390,987 Gross profit 171,702 165,851 165,769 178,390 Income before income taxes 18,317 4,731 7,395 3,302 Net income (loss) 6,411 1,656 1,066 (7,454) - --------------------------------------------------------------------------------------------------------------- Per share data: Net income (loss) per common share $ 0.15 $ 0.04 $ 0.02 $ (0.17) Cash dividends per common share 0.08 0.08 0.08 0.08 Price range of Common Stock(a) 34 1/8-44 3/8 35 1/4-43 35 3/8-40 3/4 33 1/4-38 3/4 =============================================================================================================== FISCAL 1993: Revenues $348,639(b) $351,958(b) $324,042 $361,091 Gross profit 169,864(b) 176,894(b) 155,753 172,399 Income before income taxes and changes in accounting principles 18,820 16,321 2,229 2,214 Income before changes in accounting principles 3,764 3,264 446 451 Cumulative effect of changes in accounting principles, net of $0 income taxes(c) 1,700 - - - Net income 5,464 3,264 446 451 - --------------------------------------------------------------------------------------------------------------- Per share data: Earnings per common share: Income before changes in accounting principles $ 0.09 $ 0.08 $ 0.01 $ 0.01 Net income 0.14 0.08 0.01 0.01 Cash dividends per common share 0.08 0.08 0.08 0.08 Price range of Common Stock(a) 29 7/8-40 1/2 35 3/4-44 7/8 38 1/4-44 5/8 36 1/4-46 3/4 ===============================================================================================================
(a) The price range of Common Stock is as reported on the New York Stock Exchange composite tape. (b) Reflects the reclassification of royalty and license income from "other expense, net" to "revenues." (c) In the third quarter of 1993, the company adopted two new accounting standards. The standards were adopted effective July 1, 1992. The table reflects this retroactive adoption. Raychem Corporation Common Stock is listed on the New York Stock Exchange. The number of stockholders as of August 23, 1994, was 8,001. Dividends have been paid quarterly since the second quarter of fiscal 1978. The closing price of the company's Common Stock on the New York Stock Exchange composite tape on August 23, 1994, was $40 3/4 per share. 18 19 TEN-YEAR SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------- ============================================================================================================================= YEARS ENDED JUNE 30 (dollars in thousands except per share amounts) 1994 1993 1992 ============================================================================================================================= RAYCHEM CORPORATION Consolidated ============================================================================================================================= INCOME DATA ------------------------------------------------------------------------------------------------------------------------- Revenues $1,461,532 $1,385,730 $1,301,601 ------------------------------------------------------------------------------------------------------------------------- Provision for restructuring and divestitures $ - $ - $ 43,300 ------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes, extraordinary item and changes in accounting principles $ 33,745 $ 39,584 $ 20,835 ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 1,679 $ 9,625 $ (24,808) ========================================================================================================================= SHARE DATA ------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per common share $ 0.04 $ 0.23 $ (0.64) ------------------------------------------------------------------------------------------------------------------------- Cash dividends per common share $ 0.32 $ 0.32 $ 0.32 ------------------------------------------------------------------------------------------------------------------------- Cash dividends per Series B share $ - $ - $ - ------------------------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 43,290,797 42,232,289 39,030,049 ========================================================================================================================= BALANCE SHEET DATA ------------------------------------------------------------------------------------------------------------------------- Total assets $1,399,015 $1,332,270 $1,392,606 ------------------------------------------------------------------------------------------------------------------------- Long-term debt $ 244,681 $ 233,853 $ 229,768 ------------------------------------------------------------------------------------------------------------------------- Total debt $ 275,548 $ 275,562 $ 257,763 ------------------------------------------------------------------------------------------------------------------------- Stockholders' equity $ 732,924 $ 689,504 $ 715,188 ------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in debt net of cash $ 55,842 $ 32,715 $ (57,610) ========================================================================================================================= OTHER SIGNIFICANT MEASURES ------------------------------------------------------------------------------------------------------------------------- Gross profit as a percent of product sales 46.7% 48.2% 48.2% ------------------------------------------------------------------------------------------------------------------------- Research and development expense as a percent of revenues 9.3% 9.3% 10.8% ------------------------------------------------------------------------------------------------------------------------- Selling, distribution and administrative expense as a percent of revenues 33.6% 34.6% 33.6% ------------------------------------------------------------------------------------------------------------------------- Net debt as a percent of stockholders' equity 26.9% 20.5% 15.2% ------------------------------------------------------------------------------------------------------------------------- Number of employees 10,769 10,772 11,187 ------------------------------------------------------------------------------------------------------------------------- Revenues per average number of employees $ 136 $ 126 $ 115 ============================================================================================================================= RAYNET CORPORATION ============================================================================================================================= Revenues $ 57,784 $ 9,671 $ 16,594 ------------------------------------------------------------------------------------------------------------------------- Net (loss) income $ (102,993) $ (92,551) $ (89,334) ------------------------------------------------------------------------------------------------------------------------- (Loss) earnings per Raychem common share $ (2.38) $ (2.19) $ (2.29) ------------------------------------------------------------------------------------------------------------------------- Total assets $ 109,544 $ 79,630 $ 54,094 ------------------------------------------------------------------------------------------------------------------------- Stockholders' equity (deficit) $ 54,012 $ 36,264 $ 8,473 ------------------------------------------------------------------------------------------------------------------------- Number of employees 796 808 740 ------------------------------------------------------------------------------------------------------------------------- *Cash exceeded debt at June 30. Notes: 1985-1987 have been restated to reflect the three-for-one stock split effective on November 2, 1987. Prior years have been restated to reflect reclassification of royalty and licensing income from "other expense, net" to "revenues." Raynet Corporation was incorporated in 1988. - ----------------------------------------------------------------------------------------------------------------------------- (1991 through 1985 continued on following page)
19 20 TEN-YEAR SUMMARY - (Continued)
- --------------------------------------------------------------------------------------------------------------- =============================================================================================================== 1991 1990 1989 1988 1987 1986 1985 =============================================================================================================== =============================================================================================================== - --------------------------------------------------------------------------------------------------------------- $1,250,772 $1,114,713 $1,083,028 $1,094,733 $ 944,434 $797,632 $679,770 - --------------------------------------------------------------------------------------------------------------- $ 3,697 $ 90,000 $ - $ - $ - $ - $ - - --------------------------------------------------------------------------------------------------------------- $ (3,109) $ (86,261) $ 63,767 $ 169,304 $ 100,821 $ 65,490 $ 40,658 - --------------------------------------------------------------------------------------------------------------- $ (23,429) $ (111,398) $ 36,347 $ 125,285 $ 73,599 $ 48,790 $ 29,195 =============================================================================================================== - --------------------------------------------------------------------------------------------------------------- $ (0.63) $ (3.12) $ 1.04 $ 3.69 $ 2.25 $ 1.55 $ 0.96 - --------------------------------------------------------------------------------------------------------------- $ 0.32 $ 0.32 $ 0.30 $ 0.22 $ 0.15 $ 0.15 $ 0.15 - --------------------------------------------------------------------------------------------------------------- $ - $ - $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ 0.02 - --------------------------------------------------------------------------------------------------------------- 37,134,161 35,708,523 34,928,935 33,979,365 32,738,442 31,508,283 30,430,224 =============================================================================================================== - --------------------------------------------------------------------------------------------------------------- $1,234,860 $1,270,834 $1,172,783 $1,148,975 $ 926,920 $785,592 $667,351 - --------------------------------------------------------------------------------------------------------------- $ 233,347 $ 31,087 $ 29,029 $ 35,458 $ 22,377 $ 54,088 $ 59,315 - --------------------------------------------------------------------------------------------------------------- $ 265,340 $ 212,954 $ 130,294 $ 129,246 $ 132,409 $149,603 $149,557 - --------------------------------------------------------------------------------------------------------------- $ 651,973 $ 690,467 $ 734,286 $ 722,155 $ 570,946 $452,464 $355,838 - --------------------------------------------------------------------------------------------------------------- $ 90,589 $ 98,633 $ (19,132) $ (80,857) $ (57,859) $ 4,921 $ 80,628 =============================================================================================================== - --------------------------------------------------------------------------------------------------------------- 48.5% 49.6% 52.8% 54.3% 52.2% 53.3% 55.9% - --------------------------------------------------------------------------------------------------------------- 11.2% 11.0% 11.1% 7.7% 7.3% 8.3% 10.5% - --------------------------------------------------------------------------------------------------------------- 35.8% 37.5% 36.7% 32.8% 33.2% 34.5% 38.1% - --------------------------------------------------------------------------------------------------------------- 25.5% 11.0% * * 13.5% 29.9% 36.6% - --------------------------------------------------------------------------------------------------------------- 11,406 11,065 11,451 10,909 9,899 9,928 9,514 - --------------------------------------------------------------------------------------------------------------- $ 111 $ 99 $ 97 $ 105 $ 95 $ 82 $ 74 =============================================================================================================== =============================================================================================================== $ 11,500 $ 7,625 $ 2,960 $ 25,160 $ - $ - $ - - --------------------------------------------------------------------------------------------------------------- $ (73,959) $ (64,484) $ (54,307) $ 2,562 $ - $ - $ - - --------------------------------------------------------------------------------------------------------------- $ (1.99) $ (1.81) $ (1.55) $ 0.08 $ - $ - $ - - --------------------------------------------------------------------------------------------------------------- $ 62,181 $ 25,922 $ 36,633 $ 85,058 $ - $ - $ - - --------------------------------------------------------------------------------------------------------------- $ 24,088 $ (81,936) $ (17,454) $ 36,861 $ - $ - $ - - --------------------------------------------------------------------------------------------------------------- 593 455 354 83 - - - - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
20 21 FINANCIAL REVIEW - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS OVERVIEW The company reported net income of $2 million, or $0.04 per share, for 1994, compared to $10 million, or $0.23 per share, in 1993 and to a net loss of $25 million, or $0.64 per share, in 1992. Several unusual transactions have affected core business results in the last three years. Pretax income for 1994 included charges of $6 million for plant consolidation and severance costs. Results for 1993 included charges of $17 million for plant closing and severance costs, $9 million in one-time license fee income, and a gain of $4 million from the sale of the remaining portion of the company's equity interest in Mitek Surgical Products, Inc. (Mitek). Results for 1992 included a pretax charge of $42 million for restructuring and divestitures, and gains of $35 million from the sale of land and buildings, $4 million in one-time license fee income, and $11 million from the sale of Mitek stock. Excluding these and other unusual transactions and the effect of Raynet Corporation (Raynet), Raychem's "ongoing" pretax income was $143 million in 1994, compared to $136 million in 1993 and $104 million in 1992. Raychem's results for the past three years are summarized as follows:
- ------------------------------------------------------------------------------------- PRETAX INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGES IN ACCOUNTING PRINCIPLES YEARS ENDED JUNE 30 (in millions) 1994 1993 1992 - ------------------------------------------------------------------------------------- Core business ''Ongoing'' pretax income $143 $136 $104 One-time license fees - 9 4 Provisions for restructuring and divestitures - - (42) Gains on sale of assets - 4 46 Plant closing, severance, and other charges* (6) (17) (2) - ------------------------------------------------------------------------------------- Core business pretax income 137 132 110 Raynet pretax loss (103) (92) (89) - ------------------------------------------------------------------------------------- Consolidated $ 34 $ 40 $ 21 - -------------------------------------------------------------------------------------
*Primarily for plant consolidation and severance in 1994 and 1993 and for product line shutdowns in 1992. Despite the impact of adverse currency movements, the company achieved its primary objectives for 1994: continued growth and higher pretax profitability in the core business. Additionally, the company continued to fund Raynet with cash generated internally by the core business. Raynet also reached two important milestones in 1994: significant revenue growth as volume shipments commenced, and further expansion of its business activities with NYNEX, a regional Bell operating company. The provision for income taxes in 1994 of $32 million reflects an annual effective tax rate of 95%, which is higher than the 80% tax rate in 1993. The higher tax rate in 1994 reflects higher U.S. losses, primarily due to Raynet, compared with 1993, which included U.S. non-recurring gains from the sale of certain investments. The provision for income taxes results primarily from profitable non-U.S. operations. In July 1994, the company announced the signing of a memorandum of understanding with Ericsson, a Swedish telecommunications company, to create a joint venture that will design, manufacture, and market fiber-optic access network systems worldwide. The joint venture, to be headquartered in Menlo Park, California, will assume the business operations of Raynet. The joint venture will be owned 51% by Ericsson and 49% by Raychem and is expected to commence during calendar 1994, subject to completing definitive agreements, obtaining regulatory approvals, and restructuring Raynet's existing technology agreement with BellSouth Enterprises, Inc. (BSE). If consummated, these transactions are anticipated to result in a net charge to earnings. The following discussion of the results of operations is based on the company's business segments - electronics, industrial, and telecommunications (which, along with the corporate groups, are referred to collectively as the "core business") - and on Raynet. The condensed consolidating financial statements on pages 26-28 supplement the discussion. CORE BUSINESS OPERATIONS REVENUES AND GROSS PROFIT Core business revenues for 1994 increased 2% to $1,404 million from $1,376 million in 1993, which was an increase of 7% over 1992. Revenues would have increased 7% from 1993 to 1994, and 6% from 1992 to 1993, if foreign currency exchange rates had remained constant in those years. Gross profit as a percent of revenues for the company's core business was 50% in 1994, unchanged from 1993 and up from 49% in 1992. ELECTRONICS Revenues in the electronics segment increased 4% to $522 million in 1994 from $503 million in 1993, while constant currency growth was 6%. Revenues in 1994 included $3 million in license fees and royalty income, [ARTWORK] [ARTWORK] 21 22 FINANCIAL REVIEW - (Continued) down from $11 million ($9 million of which were one-time license fees) in 1993. In 1994, decreases in worldwide defense sales were more than offset by growth in sales of PolySwitch devices and touchscreen products. Several of the segment's divisions increased business with the automotive market, reporting higher sales of PolySwitch devices, wire and cable, and molded parts. Prices generally decreased in 1994 in many of the segment's markets, principally due to increasing competitive price pressure. Gross profit as a percent of revenues for the electronics segment increased two percentage points in 1994, primarily the result of improved manufacturing capabilities and higher volumes for PolySwitch devices. Restructuring and plant consolidation activities in previous years also helped to improve profitability within the Thermofit and Wire and Cable divisions. Revenues in 1993 were $503 million, up from $494 million in 1992. Revenues in 1993 included $11 million in license fees and royalty payments, up from $5 million ($4 million of which was a one-time license fee) in 1992. In 1993, decreases in worldwide defense sales were offset by growth in sales of PolySwitch devices to several markets and growth in sales of many of the segment's products, including PolySwitch devices, to the automobile, computer, and communications markets. Prices generally decreased in 1993 in many of the segment's markets, principally due to a shift in product mix from defense to lower-margin commercial business, and to competitive price pressure. Gross profit as a percent of revenues for the electronics segment increased in 1993, primarily the result of cost reductions realized from the segment's prior restructuring and plant consolidation activities. In addition, improved manufacturing capabilities resulted in increased profitability on sales of PolySwitch devices, connector products, and touchscreen products. These improvements were somewhat offset by additional plant closing and severance charges in 1993. INDUSTRIAL Revenues in the industrial business segment for 1994 grew 2% to $452 million from $443 million in 1993, while constant currency growth for the segment was 8%. The segment's Electrical Products Division (EPD) increased sales in Asia and North America. Revenues were also up in Ultratec, the segment's pipeline accessory division, as it benefited from significant projects, notably in Mexico and India. In addition, the unusually harsh winter conditions in North America contributed to North American sales growth for the Chemelex division. Europe's continuing recession and adverse currency movements moderated the reported revenue growth experienced across the segment's divisions. Prices generally declined in 1994 in many of the segment's markets. Nevertheless, gross profit as a percent of revenues in the industrial segment improved slightly in 1994 from 1993 due to higher manufacturing yields and improved efficiency, notably in EPD and Chemelex, partially offset by lower margin business within Ultratec. Revenues for the segment of $443 million in 1993 were up 7% from $413 million in 1992. Revenues for Ultratec grew more than 13%, mainly due to improved sales to the utility industry and revenues from major pipeline projects. EPD sales improved because of strong demand in Asia. Sales of Chemelex products were flat from 1992 to 1993 mainly due to sluggish economies in Europe. Gross profit as a percent of segment revenues decreased slightly in 1993 from 1992 due to lower sales of high-margin Chemelex products in Europe and severance charges related to the 1993 downsizing of EPD's Shannon, Ireland, plant as part of the division's rationalization of manufacturing capabilities. TELECOMMUNICATIONS Revenues in the telecommunications business segment were unchanged in 1994 from $430 million in 1993, although growth was 6% on a constant currency basis. Sales growth in Asia, Latin America, and Spain was offset by adverse currency fluctuations and lower revenues in several European countries. Prices decreased slightly in 1994 due to increased competition in the segment's market. Gross profit as a percent of revenues in 1994 for the telecommunications segment - down over two percentage points - was impacted by adverse currency fluctuations and the costs of restructuring the segment's European manufacturing operations. The segment's fourth quarter 1994 revenues were down from those of the prior year's quarter, due principally to slower spending by customers in Germany and the U.S. If this trend continues, revenues and gross profit for the segment may be lower in early fiscal 1995 as compared to those of the prior year. Revenues grew 14% in 1993 to $430 million from $378 million in 1992. The increase in 1993 revenues resulted from increased sales to U.S. telephone companies and significantly higher sales in Argentina and the People's Republic of China (PRC). German sales decreased 30% in 1993 from 1992 as the local telephone company drew down high levels of inventory. Gross profit as a percent of segment revenues in 1993 was essentially unchanged from 1992. An increase in the gross profit margin due to a more favorable geographic sales mix was offset by a deterioration of the Chinese currency. SPECIAL CHARGES The company has implemented a number of programs over the past three years to restructure the core business. These actions are in response to declining worldwide defense sales, expanding commercial opportunities, and product shifts within our markets. The company has streamlined manufacturing capabilities, realigned its sales force, and divested nonstrategic businesses. 22 23 FINANCIAL REVIEW - (Continued) Major programs have been classified as "provision for restructuring and divestitures" in the consolidated statement of operations. Periodic plant closing and severance costs have been included in "cost of goods sold," "research and development expense," or "selling, distribution and administrative expense," as appropriate. PROVISION FOR RESTRUCTURING AND DIVESTITURES The core business incurred a pretax charge of $28 million for restructuring in the fourth quarter of 1992. A significant portion of this restructuring charge - - $24 million - was due to the electronics segment's accelerated efforts to realign its business toward a more commercial focus. The segment's restructuring charge included $13 million for severance costs, primarily related to the commercial reorientation of the sales force and reconfiguration of electronics into three functionally integrated divisions. The remaining electronics charge of $11 million related to plant consolidations and the shutdown of unprofitable product lines. In addition, in the industrial segment, EPD provided $3 million for the relocation of part of its Menlo Park, California, operations to Delaware and for other plant consolidations. In total, these actions provided for a workforce reduction of approximately 460 employees. In the fourth quarter of 1992, the company completed the sale of the fluid fittings portion of its shape-memory alloy business for $1 million in cash and a promissory note for $3 million. The company retained the portion of the business devoted to the manufacturing of components for surgical instruments and other products for the medical market. In the second quarter of 1992, the company provided $8 million to discontinue the operations of its Taliq subsidiary. Included in the charge were severance payments and estimated operating losses through the anticipated shutdown date. Taliq ceased commercial operations in January 1993. In the first quarter of 1992, the company concluded that a sale of the High Density Interconnect (HDI) unit of Advanced Packaging Systems could not be completed at an acceptable selling price, and provided $5 million to discontinue operations. HDI was shutdown in February 1992. SEVERANCE AND OTHER CHARGES In 1994, the company's telecommunications business segment incurred a $6 million charge for the restructuring of its European manufacturing operations, primarily related to a workforce reduction of approximately 90 employees. The $6 million charge, reflected as $4 million in "cost of goods sold" and $2 million in "selling, distribution and administrative expense," is expected to result in $4 million of cost savings in 1995. Further actions to restructure manufacturing, improve profitability, and address the changing telecommunications marketplace are being considered. In 1993, the company's electronics and industrial business segments incurred $17 million in severance and plant shutdown costs as part of the continued rationalization of manufacturing capabilities. Among other actions, the electronics segment provided for the shutdown of its Puerto Rico plant and the industrial segment for the downsizing of its Shannon, Ireland, facility. These actions provided for a workforce reduction of approximately 425 employees. The charge was reported as $11 million in "cost of goods sold" and $6 million in "selling, distribution and administrative expense." RESEARCH AND DEVELOPMENT EXPENSE Raychem continues to invest in product development. Research and development (R&D) expense for the core business totaled $95 million in 1994, up from $89 million in 1993 and $85 million in 1992. R&D expense represented 7% of revenues in 1994, compared to 6% in 1993 and 7% in 1992. SELLING, DISTRIBUTION AND ADMINISTRATIVE EXPENSE Selling, distribution and administrative (SD&A) expense as a percent of revenues was 32% in 1994, unchanged from 1993 and 1992. While the percentage of revenues was unchanged, SD&A expenses in 1994 and 1993 reflect the reinstatement of salary increases and bonus payments. The telecommunications business segment incurred higher spending as a percentage of revenues in 1993 compared to 1992 to support increased sales activity in Latin America and Asia, while electronics' spending decreased as a result of prior restructuring actions. OTHER EXPENSE, NET Other expense, net, consists primarily of amortization of intangible assets, net foreign exchange gains and losses, bank charges, gains and losses on the disposition of fixed assets and investments, and certain other nonoperating items. Other expense, net of income items, was $8 million in 1994, $11 million in 1993, and $5 million in 1992. The decrease from 1993 to 1994 is due principally to lower net foreign exchange losses. The increase from 1992 to 1993 is primarily due to increased net foreign exchange losses and lower gains on the sale of Mitek stock. INCOME TAXES The core business' provision for income taxes was $32 million, $31 million, and $37 million in 1994, 1993, and 1992, respectively. The provision for income taxes in each of these years resulted primarily from profitable non-U.S. operations. The provision for income taxes in 1994 was higher than in 1993 due to higher non-U.S. income. The provision for income taxes in 1993 was lower than in 1992 due to reduced operating profit from European operations. [ARTWORK] [ARTWORK] 23 24 FINANCIAL REVIEW - (Continued) EXTRAORDINARY ITEM In the second quarter of 1992, the company recorded an $8 million extraordinary charge reflecting the company's funding of a class action shareholder suit settlement. For details, see "Extraordinary Item - Settlement of Class Action Litigation" in the notes to the consolidated financial statements. CHANGES IN ACCOUNTING PRINCIPLES Effective July 1, 1992, the company adopted two new standards of the Financial Accounting Standards Board. Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires accrual accounting for the expected future cost of company-provided health care for retirees. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," changed the method of accounting for income taxes to an asset and liability method from a deferred method. The net cumulative effect of adopting these two standards was to increase 1993 net income by $2 million. See the notes to the consolidated financial statements for details. NEW ACCOUNTING STANDARD In November 1992, the Financial Accounting Standards Board issued Statement No. 112, "Employers' Accounting for Postemployment Benefits." The statement changes the method of accounting for certain postemployment benefits from a cash to an accrual basis. The statement must be adopted in the first quarter of 1995. The company expects this change in accounting principle to result in a $1 million to $2 million charge to earnings. The ongoing effect on expense and cash flow is not expected to be material. ENVIRONMENTAL MATTERS It is the company's policy to take responsibility for protecting the environment and to comply with all governmental regulations. Such regulations continue to evolve throughout the world, and changes in regulation can affect the company's manufacturing processes as well as the cost, availability, and use of raw materials. The company does not expect compliance with environmental regulations to have a material effect on capital expenditures or operating results in 1995; however, changes in regulation or in the availability or cost of raw materials, or other unknown factors or events, may have a material adverse effect on capital expenditures or operating results. RAYNET OPERATIONS Revenues at Raynet increased to $58 million in 1994 from $10 million in 1993 and $17 million in 1992. Revenues in 1994 principally resulted from the previously announced OPAL '93 contract with the German telephone company, Deutsche Bundespost Telekom (DBPT), and volume shipments to NYNEX. Revenues in 1993 were derived primarily from field trial installations, first office applications, and RIDES software licensing arrangements. Results for 1992 included revenues from development contracts for European markets and trial installations in both the U.S. and Europe. R&D expense at Raynet was $41 million, $40 million, and $55 million in 1994, 1993, and 1992, respectively. The decrease in R&D expense in 1993 from 1992 represents a shift of costs to "cost of goods sold" as Raynet commenced its transition from the development phase to commercial production. Raynet's SD&A expense increased to $39 million in 1994 from $35 million in 1993 because of higher international sales and marketing spending, and employee severance costs. Raynet's SD&A expense increased to $35 million in 1993 from $30 million in 1992 in support of increased field trial activity and in preparation for volume shipments. Net interest expense of $3 million in both 1993 and 1992 was principally related to an investment in Raynet International by BSE (see the "Raynet" note to the consolidated financial statements). Due to Raychem's repurchase of BSE's interest, this amount was paid directly to Raychem in 1994. Raynet capitalized $4 million, $8 million, and $4 million of software development costs in 1994, 1993, and 1992, respectively, for its domestic and international operating systems and system support software. Amortization of certain of these costs began in 1993 and 1994 as the related products were made available for sale. In the second quarter of 1994, Raynet recorded a $2 million severance provision reflecting a restructuring and workforce reduction of approximately 80 people throughout the organization. Raynet recorded a $1 million restructuring charge in the fourth quarter of 1992 for the severance of approximately 40 people to realign the employee skill mix to focus on volume commercial sales. In the third quarter of 1993, Raynet commenced activities associated with the previously announced OPAL '93 contract with DBPT to supply fiber-in-the-local-loop equipment and related installation services to the eastern states of Germany. This contract is for approximately 48,500 lines. Billings for installation services provided by subcontractors have been recorded as an offset to the related project expense. Product sales revenue on this contract is recognized as product is installed and accepted by the customer. In 1994, all of the product under this contract was shipped. Revenue was recognized for approximately 35,000 lines. Revenue on the balance of the contract is expected to be recognized in the second half of calendar 1994 following installation and customer acceptance. 24 25 FINANCIAL REVIEW - (Continued) In June 1993, Raynet received a contract award from DBPT for equipment and related installation of approximately 100,000 lines under the OPAL '94 program. Shipments and installation work under this contract will begin in the second half of calendar 1994. In August 1993, Raynet received an order from NYNEX for the deployment of approximately 130,000 lines in the northeastern United States. In 1994, revenue was recognized for approximately 75,000 lines. Revenue for the balance of the order will be recognized through the second half of calendar 1994. In July 1994, Raynet and Pulse Communications, Inc., a subsidiary of Hubbell Incorporated, terminated their cooperative marketing and development arrangement to develop and sell an integrated loop access system. The development and marketing of this product will become part of the proposed joint venture with Ericsson. LIQUIDITY AND CAPITAL RESOURCES CONSOLIDATED The company met its objective of funding its investment in Raynet with cash generated by the core business. Debt net of cash increased by $56 million to $197 million at June 30, 1994, from $142 million at June 30, 1993. Debt net of cash increased by $33 million in 1993. The increase in debt net of cash in 1994 resulted from increases in accounts receivable and inventories, higher capital spending, and a $20 million funding of the company's U.S. pension plan, offset by increases in accounts payable and accrued liabilities, lower tax payments, and the effect of a large tax refund in the United Kingdom. The 1993 increase in debt net of cash resulted from improved operating profit, offset by increased tax payments, the $30 million repurchase of Raynet's minority interest (see below), increased spending on restructuring and divestitures, and lower proceeds from the sale of land and investments. In June 1993, Raychem repurchased all of the preferred stock in Raynet International Inc. (RNI), a subsidiary of Raynet, previously held by BSE. As a result of this $30 million purchase, Raynet and RNI are now essentially wholly owned by the company and its consolidated subsidiaries. Accordingly, at June 30, 1994 and 1993, there remains no minority interest related to the RNI preferred stock. Net interest expense was $13 million in 1994, compared to $15 million in both 1993 and 1992. Net interest expense was lower in 1994 due to the payment of the RNI preferred stock dividend by Raynet directly to Raychem. In 1993, the company received $4 million from the sale of the remaining portion of the company's investment in Mitek and $7 million from the sale of various fixed assets. The company received $56 million from asset sales in 1992, primarily from the sale of undeveloped land at its Menlo Park, California, headquarters for $39 million in the third quarter and from the sale of Mitek stock for $12 million. In February 1991, the company entered into a $210 million privately placed debt agreement. The borrowing carries an interest rate of 9.55% and matures on March 1, 1996. This agreement and most of the company's short-term borrowing arrangements include covenants which, among other things, include a minimum net worth requirement, a dividend restriction, and a fixed charge coverage ratio. The company may choose to refinance this debt before maturity and anticipates no problem in doing so. Refinancing the debt prior to maturity would result in a prepayment penalty and a corresponding charge to earnings, but it is anticipated that interest expense would be reduced in future periods. In December 1992, the company entered into an interest rate swap agreement with a financial institution. The swap agreement effectively converted $100 million of notional principal amount from a fixed to a floating interest rate. The effect of this interest rate swap was to reduce net interest expense in both 1993 and 1994 by $1 million. In December 1993, the company terminated the swap agreement. The termination resulted in a gain of $3 million, which has been deferred and will be amortized over the remaining life of the hedged debt. Proceeds from the issuance of Common Stock to employees participating in the company's employee stock purchase plan and stock option plans amounted to $34 million in 1994. The company's quarterly cash dividend has been paid consistently since the second quarter of 1978. During 1994, the company paid $14 million in dividends to its stockholders, and expects to continue to pay dividends in the foreseeable future. At June 30, 1994, the company had $78 million in cash and cash equivalents, $315 million in committed credit facilities (of which $3 million was utilized), and $168 million in various uncommitted credit facilities (of which $42 million was utilized). The combination of cash and cash equivalents, available lines of credit, and future cash flows from operations are expected to be sufficient to satisfy substantially all of the company's needs for working capital, normal capital expenditures, and anticipated dividends. The future cash requirements of Raynet will be determined as the definitive agreements and terms of the proposed Ericsson joint venture are finalized. The proposed joint venture with Ericsson should reduce the company's losses in 1995 resulting from Raynet's operations, and lower its Raynet funding requirements. CORE BUSINESS Cash provided by operations in the core business improved to $151 million in 1994 from $126 million in 1993, but was down from $159 million in 1992. The increase in 1994 resulted from decreased spending for restructuring and divestitures, lower tax payments, and a large tax refund in the United Kingdom, partially offset by increases in accounts receivable and a $20 million funding of the U.S. pension plan. The decrease in 1993 [ARTWORK] [ARTWORK] 25 26 FINANCIAL REVIEW - (Continued) resulted from improved operating profits offset by increased tax payments and increased spending on restructuring and divestitures. Inventory as measured by the number of days of inventory on hand improved to 114 days for 1994 from 117 days for 1993. Receivables as measured by the number of billing days outstanding were 65 days at June 30, 1994, up from 54 days at June 30, 1993. The increase in receivables days outstanding resulted from changes in receivables mix and collection patterns among certain countries where customary payment terms are protracted. Capital expenditures as a percent of revenues were 7% in 1994, compared with 6% in both 1993 and 1992. Investments in core business property, plant and equipment totaled $93 million, $79 million, and $80 million in 1994, 1993, and 1992, respectively. The increase in 1994 was due to spending on a number of projects, including new manufacturing facilities in Japan and the PRC, as well as on new PolySwitch capacity in Menlo Park. Capital expenditures in 1995 are expected to be about 7% of revenues. RAYNET Net cash used in operating and investing activities at Raynet increased to $136 million in 1994, up from $80 million in 1993 and $107 million in 1992. The higher cash needs in 1994 resulted from a larger operating loss and increases in accounts receivable and inventories as volume shipments commenced. The lower cash needs in 1993 resulted from the collection of a $12 million receivable from DBPT for development contracts and lower capital expenditures. The future cash requirements of Raynet will be determined as the definitive agreements and terms of the proposed Ericsson joint venture are finalized. Capital expenditures totaled $11 million in both 1994 and 1993, compared to $13 million in 1992. Capital expenditures are expected to increase in 1995 as further investments are made to support volume deployment. In the fourth quarter of 1993, Raynet received a $168 million capital injection from Raychem. Proceeds were used to pay down existing intercompany debt and to partially fund expenditures in 1994. The intercompany debt at June 30, 1994, of $122 million is reflected as equity since Raychem intends to capitalize this debt.
=================================================================================================================== CONDENSED CONSOLIDATING BALANCE SHEETS =================================================================================================================== AT JUNE 30, 1994 AT JUNE 30, 1993 ------------------------------- ------------------------------- CORE CON- CORE CON- (in thousands) BUSINESS RAYNET SOLIDATED* BUSINESS RAYNET SOLIDATED* - ------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 75,384 $ 2,706 $ 78,090 $ 116,115 $17,831 $ 133,946 Other current assets 590,438 67,414 657,852 560,170 21,303 581,473 - ------------------------------------------------------------------------------------------------------------------- Total current assets 665,822 70,120 735,942 676,285 39,134 715,419 - ------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 507,474 27,005 534,479 474,544 27,269 501,813 Investment in Raynet 54,012 - - 36,264 - - Other assets 116,175 12,419 128,594 101,811 13,227 115,038 - ------------------------------------------------------------------------------------------------------------------- Total assets $1,343,483 $109,544 $1,399,015 $1,288,904 $79,630 $1,332,270 =================================================================================================================== Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 24,183 $ 2,803 $ 26,986 $ 38,557 $ - $ 38,557 Intercompany accounts payable (receivable) (12,532) 12,532 - (11,372) 11,372 - Accounts payable 61,939 21,197 83,136 56,170 10,131 66,301 Other current liabilities 194,969 19,000 213,969 187,875 21,863 209,738 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 268,559 55,532 324,091 271,230 43,366 314,596 - ------------------------------------------------------------------------------------------------------------------- Long-term debt 244,681 - 244,681 233,853 - 233,853 Other long-term liabilities 93,058 - 93,058 91,879 - 91,879 Minority interest 4,261 - 4,261 2,438 - 2,438 Stockholders' equity 732,924 54,012 732,924 689,504 36,264 689,504 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,343,483 $109,544 $1,399,015 $1,288,904 $79,630 $1,332,270 ===================================================================================================================
*Consolidated balances reflect eliminations of intercompany transactions. 26 27 FINANCIAL REVIEW - (Continued)
===================================================================================================================== CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS ===================================================================================================================== YEARS ENDED JUNE 30 (in thousands) CORE BUSINESS RAYNET CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------- 1994 Revenues $1,403,748 $ 57,784 $1,461,532 Cost of goods sold 701,874 77,946 779,820 Research and development expense 95,341 41,278 136,619 Selling, distribution and administrative expense 452,587 38,976 491,563 Interest expense, net 9,796 2,966 12,762 Other expense (income), net 7,736 (713) 7,023 - --------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 136,414 (102,669) 33,745 Provision for income taxes 31,742 324 32,066 - --------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 104,672 $(102,993) $ 1,679 ===================================================================================================================== 1993 Revenues $1,376,059 $ 9,671 $1,385,730 Cost of goods sold 687,175 23,645 710,820 Research and development expense 88,612 40,380 128,992 Selling, distribution and administrative expense 445,297 34,592 479,889 Interest expense, net 11,861 3,006 14,867 Other expense, net 11,238 340 11,578 - --------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes and changes in accounting principles 131,876 (92,292) 39,584 Provision for income taxes 31,400 259 31,659 - --------------------------------------------------------------------------------------------------------------------- Income (loss) before changes in accounting principles 100,476 (92,551) 7,925 - --------------------------------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principles, net of $0 income taxes 1,700 - 1,700 - --------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 102,176 $ (92,551) $ 9,625 ===================================================================================================================== 1992 Revenues $1,285,007 $ 16,594 $1,301,601 Cost of goods sold 655,220 16,768 671,988 Research and development expense 85,187 54,890 140,077 Selling, distribution and administrative expense 407,435 29,678 437,113 Provision for restructuring and divestitures 41,900 1,400 43,300 Interest expense, net 12,061 2,534 14,595 Gain on sale of land (31,600) - (31,600) Other expense, net 4,695 598 5,293 - --------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary item 110,109 (89,274) 20,835 Provision for income taxes 37,333 60 37,393 - --------------------------------------------------------------------------------------------------------------------- Income (loss) before extraordinary item 72,776 (89,334) (16,558) - --------------------------------------------------------------------------------------------------------------------- Extraordinary item - funding of class action litigation settlement, net of $0 income taxes (8,250) - (8,250) - --------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 64,526 $ (89,334) $ (24,808) =====================================================================================================================
27 28 FINANCIAL REVIEW - (Continued)
========================================================================================================== CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS ========================================================================================================== YEARS ENDED JUNE 30 (in thousands) CORE BUSINESS RAYNET CONSOLIDATED - ---------------------------------------------------------------------------------------------------------- 1994 Net cash provided by (used in) operating activities $ 151,354 $(125,570) $ 25,784 - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in property, plant and equipment (93,298) (10,758) (104,056) Disposition of property, plant and equipment 4,032 462 4,494 Proceeds from sale of investment 873 - 873 - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (88,393) (10,296) (98,689) - ---------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Payments of debt, net of proceeds (2,340) - (2,340) Proceeds from (payment of) intercompany loans (120,478) 120,478 - Common Stock issued under employee benefit plans 34,071 - 34,071 Repayments of stockholder notes receivable 117 - 117 Cash dividends (13,624) - (13,624) - ---------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (102,254) 120,478 18,224 - ---------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (1,438) 263 (1,175) - ---------------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents $ (40,731) $ (15,125) $ (55,856) ========================================================================================================== 1993 Net cash provided by (used in) operating activities $ 125,896 $ (69,421) $ 56,475 - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in property, plant and equipment (78,509) (11,036) (89,545) Disposition of property, plant and equipment 6,608 355 6,963 Repurchase of Raynet minority interest (30,000) - (30,000) Proceeds from sale of investment 3,774 - 3,774 - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (98,127) (10,681) (108,808) - ---------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from debt, net of payments 21,626 - 21,626 Proceeds from (payment of) intercompany loans 72,637 (72,637) - Sale of Raynet capital stock to Raychem (167,830) 167,830 - Common Stock issued under employee benefit plans 35,570 - 35,570 Repayments of stockholder notes receivable 2,880 - 2,880 Cash dividends (13,156) - (13,156) - ---------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (48,273) 95,193 46,920 - ---------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (9,652) 149 (9,503) - ---------------------------------------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents $ (30,156) $ 15,240 $ (14,916) ========================================================================================================== 1992 Net cash provided by (used in) operating activities $ 158,648 $ (93,450) $ 65,198 - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in property, plant and equipment (79,683) (13,134) (92,817) Disposition of property, plant and equipment 43,144 - 43,144 Proceeds from sale of investment 12,455 - 12,455 - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (24,084) (13,134) (37,218) - ---------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Payments of debt, net of proceeds (8,644) - (8,644) Proceeds from (payment of) intercompany loans (73,831) 73,831 - Common Stock repurchased (3,396) - (3,396) Common Stock issued under employee benefit plans 35,408 - 35,408 Repayments of stockholder notes receivable 5,238 - 5,238 Cash dividends (12,486) - (12,486) - ---------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (57,711) 73,831 16,120 - ---------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 6,045 (112) 5,933 - ---------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents $ 82,898 $ (32,865) $ 50,033 ==========================================================================================================
28 29 APPENDIX OMITTED GRAPHIC MATERIAL The following graphic material, included in the original paper format, has been excluded from the electronic filing of the 1994 Annual Report (Exhibit 13 to this filing). Item (a) appears in the Note entitled "Worldwide Operations" of the 1994 Annual Report, and items (b) through (i) appear in the section entitled "Financial Review" of the 1994 Annual Report. (a) REVENUES BY CUSTOMER LOCATION 1994 A proportional pie chart (in millions) depicting: U.S./Canada $493; Europe $572; Asia/Pacific $223; and Rest of World $174. (b) "ONGOING" PRETAX INCOME (Excludes Raynet) A bar chart (in millions) depicting: $104 in 1992; $136 in 1993; and $143 in 1994. (c) GROSS PROFIT AS A PERCENT OF REVENUES (Excludes Raynet) A bar chart (in percent) depicting: 49 in 1992; 50 in 1993; and 50 in 1994. (d) RESEARCH AND DEVELOPMENT EXPENSE AS A PERCENT OF REVENUES (Excludes Raynet) A bar chart (in percent) depicting: 6.6 in 1992; 6.4 in 1993; and 6.8 in 1994. (e) SELLING, DISTRIBUTION AND ADMINISTRATIVE EXPENSE AS A PERCENT OF REVENUES (Excludes Raynet) A bar chart (in percent) depicting: 32 in 1992; 32 in 1993; and 32 in 1994. (f) SUMMARY OF CASH INFLOWS 1994 A proportional pie chart (in millions) depicting: Net cash provided by Raychem operations excluding Raynet $147 (includes effect of exchange rate changes on cash and debt); Sales of assets $5; Equity financing, net $21; and Increase in debt net of cash $56. (g) SUMMARY OF CASH OUTFLOWS 1994 A proportional pie chart (in millions) depicting: Net cash used by Raynet $136; and Capital expenditures - Raychem excluding Raynet $93. (h) INVENTORY DAYS REACH (Excludes Raynet) A line graph depicting in number of days: 124 in 1992; 117 in 1993; and 114 in 1994. (i) DAYS SALES OUTSTANDING (Excludes Raynet) A line graph depicting in number of days: 59 in 1992; 54 in 1993; and 65 in 1994. 29 EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
ORGANIZED UNDER SUBSIDIARY NAME THE LAWS OF - -------------------------------------------------------------------- ------------------------- Compagnie Francaise des Isolants.................................... France Elo TouchSystems, Inc,.............................................. Tennessee K.K. Raychem........................................................ Japan Raychem RPG Limited................................................. India Raychem AG.......................................................... Switzerland Raychem Aktie Bolag................................................. Sweden Raychem A/S......................................................... Denmark Raychem A/S......................................................... Norway Raychem (Australia) Proprietary, Ltd................................ Australia Raychem Canada Limited.............................................. Canada Raychem (Delaware) Ltd,............................................. Delaware Raychem DISC, Inc................................................... California Raychem Gesellschaft m.b.H.......................................... Austria Raychem GmbH........................................................ Germany Raychem Industries N.V.............................................. Belgium Raychem International Corporation................................... California Raychem International, Limited...................................... Cayman Islands, B.W. I. Raychem International Manufacturing Corporation..................... California Raychem Korea Limited............................................... Korea Raychem Limited..................................................... United Kingdom Raychem (Nederland) B.V............................................. Netherlands Raychem N.V......................................................... Belgium Raychem OY.......................................................... Finland Raychem Produtos Irradiados Limitada................................ Brazil Raychem Puerto Rico Corporation..................................... California Raychem S.A......................................................... France Raychem, S.A........................................................ Spain Raychem S.A. Industrial y Comercial................................. Argentina Raychem Saudi Arabia Limited........................................ Saudi Arabia Raychem Singapore Pte. Limited...................................... Singapore Raychem S.P.A....................................................... Italy Raychem Taiwan Limited.............................................. Taiwan Raychem Technologies Ltd............................................ Cyprus Raychem Tecnologias, S.A. de C.V.................................... Mexico Raychem Ventures, Inc............................................... California Raynet Corporation.................................................. California SHG Strahlenchemie Holding GmbH..................................... Germany Shanghai Cable Accessories Ltd...................................... China Sigmaform France S.A.R.L............................................ France Sigmaform GMBH...................................................... Germany Sigmaform U.K. Limited.............................................. United Kingdom RTP Development Corporation......................................... Delaware Walter Rose GmbH & Co. KG........................................... Germany
EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-15116, No. 33-15117, No. 33-23856, No. 33-29215, No. 33-29216, No. 33-37579, and No. 33-50737) of Raychem Corporation of our report dated July 20, 1994, appearing on page 17 of Exhibit 13 which is included in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 13 of this Form 10-K. PRICE WATERHOUSE LLP San Jose, California September 26, 1994 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED JUNE 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 U.S. DOLLARS $ YEAR JUN-30-1994 JUL-01-1993 JUN-30-1994 1 78,090 0 324,223 11,599 247,789 735,942 1,110,695 576,216 1,399,015 324,091 310,306 43,006 0 0 689,918 1,399,015 1,456,986 1,461,532 779,820 628,182 7,023 6,288 12,762 33,745 32,066 1,679 0 0 0 1,679 0.04 0
EX-99 8 PARTICIPATING SUBSIDIARIES 1 EXHIBIT 99(A) RAYCHEM CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994 Participating Subsidiaries in the Amended and Restated 1984 Employee Stock Purchase Plan for United States employees and employees of certain domestic and foreign subsidiaries. The following subsidiaries of Raychem Corporation have been designated by the Administrator to participate in the Plan: Compagnie Francaise des Isolants S.A. Elo Touch Systems, Inc. K.K. Raychem Raychem AG Raychem A/S (Denmark) Raychem (Australia) Proprietary, Ltd. Raychem Gesellschaft m.b.H. Raychem GmbH Raychem (H.K.) Limited Raychem International Corporation Raychem Korea Limited Raychem Limited Raychem (Nederland) B.V. Raychem New Zealand Limited Raychem N.V. Raychem OY Raychem S.A. Raychem, S.A. Raychem Saudi Arabia Limited Raychem Singapore Pte. Limited Raychem S.P.A. Raychem Taiwan Limited Raychem Technologies E.C. Raynet Corporation Raynet GmbH Raynet International Raynet N.V. Raynet U.K. Raynet S.A.R.L. Remtek Corporation Remtek International Sigmaform Corporation Sigmaform France S.A.R.L. Sigmaform GmbH Sigmaform U.K. Ltd. Walter Rose GmbH & Co. KG EX-99 9 PARTICIPATING SUBSIDIARIES 1 EXHIBIT 99(B) RAYCHEM CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994 Participating Subsidiaries in the 1985 Supplemental Employee Stock Purchase Plan for employees of certain subsidiaries. The following subsidiaries of Raychem Corporation have been designated by the Administrator to participate in the Plan: Raychem Ltd. Raychem Aktie Bolag Raychem A/S (Norway) Raychem Canada Limited Raychem Industrial y Comercial Limitada Raychem International, Limited Raychem Mexico S.A. Raychem Produtos Irradiados Limitada Raychem S.A. Industrial y Comercial Raychem Tecnologias, S.A. de C.V. Raychem Technologies Limited Raychem de Venezuela, C.A. -----END PRIVACY-ENHANCED MESSAGE-----