-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EntxNpv3CF77mrPXEfhafxIP0oYhN4AmIV1hshV2qSgZ1/C/HF9rdPvhSn3767kk q7NCk7xS8K8PUvUWLpr7ig== 0000891618-96-000104.txt : 19960216 0000891618-96-000104.hdr.sgml : 19960216 ACCESSION NUMBER: 0000891618-96-000104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYCHEM CORP CENTRAL INDEX KEY: 0000082206 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 941369731 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08341 FILM NUMBER: 96518770 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-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 2-15299 RAYCHEM CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-1369731 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 300 Constitution Drive, Menlo Park, CA 94025-1164 (Address of principal executive offices) (Zip code) (415) 361-3333 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- As of January 29, 1996, the registrant had outstanding 44,550,165 shares of Common Stock, $1.00 par value. 2 RAYCHEM CORPORATION INDEX TO FORM 10-Q
Page Number ----------- PART I. FINANCIAL INFORMATION Item 1: Financial Information Consolidated Condensed Statements of Operations - Three and Six Months Ended December 31, 1995 and 1994 1 Consolidated Condensed Balance Sheets - December 31, 1995, and June 30, 1995 2 Consolidated Condensed Statements of Cash Flows - Six Months Ended December 31, 1995 and 1994 3 Notes to Consolidated Condensed Financial Statements 4-8 Item 2: Management's Discussion and Analysis 9-15 of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1: Legal Proceedings 16 Item 4: Submission of Matters to a Vote of Security Holders 16-17 Item 5: Other Information 17 Item 6: Exhibits and Reports on Form 8-K 18 SIGNATURES 19
3 RAYCHEM CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands except share data) (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, ---------------------------- ---------------------------- 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Revenues $ 411,051 $ 382,494 $ 821,566 $ 750,639 Cost of goods sold 196,661 184,648 391,575 367,507 Research and development expense 30,511 28,748 60,555 55,977 Selling, general, and administrative expense 134,122 121,267 256,582 236,460 Provision for restructuring and divestitures -- -- -- 23,900 Loss (adjustment) on formation of Ericsson Raynet joint venture and other Raynet items -- (423) -- 31,300 Equity in net losses of affiliated companies 18,234 12,943 28,860 37,316 Interest expense, net 2,716 2,973 6,016 7,567 Other (income) expense, net (6,504) 1,204 (2,773) 5,116 ------------ ------------ ------------ ------------ Income (loss) before income taxes, extraordinary item, and change in accounting principle 35,311 31,134 80,751 (14,504) Provision for income taxes 10,209 11,135 23,219 13,825 ------------ ------------ ------------ ------------ Income (loss) before extraordinary item and change in accounting principle 25,102 19,999 57,532 (28,329) Extraordinary item - (loss) adjustment related to early retirement of debt, net of $0 income taxes -- 756 -- (6,318) Cumulative effect of change in accounting principle, net of $0 income taxes -- -- -- (1,477) ------------ ------------ ------------ ------------ Net income (loss) $ 25,102 $ 20,755 $ 57,532 $ (36,124) ============ ============ ============ ============ Average number of common shares and equivalents outstanding 45,856,806 44,225,536 45,381,290 43,394,465 ============ ============ ============ ============ Earnings (loss) per common share: Income (loss) before extraordinary item and change in accounting principle $ 0.55 $ 0.45 $ 1.27 $ (0.65) Extraordinary item -- 0.02 -- (0.15) Change in accounting principle -- -- -- (0.03) ------------ ------------ ------------ ------------ Net income (loss) $ 0.55 $ 0.47 $ 1.27 $ (0.83) ============ ============ ============ ============ Dividends per common share $ 0.08 $ 0.08 $ 0.16 $ 0.16 ============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements. 1 4 RAYCHEM CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands except share data)
(Unaudited) December 31, 1995 June 30, 1995 ----------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 168,990 $ 118,067 Accounts receivable, net 301,445 304,819 Inventories: Raw materials 80,067 76,862 Work in process 53,919 53,632 Finished goods 99,597 103,206 ----------- ----------- Total inventories 233,583 233,700 Prepaid taxes 46,541 60,661 Other current assets 61,888 62,361 ----------- ----------- Total current assets 812,447 779,608 Property, plant, and equipment 1,133,599 1,117,939 Less accumulated depreciation and amortiz 613,281 590,520 ----------- ----------- Net property, plant, and equipment 520,318 527,419 Other assets 119,097 147,718 ----------- ----------- TOTAL ASSETS $ 1,451,862 $ 1,454,745 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 26,930 $ 28,632 Accounts payable 57,233 67,102 Other accrued liabilities 166,701 183,479 Income taxes 24,706 22,943 Current maturities of long-term debt 15,822 1,042 ----------- ----------- Total current liabilities 291,392 303,198 Long-term debt 242,143 263,552 Deferred income taxes 26,267 35,002 Other long-term liabilities 95,592 98,215 Minority interests 5,853 5,120 Commitments and contingencies (See notes) Stockholders' equity: Preferred Stock, $1.00 par value Authorized: 15,000,000 shares; Issued: none -- -- Common Stock, $1.00 par value Authorized: 72,150,000 shares Issued: 44,492,628 and 43,897,275 shares, respectively 44,493 43,897 Additional contributed capital 398,188 380,127 Retained earnings 318,355 272,657 Currency translation 42,582 61,946 Treasury Stock, at cost (212,368 and 226,640 shares, respectively) (11,766) (8,330) Other (1,237) (639) ----------- ----------- Total stockholders' equity 790,615 749,658 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,451,862 $ 1,454,745 =========== ===========
See accompanying notes to consolidated condensed financial statements 2 5 RAYCHEM CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------------------ SIX MONTHS ENDED DECEMBER 31 (IN THOUSANDS) 1995 1994 - ------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ 57,532 $ (36,124) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for restructuring and divestitures, net of payments (1,833) 20,196 Loss on formation of Ericsson Raynet joint venture -- 14,950 Equity in net losses of affiliated companies 28,860 37,316 Extraordinary loss related to early retirement of debt -- (1,043) Change in accounting principle -- 1,477 Net loss on disposal of other property, plant, and equipment 750 -- Gain on sale of investment (584) -- Depreciation and amortization 39,429 32,994 Deferred income tax provision (benefit) 63 (680) Changes in certain assets and liabilities, net of effects from restructuring and divestitures, joint venture formation, extraordinary item, and change in accounting principle: Accounts receivable (4,172) (867) Inventories (6,035) (2,532) Accounts payable and accrued liabilities (9,092) (28,356) Income taxes 6,298 (2,173) Other assets and liabilities 8,517 (708) --------- --------- Net cash provided by operating activities 119,733 34,450 --------- --------- Cash flows from investing activities: Investment in property, plant, and equipment (43,078) (49,166) Disposition of property, plant, and equipment 841 5,102 Advances to affiliated companies (26,400) (16,794) Proceeds from sale of specified Raynet assets -- 40,000 Proceeds from sale of investment 3,124 -- Purchase of investment -- (1,000) --------- --------- Net cash used in investing activities (65,513) (21,858) --------- --------- Cash flows from financing activities: Net proceeds from short-term debt (833) 3,085 Proceeds from long-term debt -- 225,378 Payments of long-term debt (1,148) (212,043) Common Stock issued under employee benefit plans 33,725 18,396 Common Stock repurchased (25,047) (2,013) Proceeds from repayments of stockholder notes receivable 314 278 Cash dividends (7,069) (6,955) --------- --------- Net cash provided by financing activities (58) 26,126 --------- --------- Effect of exchange rate changes on cash and cash equivalents (3,239) (2,221) --------- --------- Increase in cash and cash equivalents 50,923 36,497 Cash and cash equivalents at beginning of period 118,067 78,090 --------- --------- Cash and cash equivalents at end of period $ 168,990 $ 114,587 ========= ========= SUPPLEMENTAL DISCLOSURES Cash paid for: Interest (net of amounts capitalized) $ 10,290 $ 16,588 Income taxes (net of refunds) 12,401 10,687
See accompanying notes to consolidated condensed financial statements. 3 6 RAYCHEM CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) STATEMENT OF ACCOUNTING PRESENTATION In the opinion of management, the accompanying unaudited consolidated condensed financial statements include all adjustments, including normal recurring accruals, necessary to present fairly the results of operations for the three and six months ended December 31, 1995 and 1994, the financial position as of December 31, 1995, and the cash flows for the six months ended December 31, 1995 and 1994. The June 30, 1995 balance sheet included is derived from the consolidated financial statements included in the company's Annual Report on Form 10-K for the year ended June 30, 1995. Certain prior-period amounts have been reclassified to conform with the 1996 financial statement presentation. BUSINESS SEGMENTS Revenues and operating income (loss) by business segment are as follows:
in thousands ---------------------------------------------------------- Three Months Ended Six Months Ended December 31, December 31, ------------------------ -------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Revenues Electronics $ 158,835 $ 144,891 $ 316,690 $ 284,990 Industrial 140,598 130,558 280,417 252,420 Telecommunications 111,618 107,045 224,459 213,229 --------- --------- --------- --------- Total revenues $ 411,051 $ 382,494 $ 821,566 $ 750,639 ========= ========= ========= ========= Operating income (loss) before provision for restructuring and loss on formation of JV and other Raynet items Electronics $ 27,568 $ 24,566 $ 60,048 $ 47,068 Industrial 27,733 28,112 59,760 51,541 Telecommunications 23,553 16,442 48,208 33,709 Corporate (29,097) (21,289) (55,162) (41,623) --------- --------- --------- --------- Total operating income $ 49,757 $ 47,831 $ 112,854 $ 90,695 ========= ========= ========= ========= Operating income (loss) including provision for restructuring and loss on formation of JV and other Raynet items Electronics $ 27,568 $ 24,566 $ 60,048 $ 47,068 Industrial 27,733 28,112 59,760 51,541 Telecommunications 23,553 16,442 48,208 9,809 Corporate (29,097) (20,866) (55,162) (72,923) --------- --------- --------- --------- Total operating income $ 49,757 $ 48,254 $ 112,854 $ 35,495 ========= ========= ========= =========
4 7 RAYNET Raynet Corporation and subsidiaries (Raynet) was consolidated in prior years when it was wholly owned by the company. On November 16, 1994, the company formed a joint venture, Ericsson Raynet, with LM Ericsson (Ericsson), a Swedish telecommunications company. Consequently, Raychem changed its Raynet accounting in 1995 from consolidation to the equity method. Raychem revenues and expenses for the first quarter of 1995 have been restated to account for Raynet in accordance with the equity method of accounting. The equity in Ericsson Raynet net loss for the six-month period ended December 31, 1994, reflects the results of Raynet Corporation and subsidiaries through November 16, 1994. See "Investments" note for summarized Ericsson Raynet financial information. See also "Subsequent Events" note. RECENT ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell, except for assets that are covered by APB Opinion No. 30. The statement must be adopted by the first quarter of 1997. The company has not yet fully determined the impact of adoption, if any, on the company's results of operations or financial condition. In October 1995, the FASB issued Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation." This statement defines a "fair value based method" of accounting for an employee stock option or similar equity instrument. However, the statement does not require companies to adopt the fair value based method. The company will continue to use the "intrinsic value based method" of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." FAS 123 requires companies that continue with the accounting in APB Opinion No. 25 to make pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting had been applied. The company must adopt the disclosure requirements for the year ending June 30, 1997. FINANCIAL INSTRUMENTS Gains and losses from forward exchange contracts used to hedge receivables and payables and anticipated transactions totaled $1.4 million gain and $0.4 million gain for the three months ended December 31, 1995 and 1994, respectively. Gains and losses from forward exchange contracts totaled $4.1 million gain for each of the six months ended December 31, 1995 and 1994. The company incurred total foreign exchange transaction losses of $0.4 million and $1.6 million for the three months ended December 31, 1995 and 1994, respectively. Total foreign exchange transaction losses totaled $1.5 million and $3.6 million for the six months ended December 31, 1995 and 1994, respectively. The related realized and unrealized gains and losses are included in "Other (income) expense, net." The total amount of foreign exchange exposure hedged was $224 million and $155 million at December 31, 1995 and 1994, respectively. The company hedges exposures that arise from trade and intercompany receivables and payables (including anticipated transactions), and loans in non-functional currencies. The company has unhedged non-functional currency translation and transaction exposures in countries whose currencies do not have a liquid, cost-effective forward market available for hedging. Such exposures at December 31, 1995, included $11.4 million in net intercompany 5 8 payables in non-functional currencies and $8.8 million of net monetary assets in foreign countries with the U.S. dollar as functional currency. RESTRUCTURING AND DIVESTITURES The core business incurred a pretax charge of $24 million in the first quarter of 1995 for the restructuring of its telecommunications business segment. All charges, excluding asset writedowns, were cash in nature, substantially incurred in 1995, and funded through operating cash flows. The following table sets forth the company's restructuring reserves as of December 31, 1995:
Restructuring Reserves ---------------------- Employee Asset Severance Writedowns Leases Other Total --------- ---------- ------ ----- ----- (in thousands) Reserve Balances, June 30, 1995: $ 2,162 $ - $ - $ 1,015 $ 3,177 Cash payments (Unaudited) (1,178) - - (655) (1,833) ------- ---- ---- ------- ------- RESERVE BALANCES, DECEMBER 31, 1995 (UNAUDITED): $ 984 $ - $ - $ 360 $ 1,344 ======= ==== ==== ======= =======
INVESTMENTS The financial position and results of operations of Ericsson Raynet, the only significant equity investment of the company, is summarized below:
(Unaudited) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, -------------------------- --------------------------- 1995 1994(a) 1995 1994(a) --------- --------- --------- ---------- Revenues $ 12,462 $ 6,959 $ 24,902 $ 29,515 ======== ======== ======== ======== Gross profit (loss) $(10,520) $ (5,990) $(12,407) $ (8,959) Research and development expense 10,314 8,922 20,012 20,646 Selling, general, and administrative expense 9,000 9,687 17,428 19,626 Interest and other (income) expense, net (513) 865 598 909 -------- -------- -------- -------- Net loss $(29,321) $(25,464) $(50,445) $(50,140) ======== ======== ======== ======== Raychem's equity in loss $(18,694) $(13,532) $(29,818) $(38,208) ======== ======== ======== ========
(a) Results for the three and six months ended December 31, 1994, include the results of Raynet Corporation and subsidiaries through November 16, 1994, and the results of Ericsson Raynet from November 17, through December 31, 1994, on the equity basis of accounting as reflected in Raychem's financial statements. 6 9
(UNAUDITED) DECEMBER 31, June 30, 1995 1995 ------------- -------- Current assets $ 65,125 $ 62,864 Non-current assets 24,703 34,203 Current liabilities $ 109,426 $ 65,906 Non-current liabilities 550 495
REPURCHASE OF COMMON STOCK In December 1994, the Board of Directors authorized the repurchase, at management's discretion, of up to 1.5 million shares of the company's stock during any one fiscal year. Shares repurchased under this authorization will be used to offset the dilution caused by the company's employee stock plans. During the three months ended December 31, 1995, the company repurchased 400,000 shares and subsequently reissued 218,946 shares, leaving 212,368 shares in treasury stock at December 31, 1995. 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. The company and its subsidiaries have also been named as a defendant, along with sixteen other corporate and governmental codefendants, in a private cost recovery for environmental cleanup expenses at the West Contra Costa County Landfill in Richmond, California. On August 4, 1995, the company's and other defendants' motion for judgment on the pleadings was granted by the District Court striking the plaintiff's claim that the company and the other defendants were jointly and severally liable for response costs at the site. As a result, the company's potential liability, if any, for response costs at the site would be based on the company's disposal of wastes at the site. The company believes its wastes constitute less than 2% of the total amount of wastes disposed of at the site. From time to time, the company and its subsidiaries become involved in lawsuits arising from various commercial matters, including product liability. The principal product liability litigation involves a variety of claims arising from the company's heat-tracing and freeze-protection products. The only such action in which material damages are alleged seeks in excess of $150 million, but the claim has not progressed sufficiently for the company to estimate a range of possible loss, if any. The company intends to defend itself vigorously in these matters. The company's experience to date is that losses, if any, from such claims have not had, nor are they expected to have, a material effect on the company's financial position or results of operations. The company maintains insurance to cover product liability claims in excess of deductibles. 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. 7 10 SUBSEQUENT EVENTS On January 17, 1996, the company reached a preliminary agreement with Ericsson that will eliminate future operating losses from the Ericsson Raynet joint venture, while providing the possibility of a very modest upside for the company. The parties are in the process of negotiating definitive agreements, which are expected to be completed in the third quarter, and may result in a charge of up to $10 million, principally non-cash. On January 17, 1996, the company's Board of Directors declared a quarterly cash dividend of $0.10 per share of Common Stock, payable on March 13, 1996, to stockholders of record as of February 14, 1996. 8 11 RAYCHEM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW The company reported net income of $25 million, or $0.55 per share, in the second quarter of 1996, compared to a net income of $21 million, or $0.47 per share, in the second quarter of 1995. Revenues for the quarter increased to $411 million from $382 million in the comparable prior-year period. This represents a 5% increase over the year-ago quarter on a constant currency basis (which assumes that foreign currency exchange rates had remained constant from the prior period). For the six months ended December 31, 1995, net income was $58 million, or $1.27 per share, compared to a net loss of $36 million, or $0.83 per share, for the same period in the prior year. Revenues for the six-month period ended December 31, 1995, increased 6% over the prior-year period on a constant currency basis, to $822 million. Raychem's "ongoing" pretax income for the second quarter of 1996 increased to $59 million from $44 million in the year-ago quarter. Raychem's results are summarized as follows:
- ----------------------------------------------------------------------------------------------------------- PRETAX INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGE Three Months Ended Six Months Ended IN ACCOUNTING PRINCIPLE December 31, December 31, (in millions) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------- Core business: "Ongoing" pretax income $ 59 $ 44 $ 116 $ 79 Nonrecurring charges, net (5) -- (5) -- Provision for restructuring and divestitures -- -- -- (24) ---- ---- ----- ---- Core business pretax income 54 44 111 55 Loss on formation of Ericsson Raynet joint venture and other Raynet items -- -- -- (32) Equity in Ericsson Raynet net loss (19) (13) (30) (38) ---- ---- ----- ---- Consolidated $ 35 $ 31 $ 81 $(15) ==== ==== ===== ==== - -----------------------------------------------------------------------------------------------------------
During the second quarter of 1996, the company recorded a net $5 million of nonrecurring charges. This amount reflects a $6.6 million gain (included in "other (income) expense") from an insurance settlement arising from a previous shareholder lawsuit, offset by $12 million of charges incurred from severances and other related actions that took place in the quarter. Net income for the six months ended December 31, 1994, includes an extraordinary loss of $6.3 million (recorded as $7.1 million in the first quarter and adjusted by $0.8 million in the second quarter), or $0.15 per share, for the early retirement of debt following payment by the company of its 9.55% privately placed senior notes. In addition, the company adopted 9 12 in the first quarter, effective July 1, 1994, Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of this accounting change (a charge of $1.5 million, or $0.03 per share) has been reflected in the 1995 first half results. The following discussion of the results of operations is 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"). BUSINESS SEGMENT OPERATIONS Revenues in the electronics business segment were $159 million in the second quarter of 1996 compared to $145 million in the prior-year quarter, an 8% constant currency increase. The Electronics Division and Elo TouchSystems contributed significantly to the revenue growth. The Electronics Division's strong sales growth in commercial air, marine, and general electronics markets, more than offset modest declines in its defense program business. Elo TouchSystems experienced strong growth with increases in its touchscreen sales to manufacturers of point-of-information and point-of-sales equipment. PolySwitch Division revenues rose slightly over the prior-year quarter. A significant increase in shipment unit volume was largely offset by price reductions. Electronic business segment operating income grew to $28 million from $25 million a year ago. These results include approximately $1 million of one-time charges for severances and other related actions in the quarter. Revenues for the six months ended December 31, 1995, increased to $317 million from $285 million in the comparable prior-year period. Operating income for the six months ended December 31, 1995, was $60 million compared to $47 million in the comparable prior-year period, reflecting improved results primarily by the Electronics Division. Revenues in the industrial business segment for the three months ended December 31, 1995, were $141 million, up from $131 million, a 4% constant currency increase over the prior-year period. The revenue growth was led by the segment's Electrical Products Division, which had especially strong sales in Asia. The pipeline project business in the Ultratec Division led to an increase of its revenues, notably in Asia. Chemelex Division revenues remained unchanged compared to the prior-year level, with slow sales growth in the European construction market. Operating income in the industrial business segment for the second quarter of 1996 was $28 million, unchanged from the year-ago period. The current quarter's operating income includes approximately $6 million in charges primarily related to the streamlining of the Chemelex Division's worldwide operations. Industrial business segment revenues for the six months ended December 31, 1995, were $280 million compared to $252 million in the comparable prior-year period. Operating income was $60 million, $8 million higher than the comparable prior-year period. The increase in operating income reflects strong revenues in the Electrical Products Division, partially offset by Chemelex Division's lower revenues in the European construction market and U.S. market for freeze protection products. Revenues in the telecommunications business segment increased to $112 million from $107 million in the second quarter of the prior year, a 2% increase in constant currency terms from the prior-year quarter. The segment's increase in North America and Latin America sales was partially offset by a decrease in sales in Asia and Europe. Operating income increased to $24 million from $16 million in the year-ago quarter, reflecting benefits of prior-year restructuring actions. The current quarter results include approximately $1 million in one-time charges for severances and other related actions. Revenues for the six months ended December 31, 1995, increased to $224 million from $213 million in the 10 13 comparable prior-year period. Excluding the restructuring charge incurred in the prior-year first quarter, operating income increased from $34 million to $48 million. This increase resulted from both favorable product mix and benefits of prior-year restructuring actions. During the second quarter of 1996, incoming orders were greater than shipments for the company overall. Electronics segment orders exceeded shipments and incoming orders approximately equaled shipments in the industrial and telecommunications segments. Backlog at December 31, 1995, was $288 million. EQUITY IN ERICSSON RAYNET NET LOSS Ericsson Raynet's net loss for the second quarter of 1996 was $29 million. Net loss for the six months ended December 31, 1995, was $50 million. As agreed between the partners, in fiscal 1996, the first $19.6 million of losses will be allocated to LM Ericsson (Ericsson) and Raychem in a 51/49 ratio; the next $10 million of loss will be allocated 100% to Raychem; and additional losses, if any, will again be allocated to Ericsson and Raychem in a 51/49 ratio. In accordance with the loss allocation agreement, the company's share of the Ericsson Raynet second quarter net loss was $19 million, and totaled $30 million for the six months ended December 31, 1995. PROVISION FOR RESTRUCTURING AND DIVESTITURES The core business incurred a pretax charge of $24 million in the first quarter of 1995 for the restructuring of its telecommunications business segment. The restructuring was substantially completed by June 30, 1995. The company expected to receive approximately $24 million of annual savings, of which the company realized approximately $12 million of savings in the first half of 1996. Substantially all of the savings are cash related. See "Restructuring and Divestitures" in the notes to consolidated condensed financial statements for further details on the restructuring reserve. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE Selling, general, and administrative expense (SG&A) as a percent of revenues for the three months ended December 31, 1995, increased to 33% from 32% in the year-ago period. However, in the current period, SG&A includes approximately $10 million in nonrecurring charges, reflecting $7 million in the business segments and $3 million in the corporate groups. The charge to corporate groups is principally related to officer severances. Excluding these nonrecurring charges, SG&A as a percent of revenues for the second quarter of 1996 improved to 30%. INCOME TAXES The estimated core business annual effective tax rate was 21% for the six months ended December 31, 1995, down from 25% for the year-ago period, and 23% for the three months ended September 30, 1995. The decrease results primarily from an anticipated improvement in fiscal 1996 U.S. profitability enabling the utilization of prior years' U.S. losses. RECENT ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For a description, see "Recent Accounting Standards" in the notes to consolidated condensed financial statements. The statement must be adopted by the first 11 14 quarter of fiscal 1997. The company has not yet fully determined the impact of adoption, if any, on the company's results of operations or financial condition. In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation." For a description of the statement, see "Recent Accounting Standards" in the notes to consolidated condensed financial statements. The company must adopt the disclosure requirements for the fiscal year ending June 30, 1997. FORWARD-LOOKING STATEMENTS AND RISK FACTORS FORWARD-LOOKING STATEMENTS On January 17, 1996, the company reached a preliminary agreement with Ericsson that will eliminate future operating losses from the Ericsson Raynet joint venture, while providing the possibility of a very modest upside for the company. The parties are in the process of negotiating definitive agreements, which are expected to be completed in the third quarter, and may result in a charge of up to $10 million, principally non-cash. While the company is in the process of negotiating definitive agreements with Ericsson on the Ericsson Raynet joint venture, there can be no assurance of the expected outcome or the effect on the company's financial results until such time that the agreements are finalized and all the required approvals have been received. While there is the potential for some future charges related to warranty claims, the company believes that Ericsson Raynet's existing warranty reserves are adequate. The company has embarked on an "Operational Excellence" program to improve operational efficiency in all areas of the company, and to reduce SG&A costs. The program focuses on vigorous process improvements across organizational boundaries. As part of this program, the company has incurred some nonrecurring charges during the second quarter, and expects to incur additional nonrecurring charges in the third quarter. In aggregate, the company currently estimates that these potential charges may range from $25 to $40 million during the third quarter. However, reviews are currently underway and further actions may yet be identified that could result in additional charges in the third quarter and future quarters. The company is also evaluating the sale or reconfiguration of its medical and metals businesses contained in the electronics business segment. In addition, the company is evaluating the sale or closure of Ultratec's plastic pipe coupling business. Any related actions are expected to occur in the third or fourth quarter of 1996. The company has a deferred tax asset valuation allowance which is primarily attributable to U.S. federal and state deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient U.S. income to utilize future deductions and credits, prior to the expiration of these carryforwards. Management believes sufficient uncertainty exists regarding the realization of these deferred tax assets that a valuation allowance is required. The amount of the valuation allowance may be reduced as U.S. income improves. RISK FACTORS As the Operational Excellence program is ongoing, the company expects to incur additional nonrecurring charges as a result of future actions. These actions, however, are not defined at this time. In addition, while not currently anticipated, the company's operating results 12 15 and financial condition could be adversely affected by its ability to effectively manage the transition to the new organizational and operating structures. There can be no assurance that the Operational Excellence program will be successful in achieving its goals, or in doing so without unintended adverse consequences. The company has manufacturing facilities in many countries and is subject to environmental regulations. These regulations, and any changes in them, can affect the company's manufacturing processes as well as the cost, availability, and use of raw materials. Although compliance with such environmental regulations has not had a material effect on capital expenditures or operating results in the past, there is no assurance that any such regulations or changes in regulations will not have a material adverse effect on future capital expenditures or operating results. In the past, supplies of certain raw materials the company uses have become limited and it is possible that this will occur in the future. When it does occur, it can result in increased prices, rationing, and shortages. In response, the company tries to identify alternative materials and technologies for such raw materials or other sources of supply. Although the effect in the past has not been material, such situations could adversely affect financial results. From time to time, the company and/or its subsidiaries become involved in lawsuits arising from various commercial matters, including, but not limited to, competitive issues, contract issues, intellectual property matters and product liability. Currently, the principal product liability litigation involves a variety of claims arising from the company's heat-tracing and freeze-protection products. Litigation tends to be unpredictable and costly. There is no assurance that litigation will not have an adverse effect on the company's financial position or results of operations. Over half of the company's revenues result from sales outside the United States and the company has several production facilities also located outside the United States. The company's financial results can be adversely affected by changes in foreign currency rates, changes in worldwide economic conditions, changes in trade policies or tariffs, changes in interest rates, and political unrest overseas. These effects may be mitigated by the global nature of both the company's sales and production activities. The company has a substantial investment in intellectual properties consisting of patents, trademarks, copyrights, and trade secrets and relies significantly on the protection provided by these intellectual property rights. Accordingly, the company aggressively protects these rights and may become involved in issues of infringement or theft by third parties from time to time. The company may also become involved as a defendant in intellectual property lawsuits. Litigation can be unpredictable and costly. While it is doubtful that an unfavorable resolution of any such dispute would have a material adverse effect on the company's financial condition, it is possible that an unfavorable outcome could be material. The company maintains property, cargo, auto, product, general liability, and directors and officers liability insurance to protect itself against potential loss exposures. To the extent that losses occur, there could be an adverse effect on the company's financial results depending on the nature of the loss, and the level of insurance coverage maintained by the company. From time to time, the company may reevaluate and change the types and levels of insurance coverage that it purchases. 13 16 The company has historically achieved revenue growth by developing or acquiring new and innovative materials science technologies and products. Commitment to continued research and development and acquisition of new or compatible technologies continues to be an important part of the company's strategy. To the extent that product or technology development or integration of acquired technologies takes longer than expected or is not successful, there could be an adverse effect on the company's financial results. The company's operating results are subject to fluctuations in demand and seasonal activity of certain product lines. A substantial amount of the company's revenues are realized through orders and shipments booked within a quarter and the backlog at the end of any quarter may not be predictive of the financial results for the next quarter. A shortfall in revenue could result from a number of factors such as overall economic conditions, competition, lower than expected demand, or supply constraints. In addition, changes in geographic or product mix may impact gross profits. A portion of the company's research and development activities, its corporate headquarters, and other critical business operations are located near major earthquake faults. In the event of a major earthquake, the ultimate impact on the company, significant suppliers, and the general infrastructure is unknown, but operating results could be materially affected. The company is predominantly not insured for losses and interruptions caused by earthquakes. Because of the foregoing factors, in addition to other factors, which affect the company's operating results and financial position, past financial performance should not be considered to be a reliable indicator of future performance. Investors should not use historical trends to anticipate results or trends in future periods. Further, the company's stock price is subject to volatility. Any of the factors discussed above could have an adverse impact on the company's stock price. In addition, failure of revenues or earnings in any quarter to meet the investment community's expectations, as well as broader market trends, could have an adverse impact on the company's stock price. LIQUIDITY AND CAPITAL RESOURCES Debt exceeded cash by $116 million at December 31, 1995, compared to $175 million at June 30, 1995. Debt net of cash decreased $59 million in the first six months of 1996, compared to a decrease of $26 million in the first six months of 1995. The continued decrease in debt net of cash resulted primarily from improved profitability. Inventory, as measured by the number of days of inventory on hand, improved to 106 days for the second quarter of 1996 compared to 109 days for the year-ago period. Receivables, as measured by the number of billing days outstanding, decreased to 63 days at December 31, 1995, compared to 64 days at December 31, 1994. On September 28, 1995, the company amended its syndicated loan agreements which consisted of a five-year partially amortizing term loan of $225 million, and a renewable 364-day revolving credit facility of $200 million. The revolving credit facility was increased to $250 million and extended to a term of 4 years. Variable pricing terms for both the term loan and revolving credit facility were improved, and certain restrictive covenants were relaxed. The $225 million syndicated term loan agreement requires varying quarterly 14 17 payments beginning in December 1996 and continuing until final maturity in September 1999. The first quarterly payment of $15 million will become due December 31, 1996. In January 1995, the company entered into a revolving credit agreement with the Ericsson Raynet joint venture. The company agreed to make available to the joint venture a maximum of $50 million, due in full on December 20, 1995, or earlier if the revolving credit arrangement is terminated at the company's discretion. Upon expiration, the credit agreement was renewed and extended one year, and is now due in full on December 20, 1996. The credit agreement stipulates that borrowings under the arrangement will be interest-free, and imposes no covenants on the joint venture. During the quarter ended December 31, 1995, the company made advances to Ericsson Raynet of $13 million under this credit agreement, increasing the amount due to the company to $21 million. If the agreement currently being negotiated with Ericsson is completed, the company intends to convert the amount due under the revolving credit agreement to capital. BellSouth Enterprises Inc. (BSE) had financed a portion of the software development work at Raynet and held a royalty interest in the software related revenues of Raynet. With the creation of the joint venture, this royalty payment was reconfigured. Raychem made two payments to BSE of $10 million each in November 1994 and 1995, and is required to make one additional payment of $10 million in November 1996. Raychem has agreed to make other royalty payments to BSE contingent upon the revenues and earnings performance of the joint venture. BSE will be entitled to receive a portion of the distributions that Raychem is entitled to receive as a result of the agreement currently being negotiated with Ericsson. The company has continued to repurchase shares of the company's stock as previously authorized by the Board of Directors. During the six months ended December 31, 1995, the company repurchased 500,000 shares at a cost of $25 million. In addition, the company received $34 million from the issuance of Common Stock under various employee benefit plans for the six months ended December 31, 1995. On January 17, 1996, the company's Board of Directors declared a 25% increase to its regular quarterly dividend to $0.10 per share, payable on March 13, 1996, to stockholders of record as of February 14, 1996. Capital expenditures of $43 million in the first half of 1996 decreased $6 million compared to the prior-year period, when the company had significant capital expenditures for manufacturing facilities in Japan, the People's Republic of China, and Mexico. At December 31, 1995, the company had $169 million in cash and cash equivalents, $290 million in committed credit facilities (of which $1 million were utilized) and approximately $175 million in various uncommitted credit facilities (of which $44 million were 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 the company's needs for working capital, normal capital expenditures, Ericsson Raynet funding requirements, scheduled debt repayments, and anticipated dividends. 15 18 RAYCHEM CORPORATION PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS In the second quarter, the company settled litigation, Raychem Corporation v. Federal Insurance Company, with its insurers arising from an earlier shareholder lawsuit. The Company received $6.6 million from its insurers. Information about this lawsuit was disclosed in the company's annual report on Form 10-K for the year ended June 30, 1995. The plaintiffs in the All Alaskan Seafoods, Inc., et al v. Raychem Corporation, Marine Electric, Inc., and Westinghouse Electrical Supply Co., have increased their claim for damages to approximately $150 million. Information about this lawsuit was disclosed in the company's annual report on Form 10-K for the year ended June 30, 1995, and quarterly report on Form 10-Q for the period ended September 30, 1995. The patent infringement lawsuit filed by the company on November 30, 1993, against PSI Telecommunications, Inc. in the United States District Court, Northern District of California, has been settled. Information about this lawsuit was disclosed in the company's annual report on Form 10-K for the year ended June 30, 1995. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) On November 1, 1995, the company held its Annual Meeting of the Stockholders. (b) The following Directors were elected:
Votes Name Votes For Withheld ---- ---------- --------- Paul M. Cook 34,716,848 1,600,515 Richard Dulude 34,719,572 1,597,791 James F. Gibbons 34,719,979 1,597,384 Richard A. Kashnow 34,703,127 1,614,237 John P. McTague 34,719,282 1,598,081 Dean O. Morton 34,720,721 1,596,642 Isaac Stein 34,708,417 1,608,947 Cyril J. Yansouni 34,720,631 1,596,732
(c) The following other matters were voted upon: 1. Approval of amendment to the company's Amended and Restated 1984 Employee Stock Purchase Plan and Amended and Restated 1985 Supplemental Employee Stock Purchase Plan to increase by 1,000,000 shares the aggregate number of shares issuable under the two plans. Affirmative Votes: 30,819,842 Negative Votes: 1,124,497 Abstentions: 1,492,021
16 19 2. Approval of an amendment to the company's Amended and Restated 1990 Incentive Plan to increase by 1,250,000 shares the aggregate number of shares issuable under the plan. Affirmative Votes: 23,710,255 Negative Votes: 8,139,355 Abstentions: 1,586,750
3. Ratification of the appointment by the company's Board of Directors of Price Waterhouse LLP to audit the accounts of the company and its subsidiaries for the 1996 fiscal year. Affirmative Votes: 34,782,093 Negative Votes: 40,638 Abstentions: 1,494,632
ITEM 5: OTHER INFORMATION On October 1, 1995, Richard A. Kashnow was named President, CEO, and Chairman of the Board of Directors of the company. He succeeded both Raychem President and CEO Robert J. Saldich, and Raychem founder and Chairman of the Board of Directors Paul M. Cook, who will continue as a director until his scheduled retirement in 1996. In November 1995, the company eliminated the senior management positions of Executive Vice President and Senior Vice President, Corporate Development held by Harry O. Postlewait and Charles J. Abbe, respectively. On January 2, 1996, Harry O. Postlewait retired from Raychem, and Charles J. Abbe left the company. On December 1, 1995, the company announced that as of April 1996 the position of Senior Vice President, Europe, held by James B. Spradling, will be eliminated. James B. Spradling announced his intention to retire from the company. Further, the company announced that the Ultratec Division will be combined with the Chemelex Division under the leadership of Hus Tigli, Vice President and General Manager of the Chemelex Division. Rik P. Dobbelaere, who was General Manager of the Ultratec Division, has decided to leave Raychem. Lastly, the company announced that the Elo TouchSystems business and Display Products Group now report to Andrew F. Roake, Vice President, Strategic Planning. On December 11, 1995, L. Frans Berthels was appointed to the newly formed position of Vice President, Manufacturing and Logistics. In January 1996 the company announced several senior management changes. Robert J. Vizas, Vice President, General Counsel and Secretary, has decided to leave Raychem and resume his career as a legal consultant. Stephen A. Balogh, Vice President of Human Resources, also will leave the company to pursue outside opportunities. Searches are underway to fill both positions. Separately, Eric Van Zele was named Vice President, Europe and will return to Belgium where he will also assume primary business responsibility for the European sales and marketing activities for the Telecom Division. Additionally, James L. Claypool, Vice President, will return to California in June to lead the Menlo Park Telecom Resource Center. 17 20 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Index to Exhibits
EXHIBIT NO. DESCRIPTION ----------- ----------- 10(s) Supplemental agreement between the company and Mr. Richard Kashnow dated February 5, 1996 10(t) Agreement and release between the company and Mr. Harry O. Postlewait dated November 16, 1995 27 Financial Data Schedule
(b) Reports on Form 8-K None. 18 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RAYCHEM CORPORATION ------------------- (Registrant) Date: February 14, 1996 /s/ RAYMOND J. SIMS ---------------------------------- Raymond J. Sims Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ DEIDRA D. BARSOTTI ---------------------------------- Deidra D. Barsotti Vice President and Controller (Principal Accounting Officer) 19 EX-10.(S) 2 SUPP AGREE BETWEEN COMPANY & KASHNOW DATED 2/5/96 1 Exhibit 10(s) SUPPLEMENTAL AGREEMENT This Supplemental Agreement is entered into between Richard Kashnow ("Kashnow") and Raychem Corporation ("Raychem") to modify one provision of their letter agreement describing the terms of Kashnow's employment by Raychem dated August 11, 1995 (the "Agreement"). The parties hereto agree as follows: 1. SPECIAL TRANSITION PAYMENT (A) With respect to the total amount payable by Raychem under the "Special Transition Payment" provisions of paragraph 3 of the Agreement, which amount is indeterminable as of the date hereof, Raychem shall pay such amount to the trust established in connection with the Raychem Corporation Executive Deferred Compensation Plan (the "Deferred Compensation Plan") and credit such amount to an account for Kashnow under the Deferred Compensation Plan on the day such amount would otherwise have been paid to Kashnow in satisfaction of Raychem's payment obligation under the Agreement. (B) The amount described in subparagraph (a) above which is credited to an account for Kashnow under the Deferred Compensation Plan shall be treated as a "Deferral Amount" for the "Participation Year" ending June 30, 1996, subject to all of the general terms and conditions of the Deferred Compensation Plan. Accordingly, 100 percent of such 2 Deferral Amount (as adjusted for net investment income or loss attributable thereto) will be determined as of December 31, 1996, and distributed to Kashnow as soon as practicable thereafter unless Kashnow files a "Subsequent Deferral Election" with the Administrator of the Deferred Compensation Plan on or before June 3, 1996 to defer payment of all or any portion of the amount otherwise distributable for an additional one-year period (or such longer period as is approved by the Administrator). 2. GENERAL Except as expressly provided otherwise by this Supplemental Agreement, all of the terms and conditions of the Agreement remain in full force and effect. Dated: February 5, 1996 RAYCHEM CORPORATION By: /s/ Isaac Stein Dated: February 5, 1996 /s/ R.A. Kashnow Richard Kashnow -2- EX-10.(T) 3 AGREE & RELEASE BETWEEN CO. & POSTLEWAIT 11/16/95 1 Exhibit 10(t) November 16, 1995 Mr. Harry O. Postlewait (Home address deleted) Re: Agreement and Release Dear Harry: This letter is to confirm our agreement with respect to the termination of your employment with Raychem Corporation. To ensure that there are no ambiguities, this letter first explains in detail the rights and obligations of both you and Raychem Corporation upon termination of your employment. If, in exchange for a release, you wish to accept additional benefits to which you would not otherwise be entitled, indicate your agreement by signing, dating, and returning this letter to me no later than December 13, 1995. We have agreed that your employment with Raychem Corporation will end as of the end of the business day on January 2, 1996. Thereafter, you will no longer be an employee of Raychem. In your final paycheck on January 2, 1996, you will be paid all earned and unpaid salary together with any accrued and unused vacation pay, less deductions authorized or required by law. In addition, to induce Raychem to enter into this Agreement, you agree to enter into the Professional Services Agreement attached as Exhibit 2. You agree that the consideration named in this Agreement is sufficient to compensate you for the release given herein, as well as for any consulting services you may provide to Raychem pursuant to the Professional Services Agreement. You will also receive a severance amount equal to one hundred and four (104) weeks of salary. You may defer FY97 base salary amounts pursuant to the company's Executive Deferred Compensation Plan, provided that your authorization form is received by June 1, 1996. This severance benefit, minus deductions authorized or required by law, will be paid in bi-weekly installments beginning on the first Raychem payday after January 2, 1996. This salary continuation shall continue even in the event of your death during the payment period. At the sole discretion of the Board of Directors, you may be eligible to receive a prorata share of a bonus pursuant to the FY96 Variable Pay Program. You will be eligible to receive a lump sum payment from the Raychem Pension Plan and from the Supplemental Executive Retirement Plan ("SERP") based on your age and years of service as of January 2, 1996. You will also be eligible to rollover SERP amounts into the Executive Deferred Compensation Plan upon your written request received before December 15, 1995. For purposes of option grants outstanding under the 1988 Executive Long Term Incentive Plan (ELTIP) and Amended and Restated 1990 Incentive Plan (1990 Plan), you agree that termination due to retirement will occur at the end of your Raychem consultancy, and that the retirement provisions of your options will become effective at that time. Your options granted under the ELTIP are exercisable as follows: for options granted before August 2, 1991, 2 Harry O. Postlewait November 16, 1995 within three (3) months after retirement; and for options granted August 2, 1991 or later, within three (3) years after retirement. Your options granted under the 1990 Plan are exercisable within five (5) years after retirement. You will continue to be covered with company provided life insurance at two times (2x) your current annual base pay until you are age sixty-five (65). In the event you desire to purchase supplemental life insurance up to two million dollars ($2M), if available, you may do so through Raychem at your own expense, at normal employee rates for such supplemental insurance. Your present Raychem medical and dental insurance benefits will remain in effect, at standard employee rates, until the earliest to occur of (i) your sixty-fifth (65th) birthday, or (ii) your death. Raychem shall assign to you title to your company car (a 1992 Toyota Land Cruiser) and car telephone, effective January 3, 1996. You agree to take title by January 3, 1996. You also agree to pay for, and hold Raychem harmless for, all maintenance, insurance, expenses and damages incurred to such car and/or related to its use from and after January 2, 1996, as well as all monthly and use charges for the telephone. Raychem agrees to pay your attorney's fees related to your separation of employment from Raychem and the negotiation of this Agreement, not to exceed $2,000. Raychem will also furnish to you through January 2, 1998, according to established Raychem practices and policies: - Continued use of your computer, after which time you may purchase this item according to company policy. - Financial planning services. - Senior Executive career transition services provided by de Recat & Associates, a professional outplacement firm selected by Raychem to support and enhance your job search efforts. You agree that you will return all company property to Richard A. Kashnow or designee by January 2, 1996. This includes but is not limited to all samples, cases, brochures, papers, notes, and other documents, and all copies thereof, relating to Raychem, its business, and its customers that have been obtained by you during your employment, together with other Raychem or Raychem-customer or supplier property in your possession. In addition, please note that your obligations under the Proprietary Information Agreement still remain in effect. We have enclosed a copy of that agreement as Exhibit 1 for your reference. Raychem is prepared to offer you the consideration set forth herein above and beyond the wages and benefits to which you would otherwise be entitled in exchange for your agreement to release all claims, known or unknown, against Raychem Corporation, its affiliates, and its past, present, and future officers, directors, shareholders, agents, employees, attorneys, 2 3 Harry O. Postlewait November 16, 1995 insurers, successors, and assigns (collectively referred to as "Raychem"). You are not eligible to receive the additional consideration outlined herein unless you elect to sign this Agreement. In consideration, you, on behalf of yourself, your heirs, spouse, and assigns, hereby completely release and forever discharge Raychem from any and all claims, of any and every kind, nature, and character, known or unknown, foreseen or unforeseen, based on any act or omission occurring prior to January 2, 1996, including but not limited to any claims arising out of your offer of employment, your employment, or termination of your employment with Raychem or acts leading up to such termination, and all claims under federal and state discrimination laws, including but not limited to claims arising under the Age Discrimination in Employment Act of 1967 and the California Fair Employment and Housing Act. The only exceptions are any claims that you may have for unemployment compensation, any rights that you may have under the Raychem Pension Plan, and any Workers' Compensation benefits to which you may be found entitled. This Agreement fully and finally extinguishes and discharges all claims (except for unemployment, Pension Plan, and Workers' Compensation claims discussed above), whether known or not, as provided by California Civil Code Section 1542. Section 1542 states: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." You agree to waive that right and affirm your intention to release not only claims known but those unknown to you which arose out of your employment with Raychem or its termination, and you do hereby release all such known and unknown claims. You fully understand that, if in fact with respect to any matter covered by this Agreement is found hereafter to be other than or different from the facts now believed by you to be true, you expressly accept and assume that this Agreement will be and remain effective, notwithstanding such difference in the facts. You agree neither to file nor to encourage or knowingly permit another to file any claim, charge, action, or complaint concerning any matter referred to in this release. If you have previously filed any such claims (other than Workers' Compensation claims), you agree to take all reasonable steps to cause them to be withdrawn without delay. This letter constitutes the entire agreement between yourself and Raychem with respect to any matters referred to in this letter and supersedes any and all of the other agreements between yourself and Raychem, except for the Proprietary Information Agreement attached hereto as Exhibit 1, the Professional Services Agreement attached hereto as Exhibit 2, and the Amendment to Loan Agreement attached hereto as Exhibit 3, which remain in full force and effect. No other consideration, agreements, representations, oral statements, understandings, or course of conduct that are not expressly set forth in this document should be implied or are binding. You are not relying upon any other agreement, representation, statement, omission, understanding, or course of conduct that is not expressly set forth in this document. You understand and agree that this Agreement will not be deemed or construed at any time or for 3 4 Harry O. Postlewait November 16, 1995 any purposes as an admission of any liability or wrongdoing by either yourself or Raychem. You also agree that if any provision of this Agreement is deemed invalid, the remaining provisions will still be given full force and effect. The terms and conditions of this Agreement will be governed by the laws of California applicable to contracts made and performed within California. Prior to execution of this Agreement, you should apprise yourself of sufficient relevant information to intelligently exercise your own judgment. You are advised to consult an attorney. You may take twenty-one (21) days from your receipt of this letter to consider whether or not you wish to accept benefits described herein in exchange for this Agreement. Please also note that even if you do sign this Agreement, you may change your mind and revoke this Agreement and forego the additional benefits, provided that you notify me in writing, within seven (7) days after the date of your signing. You also understand and agree that if any suit is brought to enforce the provisions of the agreement in this letter, the prevailing party will be entitled to its costs, expenses, and attorneys' fees as well as any and all other remedies. In order to obtain the additional consideration described in this Agreement, this Agreement signed by you must be returned to Raychem by December 13, 1995. Finally, you agree that you will not disclose to anyone (except for your spouse, accountant, and/or lawyer) or allow anyone else to disclose the existence of, reason for, or contents of this letter without Raychem's prior written consent, unless required to do so by law. Sincerely, /s/ Richard A. Kashnow Richard A. Kashnow President EMPLOYEE'S ACCEPTANCE OF AGREEMENT, RELEASE AND BENEFITS I HAVE CAREFULLY READ, FULLY UNDERSTAND, AND VOLUNTARILY AGREE TO ALL THE TERMS OF THIS AGREEMENT AND RELEASE IN EXCHANGE FOR THE ADDITIONAL BENEFITS TO WHICH I WOULD NOT OTHERWISE BE ENTITLED. THIS RELEASE IS EXECUTED VOLUNTARILY AND WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE. 13 Dec 95 /s/ Harry O. Postlewait - ------------------------------ ------------------------- Date Harry O. Postlewait Approved as to legal form Atty: CMB 4 5 EXHIBIT 1 RAYCHEM PROPRIETARY INFORMATION AGREEMENT In partial consideration of my employment by Raychem Corporation, I agree as follows: 1. Confidentiality Obligation. I will hold all Raychem Proprietary Information in confidence and will not disclose, use, copy, publish, summarize, or remove from Raychem's premises any Proprietary Information, except (i) as necessary to carry out my responsibilities as an employee, and (ii) after termination, as specifically authorized in writing by an officer of Raychem. "Proprietary Information" is all information related to Raychem's business, unless: (i) the information is publicly known through lawful means; (ii) the information was rightfully in my possession prior to employment at Raychem; or (iii) the information is rightfully disclosed to me by a third party without restriction. 2. Information of Others. I will also treat information of parties with which Raychem does business as confidential to the same degree as if it were Raychem information. 3. Raychem Property. All data, records, drawings, files, documents, samples, products, and other materials, including copies, relating to Raychem's business that I posses as a result of my employment, whether or not confidential, are the sole and exclusive property of Raychem. In the event of the termination of my employment, I will deliver to Raychem all Raychem data, records, drawings, files, documents, sample, products, and materials, including copies. 4. Inventions. All inventions, improvements, know-how, processes, and techniques which result form work performed by me on behalf of Raychem or from access to Raychem Proprietary Information or property ("Inventions") shall be the property of Raychem. I will disclose promptly and in writing to the individual designated by Raychem or to my immediate supervisor all Inventions which I have made or reduced to practice. I agree to assign to Raychem, without further consideration, my entire interest in all Inventions, and Raychem shall be the sole owner of all patents and proprietary rights. I will assist Raychem (at Raychem's expense) to obtain and enforce patents and other forms of trade secret protection of Inventions. 5. Excluded Inventions. Attached is a list of all inventions which have been made or reduced to practice by me prior to my employment which I desire to exclude from this Agreement. If no list is attached to this Agreement, there are 1 6 EXHIBIT 1 no inventions to be excluded at the time of my signing of this Agreement. This Agreement also does not apply to any invention that qualifies under Section 2870 of the California Labor Code which reads: "Any provision in an employment agreement which provides that an employee shall assign or offer to assign any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: a) relate at the time of conception or reduction to practice of the invention to the employer's business or actual or demonstrably anticipated research or development of the employer, or b) result from any work performed by the employee for the employer." 6. Patent Applications. In the event of the filing of any original United States patent application covering any Invention of which I am a named inventor, I will receive an inventor's fee of $100. In the event that an application is filed with joint inventors, each inventor will receive $100. 7. Attorneys' Fees. In the event of litigation related to this Agreement, the prevailing party will be entitled to recover reasonable attorneys' fees and other costs. Either party may seek an injunction to restrain any breach of this Agreement by the other. HARRY O. POSTLEWAIT 07048 - ----------------------- ----------------- Employee's Name (Print) Employee's Number /s/ Harry O. Postlewait Date: 16 June 88 - ----------------------- ------------ Employee's Signature 2 7 EXHIBIT 2 PROFESSIONAL SERVICES AGREEMENT THIS AGREEMENT is effective as of January 3, 1996, by and between RAYCHEM CORPORATION, a corporation organized and existing under and by virtue of the laws of the State of Delaware, having a place of business at 300 Constitution Drive, Menlo Park, California 94025 (hereinafter "RAYCHEM"), and Harry O. Postlewait of Palo Alto, California (hereinafter "CONSULTANT"). NOW, THEREFORE, for and in consideration of the mutual covenants and obligations assumed by the parties hereto, it is agreed as follows: 1. CONSULTANT, pursuant to the provisions of this Agreement, is retained to perform services as reasonably requested from time to time by RAYCHEM, at such place or places and at such times as shall be mutually agreeable. The services shall be carried out at the direction of Richard A. Kashnow or his designee. 2. As full and complete compensation for CONSULTANT's services and also for the discharge of CONSULTANT's joint and several obligations hereunder, RAYCHEM shall pay CONSULTANT the consideration named in the Agreement and Release between the parties, to which this Agreement is attached as Exhibit 2 ("Agreement and Release"). A. RAYCHEM shall reimburse CONSULTANT for the expense of round trip tourist class transportation, hotels and meals, reasonably incurred by CONSULTANT in connection with any trip made by CONSULTANT at the request of RAYCHEM, that have been preapproved by Richard A. Kashnow or designee. B. RAYCHEM shall reimburse CONSULTANT for any other reasonable expenses actually incurred which are incidental to the services performed hereunder. Expenses exceeding One Hundred Dollars ($100.00) must be approved in advance by Richard A. Kashnow or designee. Payment of CONSULTANT's invoice shall be made by 3. CONSULTANT's relationship to RAYCHEM shall be that of an independent contractor and nothing in this Agreement shall be construed to create an employer-employee relationship. Since CONSULTANT will not be an employee of RAYCHEM, it is understood that CONSULTANT will not be entitled to any benefits under RAYCHEM's retirement, group insurance or medical plans or any other employee benefits except as expressly provided in the Agreement and Release. In the performance of all services hereunder CONSULTANT shall comply with all applicable laws and regulations. 4. RAYCHEM agrees that during the term of this Agreement, or any extension or renewal thereof, CONSULTANT may be employed by other persons, firms, or corporations. However, CONSULTANT recognizes the vital importance to RAYCHEM of the confidential status of any RAYCHEM proprietary information and in particular all 8 EXHIBIT 2 Professional Services Agreement Harry O. Postlewait RAYCHEM proprietary information pertaining to RAYCHEM. In any event, and in no way limited by the foregoing, CONSULTANT agrees that while obligated to perform services to RAYCHEM pursuant to this Agreement, CONSULTANT shall not, without the prior written consent of RAYCHEM, directly or indirectly, anywhere in the State of California, or in any other State of the United States or in any other country in which during such period business is conducted by RAYCHEM or substantial customers of RAYCHEM are located, enter into or engage in any activity which is in any way concerned with or competitive with the business interests, products, and/or technology of RAYCHEM. CONSULTANT further agrees that CONSULTANT shall not, either during the term of this Agreement and any extension thereof, or during a term expiring two (2) years after termination of this Agreement and any extension thereof, serve as an expert witness for, or advisor to any third party in connection with any litigation involving RAYCHEM without the express prior written consent of RAYCHEM. 5. CONSULTANT understands that RAYCHEM does not desire to acquire from CONSULTANT any secret or confidential know-how or information of CONSULTANT or which CONSULTANT has acquired or shall hereafter acquire from any third party. Accordingly, CONSULTANT represents and warrants that CONSULTANT is free to divulge to RAYCHEM, without any obligation to, or violation of any right of CONSULTANT or of others, any and all information, practices or techniques which CONSULTANT will describe, demonstrate, divulge, or in any other manner make known to RAYCHEM during CONSULTANT's performance of services hereunder. CONSULTANT hereby undertakes to exonerate, indemnify and hold harmless RAYCHEM from and against any and all liability, loss, cost, expense, damage, claims or demands for actual or alleged violation of the rights of CONSULTANT or of the rights of others whose secret or confidential know-how or information CONSULTANT has divulged to RAYCHEM in any trade secret, know-how or other confidential information by reason of RAYCHEM's receipt or use of the services or information described above, or otherwise in connection therewith. 6. As used in this Agreement, the term "Invention" means any and all discoveries, improvements, trade secrets, processes, techniques, copyrightable material, computer programs, formula, design and know-how, of any kind or nature, whether or not patentable, and whether or not related to RAYCHEM's business, and which are invented, conceived, discovered, developed or reduced to practice by CONSULTANT and which in any way result from or arise out of CONSULTANT's services hereunder and/or CONSULTANT's exposure to RAYCHEM's proprietary information. CONSULTANT agrees that CONSULTANT will promptly and fully disclose to RAYCHEM all Inventions. CONSULTANT also agrees to and hereby does assign to RAYCHEM all right, title and interest in and to all Inventions and CONSULTANT represents and warrants that CONSULTANT has no contractual or other obligations to any third party which preclude or in any way encumber CONSULTANT's right to assign to RAYCHEM the full and exclusive right, title and interest in and to any and all Inventions. It is further understood and agreed that all Inventions will be and remain the property of RAYCHEM whether or not disclosed, assigned or patented. 2 9 EXHIBIT 2 Professional Services Agreement Harry O. Postlewait CONSULTANT shall, if RAYCHEM shall so request, assist RAYCHEM in every proper way (entirely at the expense of RAYCHEM) to obtain for the sole benefit of RAYCHEM patents on Inventions in any and all countries. RAYCHEM shall compensate CONSULTANT at a reasonable rate for time actually spent by CONSULTANT at RAYCHEM's request on such assistance. The decision to file (or not to file) and/or continue to prosecute a patent application or applications on any Inventions shall be in RAYCHEM's sole discretion. 7. The parties hereto acknowledge that during the course of CONSULTANT's service to RAYCHEM pursuant to this Agreement it will be necessary or desirable for RAYCHEM to disclose to CONSULTANT significant RAYCHEM proprietary information. Any information imparted to RAYCHEM in confidence by a third party shall be deemed for purposes of this Agreement to constitute RAYCHEM proprietary information. CONSULTANT fully understands that the maintenance of RAYCHEM's proprietary information in strict confidence and the confinement of its use to RAYCHEM is of vital importance to RAYCHEM. CONSULTANT therefore agrees that all information and knowledge divulged to CONSULTANT by RAYCHEM or which CONSULTANT acquires in connection with or as a result of CONSULTANT's services hereunder shall be regarded and treated by CONSULTANT as confidential. Without limiting the generality of the foregoing, CONSULTANT recognizes that, unless and until published, all features of the materials, apparatus, process and application methods heretofore or hereafter used or developed by RAYCHEM shall be regarded and treated by CONSULTANT as a trade secret of RAYCHEM. CONSULTANT shall not use, nor shall CONSULTANT disclose, any such information or knowledge to any person either during or after the term of this Agreement, except only to those employees of RAYCHEM as may be necessary in the regular course of CONSULTANT's duties hereunder, or except as otherwise authorized in writing by RAYCHEM, unless such information or knowledge are, or become, publicly known through no act or omission of CONSULTANT. 8. CONSULTANT recognizes that all records and copies of records, drawings, models, apparatus, samples and the like which in any way relate to RAYCHEM's technology, operations, investigations and business, and which are made or received by CONSULTANT during the term of, or otherwise pursuant to, this Agreement are and shall remain the exclusive property of RAYCHEM. CONSULTANT shall keep such records and/or copies thereof at all times in CONSULTANT's custody and subject to CONSULTANT's control, and shall surrender the same to RAYCHEM immediately upon the request of RAYCHEM. 9. CONSULTANT hereby undertakes to exonerate RAYCHEM, its officers, agents and employees from and against any and all liability, loss, cost, damage, claims, demands for expenses of every kind on account of any injuries (including death) to CONSULTANT or loss of or damage to CONSULTANT's property arising out of or resulting in any manner from or occurring in connection with CONSULTANT's performance of services hereunder, except only if caused solely by the negligence of RAYCHEM or its servants or employees. 3 10 EXHIBIT 2 Professional Services Agreement Harry O. Postlewait 10. CONSULTANT shall not assign this Agreement or any part thereof without RAYCHEM's prior written consent, and any such purported assignment shall be void. This Agreement shall be binding on CONSULTANT's heirs, executors, legal representatives and permitted assigns and shall inure to the benefit of RAYCHEM's subsidiaries, successors and assigns. If any provision, paragraph, subparagraph, or clause, or any part thereof of this Agreement shall be found invalid or unenforceable under any applicable law or regulation, such provision, paragraph, subparagraph, or clause, or part thereof, shall be deemed inoperative and shall not affect the remainder of the Agreement and the Agreement shall be construed as if such invalid portion had never been included. 11. This Agreement shall be effective as of the date first written above and shall terminate on January 3, 1998. Either party shall have the right to terminate this Agreement subject to three (3) months prior written notice. This Agreement will be subject to renewal at RAYCHEM's option. Any act or omission by CONSULTANT constituting a material breach of this Agreement shall subject this Agreement to termination immediately by RAYCHEM for good cause and shall automatically suspend all RAYCHEM's obligations to perform hereunder so long as CONSULTANT is in breach hereof. This Agreement shall terminate automatically in the event of CONSULTANT's death or inability for any reason to perform the services contemplated herein. On termination of this Agreement, for any reason, RAYCHEM's obligation to pay any compensation, except for services or expenses already properly accrued or incurred, shall forthwith cease and terminate. Termination of this Agreement for any reason shall not affect CONSULTANT's obligations under Paragraphs 4 through 9, inclusive, hereof. CONSULTANT represents and warrants that CONSULTANT has or will promptly obtain an agreement containing provisions equivalent in all material respects to the provisions contained in Paragraphs 4 through 9, inclusive, hereof with all agents, employees or associates of CONSULTANT who will be in any way involved either with RAYCHEM proprietary information or otherwise in connection with the services being performed hereunder. The obligations undertaken by CONSULTANT pursuant to Paragraphs 4 through 9, inclusive, hereof shall extend to the subsidiaries and affiliates of RAYCHEM and to its predecessors and successors in interest. CONSULTANT shall have the right to terminate this Agreement in the event that RAYCHEM does not pay any invoice of CONSULTANT pursuant to terms of this Agreement. 12. Any notices or communications hereunder shall be effective only if in writing, addressed as follows: If to RAYCHEM: RAYCHEM CORPORATION Attn: Richard A. Kashnow 300 Constitution Drive Menlo Park, California 94024-1164 with a copy to: RAYCHEM CORPORATION Attn: Legal Department 4 11 EXHIBIT 2 Professional Services Agreement Harry O. Postlewait MS 120/8502 300 Constitution Drive Menlo Park, California 94024-1164 If to CONSULTANT: Harry Postlewait (Home address deleted) 13. This Agreement has been negotiated, executed and delivered in the State of California. The parties hereto agree that all questions pertaining to the validity and interpretation of this Agreement shall be determined in accordance with the laws of the State of California. 14. This Agreement, together with the Agreement and Release, is the entire contract of the parties and supersedes any prior agreements between the parties. Any changes in or modifications of this Agreement shall be effective only if in writing and signed by the parties hereto. CONSULTANT represents that in entering into this Agreement, CONSULTANT has not relied on any previous oral or implied representations, inducements or understandings of any kind or nature whatsoever. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the day and year written on the first page hereof. RAYCHEM CORPORATION by: /s/ Richard A. Kashnow ------------------------------- Richard A. Kashnow Title: President ------------------------------- Date: Dec. 13, 1995 ------------------------------- CONSULTANT by: /s/ Harry O. Postlewait ------------------------------- Harry Postlewait Social Security No.: (Social security no. deleted) ------------------------------- Date: 13 Dec 95 ------------------------------- Department/Account to charge: 7815/53180001 Approved as to legal form Atty: CMB 5 12 EXHIBIT 3 January 2, 1996 Harry O. and Sandra A. Postlewait (Home address deleted) Re: Amendment to Loan Agreement Dear Harry and Sandra: This letter will confirm our agreement to amend the Loan Agreement dated June 28, 1993 between you and Raychem Corporation. The biweekly principal repayment in Section 1(a) of the Loan Agreement will be changed from $1,000 to $2,000 beginning January 12, 1996. As of the date of this letter, $194,414 of the principal is outstanding. In addition, there is currently accrued but unpaid interest of $2,333.09. On the first date that the principal loan balance is reduced to $100,000, Raychem Corporation hereby agrees to forgive the remaining balance. This event will be reported as wage income to federal and state taxing authorities on Harry's W-2 for the calendar year in which it occurs. This letter supersedes the requirement in Section 1(e) of the Loan Agreement to repay the loan within 120 days after termination of Harry's employment. Sections 3(b)(i) and 6(d) of the Loan Agreement are deleted. Termination of employment shall also be eliminated from Sections 2(c) and 4(c) of the Promissory Note to the extent that these sections accelerate your obligation to repay the loan. All of the terms of the Loan Agreement not expressly modified by this letter remain in full force and effect. Please indicate your agreement and acceptance of this Amendment to the Loan Agreement by signing below. Very truly yours, RAYCHEM CORPORATION /s/ Bob Vizas Robert J. Vizas Vice President and General Counsel Agreed: BORROWER /s/ Harry O. Postlewait - ------------------------- Harry O. Postlewait /s/ Sandra A. Postlewait - ------------------------- Sandra A. Postlewait EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000082206 RAYCHEM CORPORATION 1000 U.S. DOLLARS 6-MOS JUN-30-1996 JUL-01-1995 DEC-31-1995 1 168990 0 312089 10644 233583 812447 1133599 613281 1451862 291392 242143 0 0 44493 746122 1451862 820555 821566 390645 391575 60555 546 6016 80751 23219 57532 0 0 0 57532 $1.27 0
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