-----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, IMg2T5pCOdV90DdsYCK25FwGvf4W8JqsL+zJTqHWSjY5Opyli5T9c7nmIq+/p++Y I+dH3xvCvVslSkd+knlx9g== 0000891618-95-000273.txt : 19950517 0000891618-95-000273.hdr.sgml : 19950516 ACCESSION NUMBER: 0000891618-95-000273 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NYSE 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: 95537523 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 RAYCHEM CORPORATION 10-Q ENDING 3/31/95 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 MARCH 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) 361-4180 (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 April 28, 1995, the registrant had outstanding 43,897,574 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 Nine Months Ended March 31, 1995 and 1994 1 Consolidated Condensed Balance Sheets - March 31, 1995, and June 30, 1994 2 Consolidated Condensed Statements of Cash Flows - Nine Months Ended March 31, 1995 and 1994 3 Notes to Consolidated Condensed Financial Statements 4-10 Item 2: Management's Discussion and Analysis 11-20 of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1: Legal Proceedings 21 Item 5: Other Information 21 Item 6: Exhibits and Reports on Form 8-K 22 SIGNATURES 23
3 RAYCHEM CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, ----------------------------- ----------------------------- 1995* 1994 1995* 1994 ----------- ----------- ----------- ----------- Revenues $ 368,784 $ 361,278 $ 1,119,423 $ 1,070,545 Cost of goods sold 184,066 195,509 551,573 567,223 Research and development expense 29,700 31,757 85,677 100,677 Selling, distribution, and administrative expense 119,719 122,507 356,179 356,587 Provision for restructuring and divestitures - - 23,900 - Loss on formation of Ericsson Raynet joint venture and other Raynet items 931 - 32,231 - Equity in net losses of affiliated companies 10,953 79 48,269 756 Interest expense, net 2,799 3,215 10,366 9,263 Other expense, net 2,054 816 7,170 5,596 ----------- ----------- ----------- ----------- Income before income taxes, extraordinary item, and change in accounting principle 18,562 7,395 4,058 30,443 Provision for income taxes 7,666 6,329 21,491 21,310 ----------- ----------- ----------- ----------- Income (loss) before extraordinary item and change in accounting principle 10,896 1,066 (17,433) 9,133 Extraordinary item - loss related to early retirement of debt, net of $0 income taxes - - (6,318) - Cumulative effect of change in accounting principle, net of $0 income taxes - - (1,477) - ----------- ----------- ----------- ----------- Net income (loss) $ 10,896 1,066 $ (25,228) $ 9,133 =========== =========== =========== =========== Average number of common shares and equivalents outstanding 44,434,345 43,438,898 43,477,582 43,188,841 =========== =========== =========== =========== Earnings (loss) per common share: Income (loss) before extraordinary item and change in accounting principle $ 0.25 $ 0.02 (0.40) $ 0.21 Extraordinary item - - (0.15) - Change in accounting principle - - (0.03) - ----------- ----------- ----------- ----------- Net income (loss) $ 0.25 $ 0.02 (0.58) $ 0.21 =========== =========== =========== =========== Dividends per common share $ 0.08 $ 0.08 0.24 $ 0.24 =========== =========== =========== ===========
*Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. See accompanying notes to consolidated condensed financial statements. 1 4 RAYCHEM CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED) MARCH 31, 1995* June 30, 1994 --------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 144,808 $ 78,090 Accounts receivable, net 286,898 312,624 Inventories: Raw materials 82,491 99,129 Work in process 52,477 55,406 Finished goods 104,663 93,254 ----------- ----------- Total inventories 239,631 247,789 Prepaid taxes 40,589 40,014 Other current assets 85,048 57,425 ----------- ----------- Total current assets 796,974 735,942 Property, plant, and equipment 1,148,498 1,110,695 Less accumulated depreciation and amortization 619,390 576,216 ----------- ----------- Net property, plant, and equipment 529,108 534,479 Other assets 114,516 128,594 ----------- ----------- TOTAL ASSETS $ 1,440,598 $ 1,399,015 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 26,217 $ 26,986 Accounts payable 62,152 83,136 Other accrued liabilities 182,637 184,573 Income taxes 17,805 25,515 Current maturities of long-term debt 1,435 3,881 ----------- ----------- Total current liabilities 290,246 324,091 Long-term debt 263,367 244,681 Deferred income taxes 29,370 27,433 Other long-term liabilities 93,628 65,625 Minority interest 4,587 4,261 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: 43,748,677 and 43,005,786 shares, respectively 43,749 43,006 Additional contributed capital 375,569 354,660 Retained earnings 282,191 319,905 Currency translation 62,395 16,077 Treasury Stock, at cost (95,899 shares) (3,839) - Notes receivable from sale of stock (665) (724) ----------- ----------- Total stockholders' equity 759,400 732,924 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,440,598 $ 1,399,015 =========== ===========
* Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. See accompanying notes to consolidated condensed financial statements. 2 5 RAYCHEM CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED MARCH 31 (IN THOUSANDS) 1995* 1994 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income $(25,228) $ 9,133 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Provision for restructuring and divestitures, net of payments 14,924 (4,106) Loss on formation of Ericsson Raynet joint venture 14,950 - Equity in net losses of affiliated companies 19,024 - Extraordinary loss from early retirement of debt (1,043) - Change in accounting principle 1,477 - Depreciation and amortization 50,413 61,113 Deferred income tax benefit (152) 199 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 3,835 (35,048) Inventories (6,627) (27,902) Accounts payable and accrued liabilities (15,042) 10,469 Income taxes (800) 13,308 Other assets and liabilities 24,842 (6,084) ---------- ---------- Net cash provided by operating activities 80,573 21,082 ---------- ---------- Cash flows from investing activities: Investment in property, plant, and equipment (69,627) (73,524) Disposition of property, plant, and equipment 6,755 7,297 Proceeds from sale of specified Raynet assets 40,000 - Advances to Ericsson Raynet (12,451) - Cost of acquisition, net of cash acquired (3,930) - Purchase of investment (1,000) - ---------- ---------- Net cash used in investing activities (40,253) (66,227) ---------- ---------- Cash flows from financing activities: Net proceeds from (payment of) short-term debt 3,149 (5,454) Proceeds from long-term debt 225,498 17,022 Payments of long-term debt (212,427) (1,755) Common Stock issued under employee benefit plans 30,736 26,826 Common stock repurchased (15,192) - Proceeds from repayments of stockholder notes receivable 294 162 Cash dividends (10,452) (10,185) ---------- ---------- Net cash provided by financing activities 21,606 26,616 Effect of exchange rate changes on cash ---------- ---------- and cash equivalents 4,792 (1,137) ---------- ---------- Increase (decrease) in cash and cash equivalents 66,718 (19,666) Cash and cash equivalents at beginning of period 78,090 133,946 ---------- ---------- Cash and cash equivalents at end of period $ 144,808 $ 114,280 ========== ========== SUPPLEMENTAL DISCLOSURES Cash paid for: Interest (net of amounts capitalized) $ 20,812 $ 17,714 Income taxes (net of refunds) 18,443 4,469
* Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. 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 nine months ended March 31, 1995 and 1994, the financial position as of March 31, 1995 and the cash flows for the nine months ended March 31, 1995 and 1994. The June 30, 1994 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, 1994. Certain prior-period amounts have been reclassified to conform with the fiscal 1995 financial statement presentation. Results for the three and nine months ended March 31, 1995, include the results of Raynet Corporation and subsidiaries through November 16, 1994, and the results of Ericsson Raynet from November 17, 1994, through March 31, 1995, on the equity basis of accounting. BUSINESS SEGMENTS Revenues and operating income (loss) by business segment are as follows:
In thousands --------------------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, ------------------------------------ ----------------------------------- 1995* 1994 1995* 1994 -------------- -------------- ---------------- ------------ Revenues Electronics $ 156,463 $ 130,384 $ 441,453 $ 384,464 Industrial 115,766 114,903 368,186 336,252 Telecommunications 96,555 101,762 309,784 326,297 Raynet - 14,229 - 23,532 ------------- ------------- --------------- ----------- Total revenues $ 368,784 $ 361,278 $ 1,119,423 $ 1,070,545 ============= ============= =============== =========== Operating income (loss) before provision for restructuring and loss on formation of JV and other Raynet items Electronics $ 25,504 $ 19,416 $ 72,572 $ 66,040 Industrial 17,500 20,502 69,041 58,413 Telecommunications 13,766 16,759 47,475 66,900 Raynet - (23,350) - (80,903) Corporate (21,471) (21,822) (63,094) (64,392) ------------- ------------- --------------- ----------- Total operating income $ 35,299 $ 11,505 $ 125,994 $ 46,058 ============= ============= =============== ============
4 7 Operating income (loss) including provision for restructuring and loss on formation of JV and other Raynet items Electronics $ 25,504 $ 19,416 $ 72,572 $ 66,040 Industrial 17,500 20,502 69,041 58,413 Telecommunications 13,766 16,759 23,575 66,900 Raynet (931) (23,350) (32,231) (80,903) Corporate (21,471) (21,822) (63,094) (64,392) ------------- ------------- --------------- ---------------- Total operating income $ 34,368 $ 11,505 $ 69,863 $ 46,058 ============= ============= =============== ================
*Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. CHANGE IN ACCOUNTING PRINCIPLE The company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112), effective July 1, 1994. This statement changes the method of accounting for certain postemployment benefits from a cash basis to an accrual basis. Adoption of FAS 112 resulted in a one-time adjustment of $1.5 million for the nine months ended March 31, 1995, to reflect the cumulative amount that would have been accrued had the statement been in effect in prior years. EXTRAORDINARY ITEM - LOSS FROM EARLY RETIREMENT OF DEBT On November 1, 1994, the company prepaid the holders of its 9.55% privately placed senior notes. Accordingly, the company recorded an extraordinary loss of $6.3 million for the early retirement of debt. The extraordinary loss was comprised of a $7.3 million prepayment penalty and deferred debt issuance costs of $0.5 million, net of a $1.5 million deferred gain resulting from the termination of a related interest rate swap agreement. RECENT ACCOUNTING STANDARDS SFAS NO. 119 In October 1994, the Financial Accounting Standards Board issued Statement No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments," which the company adopted in the second quarter of 1995. Currently, the company is not a party to any interest rate risk management transactions. The company does not engage in foreign currency speculative transactions. The company has written policies that place all foreign currency forward and option transactions under the direction of corporate treasury and that restrict all derivative transactions to those intended for hedging purposes. The company operates in more than 40 countries worldwide, with in excess of sixty percent of its revenues occurring outside the United States. The company attempts to limit its exposure to changing foreign currency exchange rates through both operational and financial market actions. The company manufactures its products in a number of locations around the world, and hence has a cost base that is well diversified over a number of European and Asian currencies as well as the U.S. dollar. This diverse base of local currency costs serves to counterbalance the income effect of potential changes in the value of the company's local currency denominated revenues. Also, the company denominates its third-party export sales in the currency of the selling Raychem entity, whenever possible. 5 8 Short-term exposures to changing foreign currency exchange rates are managed by financial market transactions, principally through the purchase of forward exchange contracts (with maturities usually less than three months) to hedge the non-functional currency denominated receivables and payables of the company's operating units. The related gains and losses are included in "other expense, net," as they arise. For the three- and nine-month periods ended March 31, 1995, gains and losses from forward exchange contracts used to hedge receivables and payables totaled $0.4 million loss and $4.7 million gain, respectively. During these periods the company incurred total foreign exchange transaction losses of $0.9 million and $4.4 million, respectively. The total amount of exposure hedged as at March 31, 1995, was $130 million, reflecting hedging for trade and intercompany receivables, payables, 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. Exposures, at March 31, 1995, included $7.4 million in net intercompany payables in non-functional currencies and $4.1 million of net monetary assets in foreign countries with the U.S. dollar as functional currency. The company periodically enters into forward exchange contracts to hedge a portion of its foreign equity. The gains and losses on these contracts are included in "stockholders' equity." SFAS NO. 121 In March 1995, the Financial Accounting Standards Board 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 fiscal 1996. The company has not yet fully determined the impact of adoption, if any, on the company's results of operations or financial condition. RESTRUCTURING AND DIVESTITURES On October 11, 1994, the company announced a major restructuring of its telecommunications business segment. As a result, the company recorded a pretax charge of $24 million for restructuring and divestitures in the first quarter of 1995. The segment's restructuring charge included $13 million for severance costs related to a net workforce reduction of 340 employees, resulting from the closure of telecommunications' manufacturing operations in Germany and the restructuring of its North American activities. The remaining charge of $11 million related to plant consolidations and the shutdown of unprofitable product lines. RAYNET On November 16, 1994, the company and L M Ericsson (Ericsson), a Swedish telecommunications company, formed a joint venture for the development, manufacture, and marketing of fiber-optic communications systems for telephone access networks worldwide. The joint venture, called "Ericsson Raynet," has taken over and is continuing the operations of the company's Raynet subsidiary, and is headquartered in Menlo Park, 6 9 California. Ericsson Raynet has been organized as a partnership under Delaware law; the company's Raynet subsidiary holds the company's interest in the joint venture. Ericsson representatives constitute a majority of the Board of Managers of the joint venture. In forming the joint venture, Raychem sold certain specified assets of its Raynet subsidiary to Ericsson in exchange for $40 million. Ericsson contributed the purchased assets to the joint venture, and Raynet contributed substantially all of its remaining assets and liabilities to the joint venture. Funding of the joint venture will initially be provided by the partners, generally 51% by Ericsson and 49% by Raynet, subject to Ericsson's loss allocation limit described below. During the first five to eight years of operation, subject to various conditions, substantially all of the profits of the joint venture up to $156 million will be allocated to Raynet; thereafter, profits of the joint venture will be shared 51/49 by Ericsson and Raynet, respectively. Ericsson's share of the joint venture's losses will be capped at $25 million for the fiscal year ending June 30, 1995. During the fiscal year ending June 30, 1996, up to $19.6 million of losses will be allocated to Ericsson and Raynet in a 51/49 ratio; additional losses, if any, of up to $10 million will be allocated 100% to Raynet; and additional losses, if any, will again be allocated to Ericsson and Raynet in a 51/49 ratio. 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 paid BSE $10 million in 1994, and is required to make two additional payments of $10 million each over the next two calendar years. Raychem has agreed to make other royalty payments to BSE contingent upon the revenues and earnings performance of the joint venture. At such time as the joint venture achieves profitability, these royalty payments could approximate 36% of Raychem's distributions from the joint venture. Ericsson has a right to purchase Raynet's interest in the joint venture at a fixed price for a limited period beginning November 16, 1996; and Ericsson and Raynet have call and put rights, respectively, on Raynet's interest in the joint venture exercisable at fair market value at any time after July 1, 1999. If any of these options are exercised, Raychem has agreed to pay BSE a portion of the purchase price received. The company's loss resulting from these transactions, a pre-tax charge of $28 million, is included in the line item "Loss on formation of Ericsson Raynet joint venture and other Raynet items" in the accompanying Statement of Operations for the nine months ended March 31, 1995. For purposes of recording its loss, the company has discounted its obligations to BSE to their present value using a 7.97% discount rate. On January 2, 1995, the company entered into a revolving credit agreement with its Ericsson Raynet joint venture. The company committed 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. The credit agreement stipulates that borrowings under the agreement will be interest-free, and imposes no covenants or restrictions on the joint venture's operations. Ericsson has also entered into a similar agreement with the joint venture. At March 31, 1995, Ericsson Raynet has borrowed $12 million from the company under the revolving credit agreement, which amount is included in "Other current assets." 7 10 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 Nine Months Ended March 31, March 31, ---------------------------- ------------------------- 1995(a) 1994(c) 1995(a) 1994(c) --------- --------- --------- --------- Revenues $ 11,560 $ 14,229 $ 41,075 $ 23,532 ========= ========= ========= ========= Gross profit (loss) $ (4,939) $ (5,894) $ (13,898) $ (22,336) Research and development expense 11,324 8,785 31,970 30,493 Selling, distribution, and administrative expense 9,767 8,671 29,393 28,074 Interest and other (income) expense (1,496) 490 (587) 2,310 --------- --------- --------- --------- Pretax loss $ (24,534) $ (23,840) $ (74,674) $ (83,213) ========= ========= ========= ========= Raychem's equity in loss $ (11,466)(b) $ (23,840) $ (49,674)(b) $ (83,213) ========= ========= ========= ========= (Unaudited) March 31, June 30, 1995(d) 1994(c) ------------ ------------ Current assets $ 50,628 $ 70,120 Non-current assets 35,903 39,424 Current liabilities $ 68,442 $ 55,532 Non-current liabilities 344 -
(a) Results for the three and nine months ended March 31, 1995, include the results of Raynet Corporation and subsidiaries through November 16, 1994, and the results of Ericsson Raynet from November 17, 1994, through March 31, 1995. (b) The joint venture agreement specifies varying profit and loss allocations to its partners as more fully described in the "Raynet" footnote above. Raychem's equity in loss includes the results of Raynet Corporation and subsidiaries through November 16, 1994, and Raychem's allocation of the results of Ericsson Raynet from November 17, 1994, through March 31, 1995. (c) Results for the three and nine months ended March 31, 1994, and the balances as of June 30, 1994, are those of Raynet Corporation and subsidiaries as previously reported. (d) Balances as of March 31, 1995, are those of Ericsson Raynet. Raychem's interest in Ericsson Raynet is reflected as an equity investment. 8 11 DEBT STRUCTURE On September 29, 1994, the company entered into syndicated loan agreements providing for a five-year partially amortizing term loan of $225 million, and a renewable 364-day revolving credit facility of $200 million. Interest on the term loan and revolving credit facility are at variable rates. The term loan requires quarterly principal payments of $15 million beginning December 31, 1996, increasing to $17.5 million from December 31, 1997, and to $20 million from December 31, 1998, with a final payment of $35 million due September 29, 1999. Proceeds from the term loan were drawn on November 1, 1994, and used to retire the 9.55% privately placed senior notes and for general corporate purposes, while the revolving credit facility replaced existing committed credit facilities. The new agreement includes covenants which, among other things, specify a minimum net worth requirement, a maximum leverage limit, a minimum fixed charge coverage ratio, a dividend restriction, and limits on further advances to fund Raynet operations. 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. The company has repurchased 400,000 shares, and subsequently reissued 304,101 shares, leaving 95,899 shares in treasury stock at March 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 currently is conducting such investigation 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. 9 12 SUBSEQUENT EVENTS On April 17, 1995, the company's Board of Directors declared a quarterly cash dividend of $0.08 per share of Common Stock, payable on June 14, 1995, to stockholders of record as of May 17, 1995. On May 3, 1995, Johnson & Johnson, in a tax-free reorganization, acquired all of the outstanding common stock of Menlo Care, Inc., a company in which Raychem held a minority interest. This transaction resulted in a pretax gain of $5 million. As proceeds from the transaction, the company received cash and 96,423 shares of Johnson & Johnson common stock valued on the closing date at approximately $6 million. In connection with the transaction, the company agreed that it had no present plan or intention to sell more than 60% of the stock received. 10 13 RAYCHEM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW The company reported third quarter 1995 net income of $11 million, or $0.25 per share, versus net income of $1 million, or $0.02 per share, in the third quarter of 1994. Revenues increased to $369 million in the third quarter of 1995 from $361 million in the comparable prior-year period, which included $14 million in revenues from Raynet. While reported growth was 2%, revenues were down 3% 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 nine months ended March 31, 1995, net loss was $25 million, or $0.58 per share, compared to net income of $9 million, or $0.21 per share, for the year-ago period. Revenues for the nine months ended March 31, 1995, increased to $1.119 billion, up 1% over the prior-year period on a constant currency basis. Raychem's equity in net losses of affiliated companies for the three and nine months ended March 31, 1995, includes the results of Raynet Corporation and subsidiaries through November 16, 1994, and Raychem's allocation of the results of Ericsson Raynet from November 17, 1994, through March 31, 1995. During the quarter, Ericsson reached its previously announced joint venture loss allocation limit for fiscal 1995, and consequently, losses incurred in the fourth quarter by Ericsson Raynet will be borne exclusively by Raychem. Excluding the effect of Raynet, Raychem's "ongoing" pretax income for the three months ended March 31, 1995, was $31 million, unchanged from the year-ago quarter. Raynet's pretax loss for the quarter was $12 million, which was primarily attributable to Raychem's equity in loss allocated from Ericsson Raynet, compared with a $24 million loss in the previous year's third quarter when Raynet was a wholly owned Raychem subsidiary. Pretax income for the nine months ended March 31, 1995, included a $24 million provision for restructuring of the telecommunications business segment and a Raynet pretax loss of $82 million, comprised of a $28 million loss on formation of the Ericsson Raynet joint venture, equity in loss of $50 million and $4 million of other Raynet items. Raychem's results are summarized as follows:
- -------------------------------------------------------------------------------------------------------- PRETAX INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGE Three Months Ended Nine Months Ended IN ACCOUNTING PRINCIPLE March 31, March 31, (in millions) 1995 1994 1995 1994 - -------------------------------------------------------------------------------------------------------- Core business: "Ongoing" pretax income $ 31 $ 31 $110 $113 Provision for restructuring and divestitures - - (24) - ------------------------------------------------------------ Core business pretax income 31 31 86 113 Raynet pretax loss (12) (24) (82) (83) ------------------------------------------------------------ Consolidated $ 19 $ 7 $ 4 $ 30 ============================================================
11 14 The estimated annual effective income tax rate for the core business (which does not include any Raynet related losses) was 25% for the three and nine months ended March 31, 1995, a result of profitable core non-U.S. operations. Substantially all of the Raynet related losses are incurred in the U.S. and no U.S. tax benefit is recorded since management believes sufficient uncertainty exists regarding the realizability of the benefit. The results for the nine months ended March 31, 1995, include an extraordinary loss of $6.3 million, 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 in the first quarter, effective July 1, 1994, Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112). The cumulative effect of this accounting change (a charge of $1.5 million, or $0.03 per share) has been reflected in the results for the nine months ended March 31, 1995. The following discussion of the results of operations is presented 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 included on pages 18 through 20 supplement the discussion. CORE BUSINESS OPERATIONS Core business revenues for the third quarter of 1995 increased to $369 million from $347 million in the prior-year period. Revenue growth was 1% on a constant currency basis. Revenues for the nine months ended March 31, 1995, were $1.119 billion compared to $1.047 billion in the comparable prior-year period, a constant currency increase of 3%. Revenues in the electronics business segment were $156 million in the third quarter of 1995 compared to $130 million in the prior-year period, a 15% constant currency increase over the prior-year quarter. Revenues improved in most areas of the segment, led by continuing strong growth in the PolySwitch division. The PolySwitch division decreased its prices substantially compared to the prior year while sales increased in all geographic regions. In addition, Elo TouchSystems experienced strong U.S. growth as a result of large contracts with major equipment manufacturers that are deploying new point-of-sale systems. Incoming orders during the quarter were greater than shipments for the segment. Operating income grew to $26 million from $19 million a year ago reflecting increased sales volume and improved gross profit. Revenues for the nine months ended March 31, 1995, were $441 million versus $384 million in the comparable prior-year period. Operating income for the nine months ended March 31, 1995, increased to $73 million from $66 million in the comparable prior-year period. Revenues in the industrial business segment for the three months ended March 31, 1995, were $116 million, up slightly from $115 million, but down 5% on a constant currency basis over the prior-year quarter. Increased revenues in the Electrical Products (EPD) and Chemelex divisions were mostly offset by sales declines in the Ultratec division, which had benefited in the year-ago quarter from major pipeline projects. Incoming orders in the third quarter were greater than shipments for the industrial business segment. Operating income decreased to $18 million from $21 million a year ago reflecting declining gross margins in the Chemelex division and sales declines in the Ultratec division, which more than offset improved profitability in EPD. Revenues for the nine months ended March 31, 1995, were $368 million versus $336 million in the comparable prior-year period. Operating income 12 15 was $69 million, $11 million higher than the comparable prior-year period reflecting the improved gross profit percentage in the segment and higher revenues in the EPD and Chemelex divisions, partially offset by weakness in the Ultratec division due to a lack of pipeline construction projects worldwide. Revenues in the telecommunications business segment decreased to $97 million from $102 million in the third quarter of the prior year, a 9% decrease in constant currency terms from the prior-year quarter. Revenues were up in North America, but down in Europe and Asia, and approximately unchanged in Latin America versus the year-ago quarter. Orders received in the third quarter of 1995 exceeded shipments in each geographic region. Operating income was $14 million versus $17 million in the year-ago quarter due to lower profits from sales declines which more than offset cost savings from previously announced restructurings. Revenues for the nine months ended March 31, 1995, were $310 million compared to $326 million in the comparable prior-year period. Excluding the previously described restructuring charge, operating income declined $19 million to $47 million for the nine months ended March 31, 1995, due to lower sales, declining margins, and higher operating expenses. Fiscal 1995 revenues for the telecommunications business segment will be lower than the prior year resulting from a general market shift away from the copper telephony network and a decline in Asian and Latin American sales. While the company is introducing new products into other market segments of the outside plant network, sales of these new products, which carry lower margins, are not yet sufficient to offset the decline in sales of copper closures. This decline in sales and adverse product mix is expected to offset restructuring savings so that telecommunications' fiscal 1995 profitability will be lower than the prior year. PROVISION FOR RESTRUCTURING AND DIVESTITURES On October 11, 1994, the company announced a major restructuring of its telecommunications business segment. As a result, the core business incurred a pretax charge of $24 million for restructuring and divestitures in the first quarter of 1995. The segment's restructuring charge included $13 million for severance costs related to a net workforce reduction of 340 employees, resulting from the closure of telecommunications' manufacturing operations in Germany and the restructuring of its North American activities. The remaining charge of $11 million related to plant consolidations and the shutdown of unprofitable product lines. The restructuring is expected to be substantially complete by June 30, 1995, and will result in approximately $24 million of annualized savings, of which $9 million of savings is expected in fiscal 1995. Substantially all of the savings are cash related. The following table sets forth the company's restructuring charge for the nine-month period ended March 31, 1995. All charges, excluding asset writedowns, are cash in nature and are expected to be substantially incurred in fiscal year 1995 and funded through operating cash flow. 13 16
Provision for Restructuring and Divestitures -------------------------------------------------------- Employee Asset Severance Writedowns Leases Other Total --------- ---------- ------ ----- ----- (in millions) 1995 Provision: Telecommunications: Employee severance $13 $- $- $- $13 Assets to be sold - 5 - 1 6 Discontinued product inventory - 3 - - 3 Vacated buildings - - 1 - 1 Other - - - 1 1 ---------------------------------------------------- Total 1995 Provision $13 $8 $1 $2 $24 ====================================================
The company has implemented a number of programs over the past three years to restructure the core business. Reserves which were established in prior fiscal years have largely been used, and the remaining balances, if any, are immaterial. The following table sets forth the company's 1995 telecommunications restructuring reserves for the nine-month period ended March 31, 1995:
Restructuring Reserves --------------------------------------------------------- Employee Asset Severance Writedowns Leases Other Total --------- ---------- ------ ----- ----- (in millions) Reserve Balances, July 1, 1994: $ - $ - $- $ - $ - 1995 provision 13 8 1 2 24 -------------------------------------------------------- Reserve Balances, September 30, 1994: 13 8 1 2 24 Cash payments (1) - - - (1) Non-cash items - (8) - - (8) -------------------------------------------------------- Reserve Balances, December 31, 1994: $12 $ - $1 $ 2 $15 Cash payments (3) - - (2) (5) -------------------------------------------------------- Reserve Balances, March 31, 1995: $ 9 $ - $1 $ - $10 ========================================================
Following the telecommunications restructuring announcement in the first quarter, 270 employees have separated from the company as of March 31, 1995, although severance will not be paid until the end of their respective notice periods. EXTRAORDINARY ITEM - LOSS FROM EARLY RETIREMENT OF DEBT On November 1, 1994, the company prepaid the holders of its 9.55% privately placed senior notes. Accordingly, the company recorded an extraordinary loss for the nine months ended March 31, 1995, of $6.3 million for the early retirement of debt. The extraordinary loss is comprised of a $7.3 million prepayment penalty and deferred debt issuance costs of $0.5 million, net of a $1.5 million deferred gain resulting from the termination of a related interest rate swap agreement. CHANGE IN ACCOUNTING PRINCIPLE The company adopted FAS 112 effective July 1, 1994. This statement changes the method of accounting for certain postemployment benefits from a cash basis to an accrual basis. Adoption of FAS 112 resulted in a one-time adjustment of $1.5 million for the nine 14 17 months ended March 31, 1995, to reflect the cumulative amount that would have been accrued had the statement been in effect in prior years. RECENT ACCOUNTING STANDARDS In October 1994, the Financial Accounting Standards Board issued Statement No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments," which the company adopted in the second quarter. For required disclosures, see "Recent Accounting Standards - SFAS No. 119" in the notes to the consolidated condensed financial statements. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For a description of the statement, see "Recent Accounting Standards - SFAS No. 121" in the notes to the consolidated condensed financial statements. The statement must be adopted by the first quarter of fiscal 1996. The company has not yet fully determined the impact of adoption, if any, on the company's results of operations or financial condition. RAYNET OPERATIONS The pretax loss attributable to Raynet was $12 million for the third quarter of 1995. The loss was primarily attributable to Raychem's equity in loss allocated from Ericsson Raynet. The joint venture agreement provides that Ericsson's share of the joint venture's losses will be capped at $25 million for the fiscal year ending June 30, 1995. Ericsson reached this loss allocation limit in the third quarter and, consequently, losses incurred in the fourth quarter of fiscal 1995 by Ericsson Raynet will be borne exclusively by Raychem. Raynet was consolidated in the previous year's third quarter when it was a wholly owned Raychem subsidiary and reported revenues of $14 million and a pretax loss of $24 million. Pretax loss of $82 million for the nine months ended March 31, 1995, includes a $28 million loss on formation of the Ericsson Raynet joint venture (see below), equity in loss of $50 million, and $4 million of other Raynet items. Revenues in the comparable prior-year period were $24 million and pretax loss was $83 million. For selected financial data on Ericsson Raynet, see "Investments" in the notes to the consolidated condensed financial statements. LOSS ON FORMATION OF ERICSSON RAYNET JOINT VENTURE The company has recorded a pre-tax charge of $28 million for the nine months ended March 31, 1995, resulting from transactions relating to the formation of the Ericsson Raynet joint venture. This amount was previously presented as a core business item, but has been reclassified to Raynet in the condensed consolidating financial statements to conform to the current presentation. For details on the loss, see "Raynet" in the notes to the consolidated condensed financial statements. OUTLOOK As described earlier, fiscal 1995 revenues for the telecommunications business segment will be lower than the prior year resulting from a general market shift away from the copper telephony network and a decline in Asian and Latin American sales. While the company is introducing new products into other market segments of the outside plant network, sales of these new products, which carry lower margins, are not yet sufficient to offset the decline in sales of copper closures. This decline in sales and adverse product mix is expected to offset restructuring savings so that telecommunications' fiscal 1995 profitability will be lower than the prior year. In addition, Ultratec revenues and profitability are expected to be 15 18 lower in 1995 as compared to the prior year. The company continues to review business conditions closely and may take further actions to lower costs and headcount in certain of its businesses. Overall, the company is cautious about sales growth in the core business, in constant currency terms, for the remainder of fiscal 1995. In recent weeks, supplies of certain raw materials used by the company have been tightening which has resulted in some instances of increasing prices and the potential for future shortages. In response, the company has identified alternative materials which are currently undergoing qualification testing. To date, there has been no disruption to manufacturing and the impact of raw material price increases has been immaterial. LIQUIDITY AND CAPITAL RESOURCES CONSOLIDATED Debt exceeded cash by $146 million at March 31, 1995, compared to $197 million at June 30, 1994. Debt net of cash decreased $51 million in the first nine months of 1995, compared to an increase in debt net of cash of $25 million in the first nine months of 1994. The decrease in debt net of cash is principally due to cash proceeds from the Ericsson Raynet joint venture transaction and improved cash flow from operations. In addition, in accordance with the joint venture agreement, the parties completed their initial funding of the joint venture which resulted in Raychem receiving $17 million of amounts previously advanced to fund Raynet's operations. On September 29, 1994, the company entered into syndicated loan agreements providing for a five-year partially amortizing term loan of $225 million, and a renewable 364-day revolving credit facility of $200 million. Interest on the term loan and revolving credit facility are at variable rates. The term loan requires quarterly principal payments of $15 million beginning December 31, 1996, increasing to $17.5 million from December 31, 1997, and to $20 million from December 31, 1998, with a final payment of $35 million due September 29, 1999. Proceeds from the term loan were drawn on November 1, 1994, and used to retire the 9.55% privately placed senior notes and for general corporate purposes, while the revolving credit facility replaced existing committed credit facilities. The new agreement includes covenants which, among other things, specify a minimum net worth requirement, a maximum leverage limit, a minimum fixed charge coverage ratio, a dividend restriction, and limits on further advances to fund Raynet operations. 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. The company has repurchased 400,000 shares at a cost of $15 million, and subsequently reissued 304,101 shares through March 31, 1995. On January 2, 1995, the company entered into a revolving credit agreement with its Ericsson Raynet joint venture. The company committed 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. The credit agreement stipulates that borrowings under the arrangement will be interest-free, and imposes no covenants or restrictions on the joint venture's operations. Ericsson has also entered into a similar agreement with the joint venture. At March 31, 1995, Ericsson Raynet has borrowed $12 million from the company under the revolving credit agreement, which amount is included in "Other current assets." During the third quarter of fiscal 1995, IQ2000 Automation GmbH, a value-added distributor of touchscreen systems in Germany, was purchased for $4 million cash to strengthen Elo TouchSystems' capabilities and market share in Europe. 16 19 At March 31, 1995, the company had $145 million in cash and cash equivalents, $240 million in committed credit facilities (of which $2 million was utilized) and approximately $183 million in various uncommitted credit facilities (of which $41 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, Ericsson Raynet funding requirements, scheduled debt repayments, and anticipated dividends. CORE BUSINESS Inventory at March 31, 1995, as measured by the number of days of inventory on hand, was 114 days, unchanged from a year ago. Receivables, as measured by the number of billing days outstanding, decreased to 64 days at March 31, 1995, compared to 65 days a year earlier. Capital expenditures of $70 million in the nine months ended March 31, 1995, increased slightly from $66 million in the prior-year period. In the first quarter of 1994, the company received $4 million from the sale of a building in the United States. 17 20 RAYCHEM CORPORATION Condensed Consolidating Statements of Operations (In thousands)
THREE MONTHS ENDED MARCH 31 (UNAUDITED) ------------------------------------------------------------------------ CORE BUSINESS RAYNET CONSOLIDATED ---------------------- --------------------- -------------------- 1995* 1994 1995* 1994 1995* 1994 --------- -------- -------- -------- -------- -------- Revenues $ 368,784 $347,049 $ - $ 14,229 $368,784 $361,278 Cost of goods sold 184,066 175,386 - 20,123 184,066 195,509 Research and development expense 29,700 22,972 - 8,785 29,700 31,757 Selling, distribution, and administrative expense 119,719 113,836 - 8,671 119,719 122,507 Loss on formation of Ericsson Raynet joint venture and other Raynet items - - 931 - 931 Equity in net (earnings) losses of affiliated companies (513) 79 11,466 - 10,953 79 Interest expense, net 2,799 2,533 - 682 2,799 3,215 Other expense, net 2,054 1,008 - (192) 2,054 816 --------- -------- -------- -------- -------- -------- Income (loss) before income taxes 30,959 31,235 (12,397) (23,840) 18,562 7,395 Provision for income taxes 7,666 6,244 - 85 7,666 6,329 --------- -------- -------- -------- -------- -------- Net income (loss) $ 23,293 $ 24,991 $(12,397) $(23,925) $ 10,896 $ 1,066 ========= ======== ======== ======== ======== ========
NINE MONTHS ENDED MARCH 31 (UNAUDITED) ------------------------------------------------------------------------- CORE BUSINESS RAYNET CONSOLIDATED ------------------------ ------------------- ------------------------ 1995* 1994 1995* 1994 1995* 1994 ----------- ---------- -------- -------- ----------- ---------- Revenues $ 1,119,423 $1,047,013 $ - $ 23,532 $ 1,119,423 $1,070,545 Cost of goods sold 551,573 521,355 - 45,868 551,573 567,223 Research and development expense 85,677 70,184 - 30,493 85,677 100,677 Selling, distribution, and administrative expense 356,179 328,513 - 28,074 356,179 356,587 Provision for restructuring and divestitures 23,900 - - - 23,900 - Loss on formation of Ericsson Raynet joint venture and other Raynet items - - 32,231 - 32,231 - Equity in net (earnings) losses of affiliated companies (1,405) 756 49,674 - 48,269 756 Interest expense, net 10,366 7,091 - 2,172 10,366 9,263 Other expense, net 7,170 5,458 - 138 7,170 5,596 ----------- ---------- -------- -------- ----------- ---------- Income (loss) before income taxes, extraordinary item, and change in accounting principle 85,963 113,656 (81,905) (83,213) 4,058 30,443 Provision for income taxes 21,491 21,192 - 118 21,491 21,310 ----------- ---------- -------- -------- ----------- ---------- Income (loss) before extraordinary item and change in accounting principle 64,472 92,464 (81,905) (83,331) (17,433) 9,133 Extraordinary item - loss from early retirement of debt, net of $0 income taxes (6,318) - - - (6,318) - Cumulative effect of change in accounting principle, net of $0 income taxes (1,477) - - - (1,477) - ----------- ---------- -------- -------- ----------- ---------- Net income (loss) $ 56,677 $ 92,464 $(81,905) $(83,331) $ (25,228) $ 9,133 =========== ========== ======== ======== =========== ==========
* Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. 18 21 RAYCHEM CORPORATION Condensed Consolidating Balance Sheets (In thousands)
CORE BUSINESS RAYNET CONSOLIDATED ------------------------- ----------------------- ------------------------ (Unaudited) (Unaudited) (Unaudited) 3/31/95* 6/30/94 3/31/95* 6/30/94 3/31/95* 6/30/94** ---------- ----------- ----------- -------- ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 144,808 $ 75,384 $ - $ 2,706 $ 144,808 $ 78,090 Accounts receivable, net 286,898 275,904 - 36,720 286,898 312,624 Inventories 239,631 220,116 - 27,673 239,631 247,789 Other current assets 125,637 94,418 - 3,021 125,637 97,439 ---------- ----------- ----------- -------- ---------- ---------- Total current assets 796,974 665,822 - 70,120 796,974 735,942 ---------- ----------- ----------- -------- ---------- ---------- Net property, plant, and equipment 529,108 507,474 - 27,005 529,108 534,479 Other assets, including investment in Raynet 114,516 170,187 - 12,419 114,516 128,594 ---------- ----------- ----------- -------- ---------- ---------- TOTAL ASSETS $1,440,598 $ 1,343,483 $ - $109,544 $1,440,598 $1,399,015 ========== =========== =========== ======== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 26,217 $ 24,183 $ - $ 2,803 $ 26,217 $ 26,986 Intercompany accounts payable (receivable) - (12,532) - 12,532 - - Accounts payable 62,152 61,939 - 21,197 62,152 83,136 Other current liabilities 201,877 194,969 - 19,000 201,877 213,969 ---------- ----------- ----------- -------- ---------- ---------- Total current liabilities 290,246 268,559 - 55,532 290,246 324,091 ---------- ----------- ----------- -------- ---------- ---------- Long-term debt 263,367 244,681 - - 263,367 244,681 Other long-term liabilities 122,998 93,058 - - 122,998 93,058 Minority interest 4,587 4,261 - - 4,587 4,261 Stockholders' equity 759,400 732,924 - 54,012 759,400 732,924 ---------- ----------- ----------- -------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,440,598 $ 1,343,483 $ - $109,544 $1,440,598 $1,399,015 ========== =========== =========== ======== ========== ==========
* Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. ** Consolidated balances reflect eliminations of intercompany transactions. 19 22 RAYCHEM CORPORATION Condensed Consolidating Statements of Cash Flows (In thousands)
NINE MONTHS ENDED MARCH 31 (UNAUDITED) ----------------------------------------------------------------- CORE BUSINESS RAYNET CONSOLIDATED -------------------- ------------------ ------------------- 1995* 1994 1995* 1994 1995* 1994 -------- --------- ------ -------- -------- -------- Net cash provided by (used in) operating activities $ 80,573 $ 114,882 $ - $(93,800) $ 80,573 $ 21,082 -------- --------- ------ -------- -------- -------- Cash flows from investing activities: Investment in property, plant, and equipment (69,627) (65,996) - (7,528) (69,627) (73,524) Disposition of property, plant, and equipment 6,755 7,297 - - 6,755 7,297 Proceeds from sale of specified Raynet assets 40,000 - - - 40,000 - Advances to Ericsson Raynet (12,451) - - - (12,451) - Cost of acquisition, net of cash acquired (3,930) - - - (3,930) - Purchase of investment (1,000) - - - (1,000) - -------- --------- ------ -------- -------- -------- Net cash used in investing activities (40,253) (58,699) - (7,528) (40,253) (66,227) -------- --------- ------ -------- -------- -------- Cash flows from financing activities: Proceeds from debt 16,220 9,813 - - 16,220 9,813 Proceeds from (payment of) intercompany loans - (76,632) - 76,632 - - Common Stock issued under employee benefit plans 30,736 26,826 - - 30,736 26,826 Common Stock repurchased (15,192) - - - (15,192) - Proceeds from repayments of stockholder notes receivable 294 162 - - 294 162 Cash dividends (10,452) (10,185) - - (10,452) (10,185) -------- --------- ------ -------- -------- -------- Net cash provided by (used in) financing activities 21,606 (50,016) - 76,632 21,606 26,616 -------- --------- ------ -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents 4,792 (1,258) - 121 4,792 (1,137) -------- --------- ------ -------- -------- -------- Increase (decrease) in cash and cash equivalents $ 66,718 $ 4,909 $ - $(24,575) $ 66,718 $(19,666) ======== ========= ====== ======== ======== ========
* Raynet Corporation and subsidiaries' results are presented on the equity basis of accounting in fiscal 1995 versus consolidated in fiscal 1994. 20 23 RAYCHEM CORPORATION PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS On February 10, 1995, Creole Engineering Co., Unit Process Company and the three other plaintiffs appealed the grant by the United States District Court, Northern District of California, of the company's motion to dismiss the related lawsuits against the company. This appeal was made to the United States Court of Appeals for the Ninth Circuit. In addition, on February 10, 1995, the plaintiffs filed lawsuits against the company alleging violations of similar provisions of the laws of four states, based on essentially the same facts alleged in the federal action. These lawsuits were filed in the following four state courts: the Superior Court of San Mateo County, California; the District Court of Jefferson County, Colorado; the 24th Judicial District Court for the Parish of Jefferson, Louisiana; and the Superior Court of the State of Washington in and for the County of King. Information about the federal court lawsuit on appeal was disclosed in the company's annual report on Form 10-K for the year ended June 30, 1994, and quarterly report on Form 10-Q for the period ended December 31, 1994. On March 7, 1995, a complaint entitled All Alaskan Seafoods, Inc., AAS-DMP Management Partnership, L.P. by Kodiak Marine Protein, Inc., General Partner, Holding Company Dalmoreproduct, Sandra Kegley, and Shin Nihon Global Co., Ltd. v. Raychem Corporation and Rubatex Corporation was filed in the United States District Court, Western District of Washington at Seattle, asserting liability against the company for alleged fire damage to a ship and its cargo and the death of one crew member. The complaint seeks compensatory and exemplary damages based on claims of strict product liability and negligence. Damage to the ship and its cargo has been alleged to exceed $25 million. The company intends to defend itself vigorously in this matter. ITEM 5: OTHER INFORMATION During the quarter, the company eliminated its segment-level management to streamline its decision-making process and realigned corporate business development and strategy functions in order to seize new growth opportunities. As a result, leaders of the worldwide business units and a newly formed Corporate Development Group now report directly to the office of the president. Charles J. Abbe, senior vice president, Electronics, was appointed senior vice president, corporate development. James B. Spradling, senior vice president, Industrial and Europe, was appointed senior vice president, Europe. John D. McGraw, vice president and worldwide general manager of the Thermofit Division was appointed vice president and worldwide general manager of the Electronics Division. Andrew F. Roake, vice president and worldwide general manager of the Electrical Products Division, was appointed to the position of vice president, strategic planning. Tim Jenks was appointed to the position of worldwide general manager of the Electrical Products Division. 21 24 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Index to Exhibits EXHIBIT NO. DESCRIPTION ----------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K None. 22 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RAYCHEM CORPORATION (Registrant) Date: May 11, 1995 /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 Corporate Controller (Principal Accounting Officer) 23 EX-27 2 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 MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 U.S. DOLLARS 9-MOS JUN-30-1995 JUL-01-1994 MAR-31-1995 1 144,808 0 298,624 11,726 239,631 796,974 1,148,498 619,390 1,440,598 290,246 263,367 43,749 0 0 715,651 1,440,598 1,117,045 1,119,423 550,291 551,573 85,677 2,870 10,366 4,058 21,491 (17,433) 0 (6,318) (1,477) (25,228) ($0.58) 0
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