-----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, DawDQkwaVE+9IvbBn4bN+At20KgRAIlQjr8yfzHyNSacFHMcRPn62fUhqiX7MUa6 XET+EQly0i7bjim60jrejg== 0000891618-95-000671.txt : 19951119 0000891618-95-000671.hdr.sgml : 19951119 ACCESSION NUMBER: 0000891618-95-000671 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 95590053 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 FOR THE QUARTER ENDED SEPTEMBER 30, 1995 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 SEPTEMBER 30, 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 October 30, 1995, the registrant had outstanding 44,117,816 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 Months Ended September 30, 1995 and 1994 1 Consolidated Condensed Balance Sheets - September 30, 1995, and June 30, 1995 2 Consolidated Condensed Statements of Cash Flows - Three Months Ended September 30, 1995 and 1994 3 Notes to Consolidated Condensed Financial Statements 4-8 Item 2: Management's Discussion and Analysis 9-13 of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1: Legal Proceedings 14 Item 5: Other Information 14 Item 6: Exhibits and Reports on Form 8-K 14 SIGNATURES 15
3 RAYCHEM CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
Three Months Ended September 30, ------------ ------------ 1995 1994* ------------ ------------ Revenues $ 410,515 $ 368,145 Cost of goods sold 194,914 182,859 Research and development expense 30,044 27,229 Selling, general, and administrative expense 122,460 115,193 Provision for restructuring and divestitures -- 23,900 Loss on formation of Ericsson Raynet joint venture and other Raynet items -- 31,723 Equity in net losses of affiliated companies 10,626 24,373 Interest expense, net 3,300 4,594 Other expense, net 3,731 3,912 ------------ ------------ Income (loss) before income taxes, extraordinary item, and change in accounting principle 45,440 (45,638) Provision for income taxes 13,010 2,690 ------------ ------------ Income (loss) before extraordinary item and change in accounting principle 32,430 (48,328) Extraordinary item - loss from early retirement of debt, net of $0 income taxes -- (7,074) Cumulative effect of change in accounting principle, net of $0 income taxes -- (1,477) ------------ ------------ Net income (loss) $ 32,430 $ (56,879) ============ ============ Average number of common shares and equivalents outstanding 44,905,775 43,241,149 ============ ============ Earnings (loss) per common share: Income (loss) before extraordinary item and change in accounting principle $ 0.72 $ (1.12) Extraordinary item -- (0.16) Change in accounting principle -- (0.04) ------------ ------------ Net income (loss) $ 0.72 $ (1.32) ============ ============ Dividends per common share $ 0.08 $ 0.08 ============ ============
* Reflects restatement of Raynet Corporation and subsidiaries' results to the equity basis of accounting. See accompanying notes to consolidated condensed financial statements. 1 4 RAYCHEM CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED) SEPTEMBER 30, 1995 June 30, 1995 ------------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 146,978 $ 118,067 Accounts receivable, net 316,329 304,819 Inventories: Raw materials 70,967 76,862 Work in process 56,700 53,632 Finished goods 99,553 103,206 ----------- ----------- Total inventories 227,220 233,700 Prepaid taxes 46,904 60,661 Other current assets 71,335 62,361 ----------- ----------- Total current assets 808,766 779,608 Property, plant, and equipment 1,119,829 1,117,939 Less accumulated depreciation and amortization 602,782 590,520 ----------- ----------- Net property, plant, and equipment 517,047 527,419 Other assets 123,658 147,718 ----------- ----------- TOTAL ASSETS $ 1,449,471 $ 1,454,745 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 33,381 $ 28,632 Accounts payable 57,351 67,102 Other accrued liabilities 165,115 183,479 Income taxes 27,970 22,943 Current maturities of long-term debt 1,332 1,042 ----------- ----------- Total current liabilities 285,149 303,198 Long-term debt 258,391 263,552 Deferred income taxes 24,994 35,002 Other long-term liabilities 99,935 98,215 Minority interests 5,238 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: 44,089,893 and 43,897,275 shares, respectively 44,090 43,897 Additional contributed capital 385,679 380,127 Retained earnings 299,416 272,657 Currency translation 48,350 61,946 Treasury Stock, at cost (31,314 and 226,640 shares, respectively) (1,392) (8,330) Notes receivable from sale of stock (379) (639) ----------- ----------- Total stockholders' equity 775,764 749,658 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,449,471 $ 1,454,745 =========== ===========
See accompanying notes to consolidated condensed financial statements. 2 5 RAYCHEM CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30 (IN THOUSANDS) 1995 1994* - --------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 32,430 $ (56,879) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for restructuring and divestitures, net of payments (717) 22,053 Loss on formation of Ericsson Raynet joint venture -- 28,130 Equity in net losses of affiliated companies 10,626 -- Extraordinary loss related to early retirement of debt -- 7,074 Change in accounting principle -- 1,477 Net loss on disposal of other property, plant, and equipment 214 -- Depreciation and amortization 21,983 22,398 Deferred income tax provision 474 800 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 (17,584) (3,769) Inventories 1,892 5,359 Accounts payable and accrued liabilities (13,172) (28,321) Income taxes 6,310 1,535 Other assets and liabilities 9,127 3,695 --------- --------- Net cash provided by operating activities 51,583 3,552 --------- --------- Cash flows from investing activities: Investment in property, plant, and equipment (20,002) (27,413) Disposition of property, plant, and equipment 850 2,385 Advances to affiliated companies (13,669) -- Purchase of investment -- (1,000) --------- --------- Net cash used in investing activities (32,821) (26,028) --------- --------- Cash flows from financing activities: Net proceeds from short-term debt 5,601 5,686 Proceeds from long-term debt -- 358 Payments of long-term debt (568) (872) Common Stock issued under employee benefit plans 14,941 10,334 Common Stock repurchased (4,411) -- Proceeds from repayments of stockholder notes receivable 260 162 Cash dividends (3,518) (3,465) --------- --------- Net cash provided by financing activities 12,305 12,203 --------- --------- Effect of exchange rate changes on cash and cash equivalents (2,156) 929 --------- --------- Increase (decrease) in cash and cash equivalents 28,911 (9,344) Cash and cash equivalents at beginning of period 118,067 78,090 --------- --------- Cash and cash equivalents at end of period $146,978 $68,746 ========= ========= SUPPLEMENTAL DISCLOSURES - ------------------------ Cash paid for: Interest (net of amounts capitalized) $ 5,590 $ 4,088 Income taxes (net of refunds) 686 72
* Amounts have not been restated to give effect to the formation of the Ericsson Raynet joint venture on November 16, 1994, and the change of Raynet Corporation and subsidiaries' results to the equity basis of accounting. 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 months ended September 30, 1995 and 1994, the financial position as of September 30, 1995, and the cash flows for the three months ended September 30, 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 fiscal 1996 financial statement presentation. BUSINESS SEGMENTS Revenues and operating income (loss) by business segment are as follows:
(In thousands) Three months ended September 30, 1995 1994 --------- --------- Revenues Electronics $ 157,855 $ 140,099 Industrial 139,819 121,862 Telecommunications 112,841 106,184 --------- --------- Total revenues $ 410,515 $ 368,145 ========= ========= Operating income (loss) before provision for restructuring and loss on formation of JV Electronics $ 32,480 $ 22,502 Industrial 32,027 23,429 Telecommunications 24,655 17,267 Corporate (26,065) (20,334) --------- --------- Total $ 63,097 $ 42,864 ========= ========= Operating income (loss) including provision for restructuring and loss on formation of JV Electronics $ 32,480 $ 22,502 Industrial 32,027 23,429 Telecommunications 24,655 (6,633) Corporate (26,065) (52,057) --------- --------- Total operating income (loss) $ 63,097 $ (12,759) ========= =========
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, 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 quarter ended September 30, 1994, reflects the results of Raynet Corporation and subsidiaries through that date. See "Investments" note for summarized Ericsson Raynet financial information. RECENT ACCOUNTING STANDARD 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 1997. The company has not yet fully determined the impact of adoption, if any, on the company's results of operations or financial condition. FINANCIAL INSTRUMENTS Gains and losses from forward exchange contracts used to hedge receivables and payables and anticipated transactions totaled $2.7 million gain for the three months ended September 30, 1995. The company incurred total foreign exchange transaction losses of $1.0 million and $2.0 million for the three months ended September 30, 1995 and 1994, respectively. The related realized and unrealized gains and losses are included in "other expense, net." The total amount of exposure hedged at September 30, 1995, was $168 million, reflecting hedging for trade and intercompany receivables, 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. Exposures, at September 30, 1995, included $8.2 million in net intercompany payables in non-functional currencies and $5.6 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 September 30, 1995: 5 8
Restructuring Reserves ---------------------- Employee Asset Severance Writedowns Leases Other Total --------- ---------- ------ ----- ----- (in thousands) Reserve Balances, June 30, 1995: $ 2,162 $- $- $ 1,015 $ 3,177 Cash payments (397) - - (230) (627) ------------------------------------------------------- Reserve Balances, September 30, 1995: $ 1,765 $- $- $ 785 $ 2,550 =======================================================
INVESTMENTS The financial position and results of operations of Ericsson Raynet, the only significant equity investment of the company, are summarized below:
(Unaudited) Three Months Ended September 30, -------------------- 1995 1994(a) -------- -------- Revenues $ 12,440 $ 22,556 ======== ======== Gross profit (loss) $ (1,887) $ (2,969) Research and development expense 9,698 11,724 Selling, general, and administrative expense 8,428 9,939 Interest and other expense 1,053 44 -------- -------- Pretax loss $(21,066) $(24,676) ======== ======== Raychem's equity in loss $(11,124) $(24,676) ======== ========
(Unaudited) September 30, June 30, 1995 1995 -------- -------- Current assets $ 62,005 $ 62,864 Non-current assets 31,594 34,203 Current liabilities $ 83,560 $ 65,906 Non-current liabilities 550 495
(a) Results for the three months ended September 30, 1994, are those of Raynet Corporation and subsidiaries. 6 9 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 September 30, 1995, the company repurchased 100,000 shares and subsequently reissued 295,326 shares, leaving 31,314 shares in treasury stock at September 30, 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. Additionally, the company and its subsidiaries have been named as defendants 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 $25 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 the second quarter of 1992, the company and its insurer reached settlement with the plaintiffs in a class action securities suit. The settlement totaled $19.5 million, which was funded $8.25 million by the company and $11.25 million by its insurer. The company expects to recover a portion of its funding, either through litigation or when a definitive agreement is reached with its insurer, and has filed suit against its insurer to resolve this issue. Recovery, if any, will be recorded when received. 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 October 13, 1995, the company's Board of Directors declared a quarterly cash dividend of $0.08 per share of Common Stock, payable on December 13, 1995, to stockholders of record as of November 8, 1995. 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 $32 million, or $0.72 per share, in the first quarter of 1996 compared to a net loss of $57 million, or $1.32 per share, in the comparable period of the prior year. Revenues for the quarter increased to $411 million from $368 million in the prior year, a 7% 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). During the first quarter of 1996, the company benefited from favorable foreign currency effects which, in part, contributed to the increase in net income. Raychem's "ongoing" pretax income increased to $57 million from $35 million in the first quarter of 1995. Raychem's results are summarized as follows:
- -------------------------------------------------------------------------------- PRETAX INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING PRINCIPLE THREE MONTHS ENDED SEPTEMBER 30 (in millions) 1995 1994 - -------------------------------------------------------------------------------- Core business: "Ongoing" pretax income $ 56.6 $ 34.7 Provision for restructuring and divestitures - (23.9) ------ ------ Core business pretax income 56.6 10.8 Loss on formation of Ericsson Raynet joint venture and other Raynet items - (31.7) Equity in Ericsson Raynet net loss (11.1) (24.7) ------ ------ Consolidated $ 45.5 $(45.6) ====== ====== - --------------------------------------------------------------------------------
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. In the first quarter of 1995, the company recorded a pre-tax charge of $28 million which was the estimate of the loss on formation of the Ericsson Raynet joint venture. This amount is included in "Loss on formation of Ericsson Raynet joint venture and other Raynet items." Subsequent to the formation of the joint venture, 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 quarter ended September 30, 1994, reflects the results of Raynet Corporation and subsidiaries through that date. In the first quarter of 1995, the company recorded an extraordinary loss of $7.1 million ($0.16 per share), for the early retirement of debt following delivery by the company of irrevocable notice to the holders of its 9.55% privately placed senior notes of its intention to prepay this debt. In addition, the company adopted, effective July 1, 1994, Statement of Financial Accounting Standards No. 112 "Employers Accounting for Postemployment Benefits." This statement changed the method of accounting for certain postemployment 9 12 benefits from a cash basis to an accrual basis. The cumulative effect of this accounting change (a charge of $1.5 million, or $.04 per share) has been reflected in the 1995 first quarter 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 $158 million in the first quarter of 1996 compared to $140 million in the prior year quarter, a 9% constant currency increase. The Electronics Division experienced strong Asian and North American sales growth in the commercial electronics and automotive markets partially offset by a continuing decline in the defense program business. PolySwitch Division revenues rose over the prior year quarter with continued increase in shipment volumes partially offset by planned unit price reductions and inventory adjustments by distributors. Elo TouchSystems revenues rose slightly over last year's first quarter due to soft demand for point-of-sale products. Operating income for the segment was $32 million compared to $23 million in the year-ago quarter driven primarily by improved results in the Electronics Division. Revenues in the industrial business segment for the three months ended September 30, 1995, increased to $140 million from $122 million in the comparable prior year period. Revenues increased 8% in constant currency terms. The strong growth was led by the segment's Electrical Products and Ultratec divisions. Electrical Products experienced higher sales in the Asian and the North American markets. The pipeline project business in the Ultratec division led to an increase of its revenues in Latin America and Asia. Chemelex sales remained unchanged from the prior year quarter due to weak sales in the U.S. market for freeze protection products. Operating income in the industrial business segment was $32 million in the first quarter of 1996, up $9 million from year-ago levels reflecting substantial increases in Electrical Products' and, to a lesser extent, Ultratec's operating income. Revenues in the telecommunications business segment increased to $113 million from $106 million in the first quarter of the prior year, an increase of 2% on a constant currency basis. Revenue growth in North America, Latin America and Asia was partially offset by declining sales in the European market. Operating income in the telecommunications business segment increased $7 million from the prior-year first quarter, excluding the effects of the $24 million restructuring charge in the first quarter of 1995. A favorable geographic and product mix as well as benefits from past restructuring actions contributed to the first quarter's increase in operating income. During the first quarter of 1996, incoming orders for the corporation were approximately equal to shipments. Incoming orders were greater than shipments in the electronics and industrial business segments, but less than shipments in the telecommunications business segment. Backlog at September 30, 1995, was $280 million. 10 13 EQUITY IN ERICSSON RAYNET NET LOSS Ericsson Raynet's net loss for the first quarter of 1996 was $21 million. In fiscal 1996, the first $19.6 million of losses will be allocated to 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 first quarter net loss was $11 million. 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 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 charge, excluding $8 million of asset writedowns, was cash in nature and was primarily incurred in fiscal 1995 and funded through operating cash flow. The restructuring was substantially completed by June 30, 1995. The company expects to receive approximately $24 million of annual savings, of which the company realized approximately $6 million of savings in the first quarter 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. RECENT ACCOUNTING STANDARD 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, see "Recent Accounting Standard" in the notes to consolidated condensed financial statements. The statement must be adopted by the first 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. OUTLOOK Over the past six months, supplies of certain raw materials the company uses have been tightening. In response, the company has identified alternative materials for some products, and they are currently undergoing qualification testing. To date, the company has had no disruption of manufacturing. The company has embarked on an "Operational Excellence" program to improve operational efficiency in all areas of the company and to reduce selling, general and administrative costs. The program focuses on vigorous process improvements across organizational boundaries. While actions associated with the program are expected to reduce ongoing costs in the future, they will result in related charges to implement the changes. 11 14 LIQUIDITY AND CAPITAL RESOURCES CONSOLIDATED Debt exceeded cash by $146 million at September 30, 1995, compared to $175 million at June 30, 1995. Debt net of cash decreased by $29 million in the first quarter of 1996, compared to an increase in debt net of cash of $12 million in the first quarter of 1995. The decrease in debt net of cash resulted primarily from improved profitability and reduced funding requirements for Ericsson Raynet losses. 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. 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. 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 September 30, 1995, the company made advances to Ericsson Raynet of $4 million under this credit agreement, increasing the amount due to the company to $8 million. The company expects to renew this facility upon expiration. 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 in November 1995 and 1996. 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. The company has continued to repurchase shares of the company's stock as previously authorized by the Board of Directors. During the three months ended September 30, 1995, the company repurchased 100,000 shares at a cost of $4 million. In addition, the company received $15 million from the issuance of Common Stock under various employee benefit plans. Capital expenditures of $20 million during the quarter decreased $7 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 September 30, 1995, the company had $147 million in cash and cash equivalents, $290 million in committed credit facilities (of which $2 million were utilized) and approximately $179 million in various uncommitted credit facilities (of which $45 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 of the 12 15 company's needs for working capital, normal capital expenditures, Ericsson Raynet funding requirements, scheduled debt repayments, and anticipated dividends. CORE BUSINESS Inventory, as measured by the number of days of inventory on hand, improved to 106 days at September 30, 1995, compared to 112 days at September 30, 1994. Receivables, as measured by the number of billing days outstanding, decreased to 64 days at September 30, 1995, compared to 65 days at September 30, 1994. 13 16 RAYCHEM CORPORATION PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS On September 5, 1995, a first amended complaint entitled All Alaskan Seafoods, Inc., et al v. Raychem Corporation, Marine Electric, Inc., and Westinghouse Electrical Supply Co. was filed in the United States District Court, Western District of Washington at Seattle to add the latter two parties as third- and fourth-party defendants, respectively. The original complaint in this lawsuit was filed on March 7, 1995, asserting liability against the company for alleged fire damage to a ship and its cargo and the death of one crew member. Information about this lawsuit was disclosed in the company's annual report on Form 10-K for the year ended June 30, 1995. The administrative proceedings instituted by the United States Environmental Protection Agency on March 23, 1989, and by the California Environmental Protection Agency on September 1, 1992, have been settled during the quarter for amounts which were not material. Information about the proceedings was disclosed in the company's annual report on Form 10-K for the year ended June 30, 1995. 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 Bob Saldich, and Raychem founder and Chairman of the Board of Directors Paul Cook, who will continue as a director until his scheduled retirement in 1996. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits EXHIBIT NO. DESCRIPTION ----------- ----------- 10.r Employment letter between the company and Mr. Richard Kashnow dated August 11, 1995 27 Financial Data Schedule (b) Reports on Form 8-K None.
14 17 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: November 10, 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 Controller (Principal Accounting Officer) 15 18 EXHIBIT INDEX 10.r Employment letter between the company and Mr. Richard Kashnow dated August 11, 1995 27 Financial Data Schedule EX-10.R 2 EMPLOYMENT LETTER BETWEEN THE CO. & MR. KASHNOW 1 Exhibit 10.r August 11, 1995 Mr. Richard Kashnow (home address deleted) Dear Dick: I am pleased to make this offer to you to join Raychem Corporation as its President, Chief Executive Officer and Chairman of its Board of Directors. We are assuming that you will commence employment on October 2, 1995. Your election as a director and as Chairman of the Board will become effective as of the date that you commence employment. The terms of your employment are as follows: 1. Salary. Your base salary for fiscal 1996 will be $650,000 per year, payable biweekly. It has been Raychem's practice to review executive salaries annually. 2. Bonus. You will participate in Raychem's executive bonus program as in effect from time to time. For fiscal 1996 that program is the Variable Pay Program. Raychem will guarantee you a minimum bonus for fiscal 1996 equal to 40% of covered compensation relating to the period from October 1, 1995 to June 30, 1996. 3. Special Transition Payment. Raychem will pay you a Special Transition Payment of $475,000, adjusted as described below. The $475,000 amount includes $375,000 as an estimate of the Schuller 1995 bonus proration that you will receive. When the amount of that bonus proration becomes known, the $375,000 estimate shall be adjusted as mutually agreed. In addition, the Special Transition Payment will be increased 2 Mr. Richard Kashnow August 11, 1995 Page 2 by an amount equal to the value of your 30,000 restricted shares of Manville Corporation which vest on December 31, 1995, less any amount you receive in connection with such shares. The Special Transition Payment will be made within 30 days after the date that both adjustments have been made. 4. Severance. Employment for all Raychem employees is at will. Your severance package is described in Raychem's Executive Termination Compensation Policy ("Termination Policy"), except (a) that the "Full Salary Period" described therein shall be two years instead of one year, (b) there shall be no "Differential Salary Period" as described therein, and (c) the Termination Policy is modified as described below with respect to your housing loan, your restricted shares and certain change in control events. The Termination Policy will not be changed with respect to your employment without your consent. Post-employment benefits relating to your housing loan, your restricted shares and change in control events that are described in this letter are deemed to be part of the Termination Policy and are subject to the same requirements as the remainder of the Termination Policy, including, for example, granting a release, providing consulting services as specified in the Termination Policy, and complying with noncompetition and nonsolicitation restrictions during the consulting period. You are not required to seek other employment in order to obtain post-employment benefits. In the event that (a) there is a change in control as defined in the next paragraph, (b) within one year following such change in control there is a material adverse change in your duties, responsibilities, or reporting lines, or a reduction of more than 20% in your base compensation, and (c) within the 30-day period immediately following such material adverse change or reduction you elect to terminate your employment voluntarily, then termination of your employment will be treated as a Covered Termination of Employment (as defined in the Termination Policy). In the 3 Mr. Richard Kashnow August 11, 1995 Page 3 event that (a) there is a change in control as defined in the next paragraph and (b) within one year following such change in control your employment is terminated in a Covered Termination of Employment (or is deemed to have been so terminated by virtue of the preceding sentence), then notwithstanding any other vesting or acceleration provisions set forth in this letter, all of the options described in paragraph 5. below shall vest in full immediately as of the date of your employment termination and all restrictions on the restricted shares described in paragraph 5. below shall lapse as of such date. For purposes of the preceding paragraph, a change in control means the occurrence of either of the following: (a) any "person" (as used in Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder) other than Raychem, a subsidiary or affiliate of Raychem, or a Raychem employee benefit plan, including any trustee of such a plan, becomes the "beneficial owner" (as defined in Rule 13d-3) of securities representing a majority of the voting power of Raychem's then outstanding securities; or (b) a sale of assets involving all or substantially all of the assets of Raychem, or a merger or consolidation of Raychem in which the holders of Raychem's securities immediately prior to such event hold in the aggregate less than a majority of Raychem's securities immediately after such event. 5. Equity. The Compensation Committee of the Board of Directors has approved the grant to you of stock options and restricted stock relating to 250,000 shares of Raychem common stock, as described below, subject to the commencement of your employment. Although the Compensation Committee reserves the right to grant additional options or restricted stock to you, our current expectation is that you will not be considered for additional equity grants during the first two years of your employment. 4 Mr. Richard Kashnow August 11, 1995 Page 4 Stock Options. Subject to the commencement of your employment, the Compensation Committee approved the grant to you of a nonstatutory stock option covering 200,000 shares under Raychem's 1990 Incentive Plan ("1990 Plan") and of a nonstatutory stock option covering 12,500 shares outside such plan. Both options will be deemed granted on the date that you commence employment for payroll purposes, and the exercise price of such options will be the closing price of Raychem common stock on the New York Stock Exchange on that date. Both options will be subject to the company's normal four year vesting program. The option granted outside the 1990 Plan is not exercisable in any period in which exercise would cause loss of deduction for Raychem under Section 162(m) of the Internal Revenue Code, unless the option otherwise would expire. Restricted Stock. Subject to the commencement of your employment, the Compensation Committee granted you 37,500 shares of Restricted Stock under the 1990 Plan. Restrictions on the shares will lapse on the fifth anniversary of commencement of your employment if you are employed by Raychem at that date. Restrictions will lapse earlier as to 50% of the shares of Restricted Stock if the average closing price of Raychem Common Stock on the New York Stock Exchange as reported in the Wall Street Journal over a period of 30 consecutive trading days exceeds $50 per share; and will lapse earlier as to the remaining 50% if the average closing price of Raychem Common Stock on the New York Stock Exchange as reported in the Wall Street Journal over a period of 30 consecutive trading days exceeds $60 per share. If your employment is terminated by Raychem in a Covered Termination of Employment as defined in the Termination Policy and you still hold restricted shares, then (a) restrictions will lapse on the date of such termination with respect to 20% of the original shares for each full 12-month period during the period beginning with commencement of your employment and ending at the date of such termination and (b) restrictions shall lapse with 5 Mr. Richard Kashnow August 11, 1995 Page 5 respect to an additional 20% of the original shares at each of the first and second anniversary dates of such termination (i.e., if the date of Covered Termination of Employment is six months after the second anniversary of commencement of your employment, restrictions will lapse with respect to 40% of the original shares on the date of such termination, and restrictions will lapse with respect to an additional 20% of the original shares on each of the first and second anniversaries of such termination). Notwithstanding the foregoing, the number of shares for which restrictions lapse under the preceding sentence will be reduced by the number of shares for which restrictions have previously lapsed under the stock price conditions provided above (i.e., if the date of Covered Termination of Employment is six months after the second anniversary of commencement of your employment, and prior to the date of such termination restrictions have lapsed with respect to 50% of the original shares due to stock price conditions, then additional restrictions will not lapse until the first anniversary of such termination, at which time restrictions will lapse with respect to 10% of the original shares, and restrictions will lapse with respect to an additional 20% of the original shares on the second anniversary of such termination). In the event of a Change In Control as defined in the 1990 Plan, the Committee administering the 1990 Plan may, but is not required to, accelerate the vesting of options and the lapse of restrictions on Restricted Stock, as more fully described in those plans. Any such acceleration shall not reduce any other vesting rights granted in this letter. 6. Housing Assistance. You will be eligible to participate in Raychem's standard executive housing relocation program. However, in lieu of the mortgage differential aspect of such program, Raychem will make available to you a loan in principal amount equal to 50% of the purchase price of your new Bay Area home, up to a maximum principal amount of $1 million. The loan will be interest free and will be secured by a deed of trust second only to your primary lender. Unless your employment is earlier terminated, 6 Mr. Richard Kashnow August 11, 1995 Page 6 twenty percent of the initial principal amount of this loan will be due and payable on October 1 of each of 1996, 1997, 1998, 1999 and 2000. Raychem will pay you a bonus equal to 20% of the initial principal amount of this loan on September 19 of each of 1996, 1997, 1998, 1999 and 2000 if you are employed by Raychem at such date; such bonus will be in addition to any bonus to which you may be entitled under Raychem's executive bonus program as in effect at the time. It is anticipated that you will use the bonus to repay installments of the loan principal as they become due. If your employment is terminated by Raychem in a Covered Termination of Employment (as defined in the Termination Policy) or if your employment is terminated because of your disability by reason of physical or mental incapacity to perform your duties, unpaid principal shall continue to be due and payable in installments as described above, but all unpaid principal shall be due and payable 24 months from the date of your employment termination; unpaid principal will bear interest during such 24-month period at the prime rate as in effect from time to time at Raychem's principal bank, and shall be due and payable with each principal payment. In addition, under these circumstances Raychem will continue the bonus payments during the Full Salary Period as if you were employed during that period; it is anticipated that you will use the bonus to repay installments of the loan principal as they become due. If you terminate your employment in a Voluntary Termination (as defined in the Termination Policy), unpaid principal shall continue to be due and payable in installments as described above, but all unpaid principal shall be due and payable 12 months from the date of your employment termination; unpaid principal will bear interest during such 12-month period at the prime rate, and shall be due and payable with each principal payment. If your employment is terminated by Raychem in a Termination for Cause (as defined in the Termination Policy), unpaid principal shall continue to be due and payable in installments as described above, but all unpaid principal shall be due and payable 24 months from the date of your employment termination; unpaid 7 Mr. Richard Kashnow August 11, 1995 Page 7 principal will bear interest during such 24-month period at the prime rate, and interest shall be due and payable with each principal payment. 7. Benefits. In addition to the benefits specifically described in this letter, you will be entitled to Raychem's standard executive benefits, which are summarized below. These benefits are more fully described in the materials you have been provided, and are subject to all of the terms and conditions stated in the plans. a. You will be eligible to participate in the Employee Stock Purchase Plan as of the first enrollment date following your date of hire. This plan gives you the opportunity to invest from 1% to 15% of your base salary towards the purchase of Raychem common stock at a discount of at least 15%. b. You will be eligible to participate in Raychem's Taxsaver Investment Plan. This 401(k) plan allows you to invest a percentage of your base salary commencing immediately while deferring taxes on the principal and interest until time of withdrawal. c. Raychem will reimburse you up to $5,000 per year for fees paid to a personal financial adviser. In addition, Raychem will reimburse you for fees reasonably incurred to obtain legal counsel with respect to your offer of employment from Raychem. d. You will have health coverage under the Raychem Group Medical Plan or one of several Health Maintenance Organizations. You may cover eligible dependents under these programs. Coverage will commence on your payroll start date. You will be covered free of charge, with a fee for dependent coverage. e. You have coverage under a dental plan. You will be covered free of charge, with a fee for dependent coverage. Coverage will commence on your payroll start date. 8 Mr. Richard Kashnow August 11, 1995 Page 8 f. You will be covered under the Raychem Group Life Insurance Program. Coverage will commence on your payroll start date. g. You will be covered by the Raychem Long Term Disability Plan. Coverage will commence on the first day of the month following 15 days of employment. h. You will be eligible to participate in the qualified Raychem Corporation Pension Plan and the nonqualified Raychem Corporation Supplemental Executive Retirement Plan. In addition, your nonqualified pension benefit will be augmented in an equitable fashion to compensate for the loss of pension benefits associated with your departure from Schuller at a time when you have not yet reached your maximum compensation level. i. Raychem will reimburse you for an annual physical examination. j. You will be eligible to participate in Raychem's 1995 Executive Deferred Compensation Plan and 1989 Bonus Deferral Plan. k. You will be eligible to participate in Raychem's company car program. 8. Proprietary Information. You will be required to sign Raychem's standard employee proprietary information agreement. 9. Golden Parachute Determination. You shall be permitted to elect to reduce or modify any amount that would, but for this paragraph, be a "parachute payment" as defined in Section 280G of the Internal Revenue Code in your sole discretion in order to reduce or eliminate any such parachute payment in any manner that does not impose an additional cost on Raychem. 10. Term. Unless your employment with Raychem is earlier terminated, the provisions of this letter shall govern the 9 Mr. Richard Kashnow August 11, 1995 Page 9 first five years of your employment. Assuming you remain employed by Raychem, a new arrangement shall be negotiated prior to expiration of the five-year period to cover future periods. 11. Arbitration. In the event of any dispute arising out of or relating to your employment relationship or its termination (including without limitation claims for breach of contract, wrongful termination, or age, race, sex, disability or other discrimination) that is not resolved by good faith negotiations between the parties, you and Raychem agree fully, finally and exclusively to arbitrate the dispute in binding arbitration under the rules of the American Arbitration Association in San Mateo County, California, rather than litigate the dispute in court; provided that this arbitration provision shall not apply to any dispute relating to or arising out of the alleged misuse or misappropriation of Raychem's trade secrets or proprietary information. In the event of arbitration, the arbitrator shall be allowed to assess costs. I am enthusiastic about your joining Raychem and look forward to working with you. Very truly yours, /s/ Isaac Stein ----------------------------- Isaac Stein Chairman of the Executive Committee of the Board of Directors Accepted: /s/ Richard Kashnow - ----------------------------- Richard Kashnow EX-27 3 FINANCIAL DATA SCHEDULE
5 Exhibit 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 0 3-MOS JUN-30-1996 JUL-01-1995 SEP-30-1995 1 146,978 0 327,064 10,735 227,220 808,766 1,119,829 602,782 1,449,471 285,149 258,391 44,090 0 0 731,674 1,449,471 409,889 410,515 194,411 194,914 30,044 562 3,300 45,440 13,010 32,430 0 0 0 32,430 $0.72 0
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