ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Raychem Corporation, founded in 1957, is a broadly based materials science company serving both domestic and international markets. The terms "company" or "Raychem" mean Raychem Corporation and its consolidated subsidiaries.
The company develops, manufactures, and sells a variety of high-performance products used by customers in the aerospace, automotive, cable television, commercial electronics, communications, computer, construction, defense, industrial infrastructure, mass transit, medical, and telephone industries. The company's Raynet Corporation subsidiary ("Raynet") delivers fiber-optic distribution systems for voice, video, and data to telecommunications network operators.
For information regarding restructuring actions, see the Note entitled "Restructuring and Divestitures" and the section entitled "Financial Review" of the company's 1994 Annual Report to Stockholders (the "1994 Annual Report"), which is incorporated herein by reference and is included in this filing as Exhibit 13.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The company's business is organized into four industry segments designated as electronics, industrial, telecommunications (collectively referred to as the "core business"), and Raynet. For financial and other information concerning the company's industry segments, see the Note entitled "Business Segments" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
(C) NARRATIVE DESCRIPTION OF BUSINESS
For information regarding operating results, principal products produced, and industries served by the company's industry segments, see the Note entitled "Business Segments" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13. For information regarding the status of Raynet, see the Note entitled "Raynet" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
METHODS OF DISTRIBUTION
The products of the company's industry segments are marketed primarily through Raychem's worldwide sales force as well as through outside distribution channels both within and outside the United States.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Materials required by the company's industry segments in their continuing manufacturing operations, or substitutes for such materials, are generally available from multiple sources worldwide. No significant delays have been experienced by the company in obtaining the materials needed to satisfy its requirements.
PATENTS AND PROPRIETARY INFORMATION
The company applies for patents in the United States and other countries, as appropriate, to protect its significant patentable developments. As of June 30, 1994, the company had in force 953 U.S. patents and 3,279 foreign patents, and had pending 285 U.S. patent applications and 2,829 foreign patent applications. Patents held by the company in the aggregate are of material importance in the operation of the company's business. Management, however, does not believe that any single patent, or group of related patents, is essential to the company's business as a whole or to that of any of its industry segments. Additionally, the
company owns and uses in its business a substantial body of proprietary information and numerous trademarks.
WORKING CAPITAL
Information relative to working capital is included in the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
CUSTOMERS
The company's industry segments sell to many customers. Management does not believe that the loss of any one customer would have a materially adverse effect on the business of the company. Approximately 3% of the company's 1994 revenues were specifically identified by Raychem's customers for U.S. Government end use; however, the company believes a number of its distributors made sales for U.S. Government end use which were not reported to it. Additionally, the company made direct sales to the U.S. Government of less than 1%.
BACKLOG
The company's business is characterized by short lead times and the absence of a significant backlog. The company expects that substantially all of the backlog at June 30, 1994, will be shipped in fiscal 1995.
Set forth below is the backlog at June 30, 1994 and 1993, for each of the company's industry segments.
GOVERNMENT CONTRACTS
No material portion of the company's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government.
COMPETITION
The company's key competitive elements in its core business include: developing products that provide innovative solutions to customers' technical problems; providing high product quality and performance; continually introducing new products as well as improvements to existing products; and providing ongoing customer support.
While the products of the company's core industry segments are sold in highly competitive markets, the company's total sales are often a small fraction of total sales within the markets in which it operates. Raychem's products compete with those of a large number of companies and divisions within companies that are both larger and smaller than Raychem.
The company's Raynet subsidiary is engaged in the development, manufacture, and sale of fiber-optic loop optical carrier systems and integrated operations support system software. Raynet's products compete with those of specialized telecommunications companies and affiliates of diversified international corporations that are both larger and smaller than Raychem. The competitive features of Raynet's market include emphasis
on product quality, price, and performance in the provision of telecommunications services for the local loop network.
RESEARCH AND DEVELOPMENT
For financial information on research and development expense, see the sections entitled "Consolidated Statement of Operations" and "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
ENVIRONMENTAL REGULATIONS
For information regarding the effect of environmental regulations on the company, see the section entitled "Financial Review," the Note entitled "Summary of Significant Accounting Policies," and the Note entitled "Contingencies" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
Additional information regarding environmental administrative and judicial proceedings is set forth in Part I of this Form 10-K under the caption "Legal Proceedings."
EMPLOYEES
As of June 30, 1994, the company employed 10,769 people.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The company's international operations are conducted primarily through wholly owned subsidiaries that are responsible for sales, distribution and, in some cases, research, development, and manufacturing activities. At June 30, 1994, these operations employed approximately 5,537 people representing 51% of the company's total work force.
The company's principal international operations are located in Western Europe. Although the company's Western European operations are subject to a number of risks, such as changes in foreign currency exchange rates, management believes that they do not involve significantly greater risks than the company's domestic operations. The company also operates in the Middle East, Asia, and Latin America. Although doing business in these parts of the world involves some degree of risk due to greater economic and political uncertainties, management believes that the company's spending and exposure levels are appropriate in the regions in which it conducts business.
For additional information regarding the company's international and domestic operations and export sales, see the Note entitled "Worldwide Operations" and the section entitled "Financial Review" of the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
ITEM 2.
ITEM 2. PROPERTIES
The company's principal domestic facilities are located in Menlo Park and Redwood City, California, and in Fuquay-Varina, North Carolina. Additional facilities of significance are located in Belgium, France, Germany, Ireland, Japan, People's Republic of China, and the United Kingdom.
The company owns and leases a total of 6,779,000 square feet of manufacturing, distribution, research and development, and sales and administrative facilities worldwide.
The approximate square footage of all property owned and leased by each of the company's industry segments and corporate as of June 30, 1994, is shown in the following table:
The company owns approximately 223 acres of land in the United States and 243 acres abroad for a total of 466 acres. Of this total, electronics uses approximately 139 acres; industrial, 79 acres; telecommunications, 188 acres; and corporate, 60 acres.
The company's facilities are suitable for their respective uses and, in general, are adequate to support the current and anticipated volumes of business. The company conducts continuing reviews of its facilities under improvement programs aimed at modernization and cost reduction. For information on capital expenditures, see the section entitled "Financial Review" in the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
For information regarding leased properties, see the Note entitled "Commitments" in the 1994 Annual Report, which is incorporated herein by reference and is included in this filing as Exhibit 13.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On July 6, 1994, the company and Communications Technology Corporation settled all claims and counterclaims in the company's lawsuit for patent infringement filed in the United States District Court, Northern District of California, on November 2, 1992. The settlement is subject to entry of consent judgment.
On May 4, 1994, the United States District Court for the Northern District of California entered an Order Granting Summary Adjudication on Certain Issues and Continuing Motion As to Other Issues in the matter of Raychem Corporation v. Federal Insurance Company, a lawsuit filed by the company on December 16, 1991, seeking recovery from Federal, its insurer, of $8.25 million paid by the company in settlement of a class action securities suit. The Order finds in Raychem's favor that the indemnification of officers and directors for settlement payments and defense costs was "permitted by law," that any "allocation" for coverage purposes between the corporation and the officers and directors is improper, and that the officers and directors were acting in their official capacities insofar as the acts alleged to have occurred; further that although Federal has raised no genuine issue of material fact to the contrary, Federal may conduct discovery over a six-month period on whether Raychem's indemnification of the officers and directors was in good faith and whether settlement payments and defense costs were for matters insurable under the law. Raychem was also granted the right to re-notice its motion for partial summary judgment after six months. The company actively continues to pursue its claim that Federal acted in bad faith in connection with its handling of this claim.
On March 8, 1994, a judgment was entered in the company's favor in a lawsuit filed on September 9, 1988, in the Supreme Court of Newfoundland, Canada, Trial Division, Bow Valley, et al. v. Saint John Shipbuilding and Raychem. The plaintiffs had alleged claims for damages arising out of a fire on an offshore drilling platform and made allegations attributing the cause and spread of the fire to heat-tracing and cladding products manufactured by the company. The decision has been appealed by the plaintiffs. The appeal will be
argued in November 1994. On November 30, 1993, a Petition by joint venturers of the plaintiffs in the Bow Valley lawsuit making similar claims was filed in the Supreme Court of Newfoundland, Canada, Trial Division, and was served on the company on March 25, 1994. A New Brunswick lawsuit filed by Saint John Shipbuilding against Raychem Canada, Ltd. arising out of the same incident has been stayed by prior agreement of the parties.
On December 23, 1993, the company and Thomas and Betts Corporation settled all claims and counterclaims in the company's lawsuit for patent infringement filed in the United States District Court, Northern District of California, on August 25, 1992.
On November 30, 1993, the company filed a complaint in the United States District Court, Northern District of California, against PSI Telecommunications, Inc. for patent infringement. On January 21, 1994, PSI Telecommunications, Inc. answered the complaint and filed a counterclaim against the company for declaratory judgment that the patent is invalid and not infringed, and amended its complaint and counterclaim on February 4, 1994. No monetary damages have been alleged. The company believes the counterclaim is without merit.
On August 27, 1993, a Complaint entitled West County Landfill, Inc. v. Raychem International Corporation; FMC Corporation; Kaiser Aluminum & Chemical Corporation; Flint Ink Corporation; Stauffer Chemical Company; Rhone-Poulenc Basic Chemicals Co.; Rhone Poulenc Inc.; Pacific Gas & Electric Company; Union Oil Company of California; Chevron U.S.A., Inc.; Chevron Chemical Company; Shell Oil Company; Desoto, Inc.; Occidental Chemical Corporation; General Motors Corporation; Romic Chemical Corporation; United Airlines, Inc.; United States Department of Defense; United States Department of Navy was filed in the United States District Court, Northern District of California. The allegations contend that the defendants generated hazardous materials which were disposed of at a site operated by plaintiff. Raychem International Corporation is alleged to have done so during the period 1975 through 1979 and perhaps at other times. The complaint seeks recovery of response costs which plaintiff has allegedly incurred in an amount exceeding $15 million.
On August 19, 1993, a Complaint entitled Creole Engineering Co. v. Raychem Corporation, Tri-Systems, and Tracer Construction Company was filed in the United States District Court, Northern District of California. The complaint seeks injunctive relief and monetary damages in excess of $5 million (prior to trebling) for violation of various statutes, including antitrust and unfair competition statutes, for breach of contract, and for other tortious acts. The complaint arises out of a distributor termination by Raychem.
On June 29, 1993, a Second Amended Complaint entitled Unit Process Company; Brock, Easley, Inc.; Bylin Heating Systems, Inc.; and Fluid Flow Control Contractors v. Raychem Corporation; Debenham Electrical Supply Company, Inc.; and K.V.A. Electrical Supply Corp. was filed in the United States District Court, Northern District of California. The complaint seeks damages in excess of $5 million (prior to trebling) per claimant arising out of a distributor termination by Raychem Corporation and contains allegations of violations of federal antitrust statutes and various Washington State statutes. The plaintiffs have recently been granted leave to file a third amended complaint. The Unit Process and Creole Engineering actions will be heard as related actions before the same judge.
On December 14, 1992, a Complaint entitled Culinary Foods, Inc., et al. v. Raychem Corporation was filed in the United States District Court, Northern District of Illinois, asserting liability against the company for alleged property damage and personal injury (a death) arising out of use of the company's FreezGard(R) product. The complaint seeks damages in excess of $50 million. The company intends to vigorously defend itself and has filed a response denying all liability. The matter has been tendered to the company's insurance carriers.
On July 10, 1991, the company received written notice from the California Department of Health Services ("DHS") that it intends to issue an administrative order relating to the clean-up of soil contamination at the company's administrative and manufacturing site in Menlo Park, California. The company is currently negotiating with DHS regarding the proposed administrative order. To date, no administrative order has been issued by DHS.
The company has been named, among others, as an interested party in administrative proceedings instituted by the United States Environmental Protection Agency on March 23, 1989, and as a potentially responsible party in a matter initiated by the California Environmental Protection Agency on September 1, 1992, each alleging that the company may be liable for costs of correcting environmental conditions at certain hazardous waste sites.
Legal proceedings tend to be unpredictable and costly. Based on currently available information, however, management believes that the resolution of pending claims, regulatory inquiries, and legal proceedings will not have a material adverse effect on the company's operating results or financial position.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in the fourth quarter.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all executive officers of the company as of June 30, 1994, their positions with the company and the date each was first elected as, or otherwise deemed to be, an executive officer of the registrant. This table is included as an unnumbered item in Part I of this Form 10-K.
There are no family relationships between any executive officers. All of the executive officers except Messrs. Wirth, Vizas and Abbe have been employed by or associated with the company in their present or other managerial and executive capacities for more than five years. Mr. Wirth was a Vice President at General Electric Company before becoming Senior Vice President and Chief Technical Officer of Raychem in 1991. Mr. Vizas was a member of the law firm of Heller, Ehrman, White & McAuliffe before becoming the Secretary and General Counsel of Raychem in 1990. Mr. Abbe was a Director at McKinsey & Company, Inc. before joining Raychem in 1989.
PART II
ITEM 5.
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Quarterly Financial Data (Unaudited)" of the 1994 Annual Report is incorporated herein by reference and is included in this filing as Exhibit 13.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The section entitled "Ten-Year Summary" of the 1994 Annual Report is incorporated herein by reference and is included in this filing as Exhibit 13.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The section entitled "Financial Review" of the 1994 Annual Report is incorporated herein by reference and is included in this filing as Exhibit 13.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, together with the Notes thereto and the report thereon of Price Waterhouse LLP, dated July 20, 1994, and the section entitled "Quarterly Financial Data (Unaudited)" of the 1994 Annual Report are incorporated herein by reference and are included in this filing as Exhibit 13.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND DISCLOSURE MATTERS
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the company's directors is presented in the subsection entitled "Nominees" appearing on page 2 of the Proxy Statement dated September 21, 1994 (the "1994 Proxy Statement"), which is incorporated herein by reference.
Information regarding the company's executive officers is set forth in Part I of this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing on pages 5 to 9 of the 1994 Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The subsection entitled "Stock Ownership" appearing on page 3 of the 1994 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsection entitled "Company Loans to Directors and Executive Officers" appearing on page 11 of the 1994 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
- ---------------
* Incorporated herein by reference and included in this filing as Exhibit 13.
(2) Financial Statement Schedules
All other Financial Statement Schedules are omitted because they are not required or are not applicable, or the required information is included in the Consolidated Financial Statements or the Notes.
(3) Index to Exhibits
- ---------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. RAYCHEM CORPORATION REGISTRANT
By /s/ ROBERT J. SALDICH (Robert J. Saldich, President and Chief Executive Officer) Date: September 23, 1994
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert J. Saldich and Raymond J. Sims, or either of them, as his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of Raychem Corporation:
Our audits of the consolidated financial statements referred to in our report dated July 20, 1994 appearing on page 17 of Exhibit 13 to this Form 10-K (which is incorporated herein by reference) also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
San Jose, California July 20, 1994
SCHEDULE II
RAYCHEM CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEAR ENDED JUNE 30, 1994 (IN THOUSANDS)
This schedule includes loans to employees and related parties who had aggregate indebtedness with respect to such loans greater than $100,000 at any time during the three most recent fiscal years. Balances at fiscal year-end are current if due within one year, noncurrent if due after one year.
Loans were provided to listed individuals for various purposes during the three-year period ended June 30, 1994. Certain loans were made to employees to enable them to purchase Common Stock, primarily through the exercise of options, and to pay taxes incidental to such stock purchases. Common Stock loans made during the three-year period ended June 30, 1994, are typically repayable over a five-or eight-year term and bear interest at annual rates ranging from 5.0% to 9.1% as of June 30, 1994. Stock loans are collateralized by the Common Stock purchased by the employees except for listed loans to employees resident in the United Kingdom which are not collateralized. In addition, loans were provided to certain employees for housing, relocation, and other assistance with interest rates ranging from 0% to 9.0%.
SCHEDULE II (CONTINUED)
RAYCHEM CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEAR ENDED JUNE 30, 1993 (IN THOUSANDS)
SCHEDULE II (CONTINUED)
RAYCHEM CORPORATION AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEAR ENDED JUNE 30, 1992 (IN THOUSANDS)
SCHEDULE V
RAYCHEM CORPORATION AND SUBSIDIARIES PROPERTY, PLANT & EQUIPMENT YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
- ------------
* Includes property, plant and equipment write-downs of $2,791 related to restructuring and divestitures.
** Includes property, plant and equipment write-downs of $11,931 related to restructuring and divestitures.
SCHEDULE VI
RAYCHEM CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
- ------------
* Includes accumulated depreciation of property, plant and equipment of $1,422 related to restructuring and divestitures.
** Includes accumulated depreciation of property, plant and equipment of $5,826 related to restructuring and divestitures.
SCHEDULE VIII
RAYCHEM CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS* YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)
- ------------
* Allowances are deducted from assets to which they apply.
SCHEDULE X
RAYCHEM CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED JUNE 30, 1994, 1993, AND 1992 (IN THOUSANDS)