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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------
 
                                   FORM 10-K
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED MARCH 31, 1998          COMMISSION FILE NUMBER 0-26092
 
                             C.P. CLARE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                            ------------------------
 
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                MASSACHUSETTS                                    04-2561471
(STATE OR OTHER JURISDICTION OF INCORPORATION       (I.R.S. EMPLOYER IDENTIFICATION NO.)
               OR ORGANIZATION)
 
             78 CHERRY HILL DRIVE                                  01915
                 BEVERLY, MA                                     (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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                                 (978) 524-6700
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                        PREFERRED STOCK PURCHASE RIGHTS
                             (TITLE OF EACH CLASS)
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
 
     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of June 5, 1998, was $104,357,750
 
     The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of June 5, 1998, was 9,383,340
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the 1998 Proxy Statement for the Registrant's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K, are incorporated by
reference in Part III, Items 10, 11, 12 and 13, of this Form 10-K.
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                               TABLE OF CONTENTS
 
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ITEM                                                                PAGE
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PART I
1.    Business....................................................    1
2.    Properties..................................................   10
3.    Legal Proceedings...........................................   10
4.    Submission of Matters to a Vote of Security Holders.........   10
PART II
5.    Market for Registrant's Common Equity and Related
      Stockholder Matters.........................................   11
6.    Selected Financial Data.....................................   12
7.    Management's Discussion and Analysis of Financial Condition
      and Results of Operations...................................   13
7a.   Quantitative and Qualitative Disclosures About Market
      Risk........................................................   18
8.    Financial Statements and Supplementary Data.................   18
9.    Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure....................................   18
PART III
10.   Directors and Executive Officers of the Registrant..........   19
11.   Executive Compensation......................................   19
12.   Security Ownership of Certain Beneficial Owners and
      Management..................................................   19
13.   Certain Relationships and Related Transactions..............   19
PART IV
14.   Exhibits, Financial Statement Schedules and Reports on Form
      8-K.........................................................   20
      (a) Financial Statements and Financial Statement Schedule
      (b) Reports on Form 8-K
      (c) Exhibits
15.   Signatures..................................................   50
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     This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1993, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the section
entitled "Certain Factors Affecting Future Operating Results" on page 9 of this
Form 10-K.
 
                                     PART I
 
ITEM 1.  BUSINESS
 
     C.P. Clare Corporation (the "Company" or "C.P. Clare"), is a leading
provider of high voltage analog semiconductor integrated packages and discrete
components, electromagnetic relays and switches, surge protection devices,
transformers and specialized electronic components to the world's foremost
manufacturers of electronic communications equipment. The Company's products
supply the interface between electrical power sources and electronic components
by providing the basic isolation and switching functions required by electronic
communications applications. The Company's recently introduced semiconductor
products have achieved rapid acceptance and have replaced older technologies or
functions in some established applications.
 
     C.P. Clare is a technology leader in the semiconductor segment of the small
signal relay market. C.P. Clare's semiconductor products are capable of
integrating a number of functions previously provided by discrete components
into one package and have contributed to the development of a number of new
product applications such as 56K PC card modems, modem interfaces to the
Internet, cable set top boxes, and other computer telephony uses such as voice
mail systems. Semiconductor products represent the core of the Company's growth
strategy for communication applications and accounted for 45% and 47% of the
Company's net sales in fiscal years 1998 and 1997, respectively.
 
     C.P. Clare focuses on providing solutions for the telecommunications and
datacommunications industries due to their significant utilization of analog
semiconductor components and growing demand for highly integrated semiconductor
packages. The Company's customers include leading global OEMs such as Motorola,
3Com, Alcatel, GVC, Lucent Technologies, ABB, Samsung, Compaq, Nokia, LM
Ericsson, Dialogic, Diamond Multimedia, Psion, and Daewoo.
 
     C.P. Clare was founded in 1937 to design, manufacture and sell
electromagnetic products, was sold to General Instrument Corporation in 1967 and
operated as a division thereof. Theta-J Corporation, founded in 1975, to design,
manufacture and market semiconductor based electronic components, purchased the
North American, Taiwanese and European operations of the Clare Division of
General Instrument in 1989 (the "1989 Transaction") and changed its name to C.P.
Clare Corporation. The 1989 Transaction resulted in the formation of the Company
in substantially its present form. The Company is incorporated under the laws of
Massachusetts and its principal offices are located at 78 Cherry Hill Drive,
Beverly, Massachusetts, 01915.
 
BACKGROUND
 
     The growth in the worldwide telecommunications and datacommunications
markets is being fueled by the convergence of several technological and market
trends which are leading to a broad and increasing array of communications,
networking, computer telephony and computing products. Advances in computer
hardware and software have accelerated the technological shift to distributed
processing over communications networks. Trends toward portability,
miniaturization and broader functionality have resulted in significant growth in
mobile communications, portable computing and network access products.
 
     Analog semiconductor integrated packages and circuits and discrete
components provide the interface between voltages and currents for a broad range
of products in the telecommunications and datacommunications markets, as well as
for products in a wide array of other applications such as telemetering and
remote access, consumer electronics, appliances, computer peripherals, gaming
equipment, automotive, aerospace, automatic test equipment, industrial controls
and instrumentation. The Company's analog semiconductor integrated packages and
discrete components provide two basic functions required by virtually all
electronic
 
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and electrical products: isolation and switching. Isolation separates the low
current communication signal circuit from the higher power circuit, while the
switching function controls the flow of current.
 
     Various types of integrated packages and components based on semiconductor,
electromechanical and electromagnetic technologies have been developed to meet
these isolation and switching requirements. C.P. Clare designs, manufactures and
sells analog semiconductor and electromagnetic products for voltage, circuit and
other applications such as surge protection and AC power conditioning. These
technologies and resulting products are utilized for various communications
applications based on a number of factors, including performance, sensitivity,
resistance, size, speed and cost.
 
STRATEGY
 
     C.P. Clare's strategy is to expand its technological leadership and
worldwide customer relationships in order to profitably expand its market share
for its semiconductor, electromagnetic, surge protection and specialized
electronic component products in existing and new communications and industrial
applications. Key elements of this strategy are:
 
     Capitalize on Semiconductor Opportunities.  C.P. Clare is a leader in
semiconductor relay technology, offering a broad line of semiconductor products
in a wide variety of package types and specifications. The Company seeks to
significantly expand the application of its semiconductor technology into
existing and new markets such as communications and instrumentation through the
integration of more functions using fewer chips. From its new 5" wafer
fabrication facility ("Facility") in Beverly, Massachusetts, C.P. Clare is
developing new process technologies in order to engineer high voltage analog
integrated circuits. The Company anticipates that new products and additional
capacity from the Facility will better position it for increased product demand
resulting from technology advances in the communications market. During fiscal
year 1998, the Company introduced several new products while maintaining the
startup schedule of the Facility.
 
     Focus on Communications Industry.  The Company has focused primarily on
developing solutions for the computer telephony, datacommunications and
telecommunications industries due to their significant utilization of analog
semiconductor discrete components and electromagnetic switches and relays; and
their increased need for analog semiconductor integrated packages and circuits.
The Company's semiconductor products are an enabling technology in certain
applications such as modems, computer telephony, and communication interfaces.
C.P. Clare's electromagnetic products are integral components in other
applications such as cellular telephones and accessories. During the year,
product sales to the communications industry represented a significant portion
of the Company's total sales. The Company is qualifying processes and designs
which can capitalize on its core competencies of optical isolation, high voltage
analog semiconductor processes, experience with bonded wafer technology and
multi chip packaging for integrated circuits.
 
     New Product Development and Additional Analog Engineers.  The Company has
increased and intends to continue to increase its investment in new product
development and strengthen the functionality of existing products in an effort
to enter new markets and gain share in existing markets. Product development
also includes further integration of new and existing high voltage analog
semiconductor integrated packages and components into fewer circuits. Company
sponsored research and development expenses were $8.9 million (or 5.7% of total
revenues) and $6.5 million (or 5.1% of total revenues), for fiscal years 1998
and 1997, respectively. The Company's core competencies in semiconductor design,
multi chip packaging, and coil winding have allowed it to introduce new products
to existing and prospective customers. During fiscal year 1998, the Company
added several analog engineers to complete its first stage of building a core of
engineers to accelerate new product development and technologies. This is an
integral part of the Company's strategy going forward.
 
     Leverage Customer Relationships and Pursue New Market Opportunities.  The
Company has established long standing customer relationships due to its strong
worldwide brand recognition, broad product offerings, and quality customer
service. The Company intends to further leverage its customer relationships by
offering complementary new products to its existing customer base and by
pursuing new market opportunities.
 
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The Company is capitalizing on its worldwide brand recognition to expand into
new geographic markets and new industries. The Company is seeking to increase
sales to Japan, China, India and Southeast Asia, where significant opportunities
exist for sales of both semiconductor and electromagnetic products.
 
     Acquisitions.  The Company's strategy includes external growth in its
engineering resources and revenue from strategic partnerships and acquisitions.
Such acquisitions may include fabless design organizations, which provide
additional engineering resources to accelerate existing projects and the
development of new products in the high voltage analog semiconductor
application.
 
CUSTOMERS
 
     C.P. Clare has established a broad base of approximately 700 customers
representing a wide range of industries and applications. The communications
industry represents the Company's largest customers due to the industry's
pervasive use of analog semiconductor integrated packages and the need for more
highly integrated high voltage analog circuits. The Company seeks to sell
multiple product solutions to its customers in order to allow C.P. Clare to
become more of a strategic communications products supplier. Sales to customers
outside the United States comprised 42.4%, 38.0%, and 42.6%, of the Company's
net sales for the fiscal years 1998, 1997, and 1996 respectively. For fiscal
years 1998, 1997 and 1996, net sales to Motorola represented 14 %, 17%, and 16%
of net sales, respectively.
 
PRODUCT APPLICATIONS
 
     The Company's products are used in a wide variety of applications,
including telephone network interfaces caller identification uses, high current
MOSFET switching, integrated package testers, high frequency communications,
scanners, and radio frequency equipment. Set forth below is a representative
sample of applications for the Company's semiconductor and electromagnetic
products.
 
  Communications
 
     Telephone Network Interfaces.  The Company develops products for and sells
into interface and network applications for the communications industry. C.P.
Clare was the first to introduce semiconductor products in thin, small flat-pack
packages that integrate the functionality previously provided by a number of
discrete components including relays, surge protection devices and modem
isolation transformers. These products are referred to as the Data Access
Arrangement (DAA). The DAA is an arrangement of discrete components principally
used in analog datacommunications which interface with telephone network
applications. In certain DAA products such as the Cybergate(TM) 2000 and 2100,
the complete DAA function is designed for both US and European markets. This
manufacturing capability has allowed C.P. Clare to become a leading worldwide
supplier of semiconductor analog integrated packages and components to the major
manufacturers of communication products such as PCMCIA card modems. PCMCIA cards
are thin, credit card size modems which insert into a designated slot in mobile
computer equipment, allowing the portable computer to transmit data over
telephone lines and function as a facsimile machine.
 
     Cellular Phones.  Cellular telephones and accessories, which are becoming
commonplace, require a high degree of durability and reliability. The Company's
electromagnetic dry reed switches, an enabling component of the flip phone, are
surface-mountable switches which maintain switch orientation and provide cost-
effective, reliable and automated assembly in small package sizes for wireless,
modem and video switching requirements.
 
  Automated Process Control/Instrumentation and Metering
 
     Metering and Remote Access.  Water, gas, electricity meter reading systems
as well as vending machines and gas pumps have been developed to allow the
remote reading of such systems. Semiconductor relays have been incorporated into
these systems and provide a high speed interface between low level power signals
and the high power output signals required to enhance metering functionality.
 
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     Control Instrumentation.  Operations such as power plants require multiple
processes to be monitored and controlled under a broad range of environmental
conditions. The Company's electromagnetic wetted reed relay, semiconductor and
surge protection products are used to provide isolation and surge protection.
 
  Automatic Test Equipment
 
     Electrical Testers.  Semiconductor and printed circuit board testers
require precise measurement of small, complex products such as integrated
circuits, silicon wafers and printed circuit board assemblies. In each of these
pieces of equipment, test points are created by placing a dry reed relay on each
electrical path. If the test path is functioning correctly, the dry reed relay
is activated. C.P. Clare's dry reed relays feature low capacitance, a critical
feature for this application which requires sensitivity and precision; and are
offered in small surface mount, high frequency signals up to 1 GigaHertz
("GHz").
 
     Security.  The security industry requires low cost, high reliability relay
and switch products for use in proximity sensors, infrared detectors, smoke
detectors, carbon dioxide sensors and supervisory control panels. The Company's
electromagnetic dry reed switches provide a low cost, rugged and reliable switch
for use in proximity sensors which cause the switch to be activated by use of an
external magnet when a door or window is opened.
 
PRODUCTS
 
     The Company manufactures several hundred standard products and also
develops and manufactures products for specific customer applications. The
Company has two major product families: analog semiconductor products, which
include relays, optocouplers and integrated packages; and electromagnetic
products, which include reed relays, switches, magnetic components, modem
isolation transformers and surge protection products which are often
complementary to the Company's semiconductor products. Each product line builds
on one or more of the Company's core competencies in the areas of semiconductor
technology design and processing, multi chip packaging, coil winding,
ceramic-to-metal sealing and materials processing.
 
  SEMICONDUCTOR PRODUCTS
 
     The Company manufactures a wide variety of semiconductor products
consisting primarily of high voltage analog components, optocouplers and
integrated packages which are sold in a broad line of over 270 configurations.
The Company's semiconductor products are sold primarily to communications
customers and are also utilized in a number of applications in other industries
such as automated process control, data acquisition, aerospace and
transportation. Semiconductor products achieve the required isolation and
switching functions with no moving parts, eliminating the mechanical wear
typically associated with other types of electromagnetic relays, thus improving
reliability with low distortion. The Company has integrated several additional
functions into one small package, thereby further reducing board size
requirements and providing the user with lower component and assembly costs. The
Cybergate(TM) 2000 data access arrangement series allows the Company to sell
more of its components into those analog datacommunications applications where
multiple discrete components are typically used.
 
  ELECTROMAGNETIC PRODUCTS
 
     The Company manufactures a broad range of electromagnetic products
consisting of dry reed switches and relays and magnetic components, used in
applications such as modems, sensors and transformers. The Company's
electromagnetic products are sold primarily to the communications industry and
are also sold to other industries such as industrial and automated process
control, transportation, home security, aerospace and transportation. The
electromagnetic switch consists of two flat metal blades, or reeds, which are
encapsulated in a glass tube and hermetically sealed in an inert atmosphere.
Switches are opened or closed by use of an external magnetic field. The switch
is the basic component of the electromagnetic relay which is formed by winding a
wire coil around the switch. When an electrical signal is applied to the coil,
it creates an electromagnetic field which causes the switch to open or close.
The Company has succeeded in offering a miniaturized, surface mount, high
frequency products to its customers.
 
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     Dry Reed.  The Company's dry reed switch, the DYAD(R), has electrical
contacts which have an extremely hard refractory metal applied to the contacts.
The DYAD(R) was the first commercially available switch to have surface mount
capabilities which maintain orientation between the pads and the switch. Surface
mounting allows for the automated placement of the switch onto circuit boards,
thus lowering manufacturing costs. The Company's DYAD(R) switch has a rugged
design which may increase product life and has lower bounce, which provides less
electronic noise and is particularly important for applications with a high
degree of sensitivity. Dry reed products, which can be manufactured in high
volumes at low cost, can function through millions of operations and have low
resistance, which causes less heat generation and power consumption.
 
     The communications industry, with products such as cellular phones, modems
and facsimile machines, represents the largest market for dry reed switches and
relays. Dry reed switches are also widely used in automatic test equipment
applications, due to their high sensitivity and low resistance, and alarm
sensors for residential and commercial security applications.
 
     Wetted Reed.  The Company sources its wetted reed switches from a dedicated
supplier. The wetted reed high performance switch uses a liquid mercury film
which is applied or wetted to the electrical contacts. This mercury-to-mercury
connection when the switch is closed provides the lowest contact resistance and
the least distortion of all switch technologies. Wetted reed products provide
advantages similar to those of dry reed products but are able to offer higher
performance characteristics. The Company's wetted reed products are primarily
used in telecommunications applications such as central office equipment,
telephone switching gear, telephone test systems and PBXs. Wetted reed products
are also used in process control applications and the instrumentation market in
precision measuring and watt meter applications.
 
     Magnetic Components.  The Company provides application-specific
engineering, design and manufacturing subcontracting services for magnetic
components and power conditioning, ranging from small coil windings that may be
attached to printed circuit boards, to magnetic subassemblies, such as
solenoids, used by customers in the computer, automotive, power supply and
lighting markets. The Company has developed a standard telecommunications
transformer designed to replace isolation transformers currently used in large
volumes in communications applications, and offers a modem isolation transformer
in the semiconductor DAA product. In fiscal year 1998, the Company renamed its
magnetic components division to C.P. Clare Remtech Division.
 
  SURGE PROTECTION PRODUCTS
 
     The Company manufactures gas tube surge arresters which utilize the
ionization characteristics of certain gases to provide continual protection from
damaging electrical surges caused by events such as lightning strikes or heavy
equipment start ups. In addition, the Company produces small quantities of
special purpose, larger capacity, high energy surge arresters. The Company's
surge protection products have high insulation resistance, low capacitance and
high current handling capability, and are used for circuit protection in
telecommunications, data transmission lines, AC power lines, cable TV systems
and power supplies.
 
PRODUCT DEVELOPMENT
 
     The Company intends to build upon its capability of innovation in both the
semiconductor and electromagnetic market segments. The Company's product
development strategy is driven by two objectives: meeting customer application
requirements and extending the Company's technical capabilities. The Company has
focused on utilizing its relationships with key OEMs and its applications
engineering capability to enhance existing products and develop new products.
 
     Semiconductor Products.  The Company has developed new semiconductor
integrated products which offer increased, integrated functionality in one
package. The Company is also developing high voltage analog integrated circuits,
designed to be smaller, more functional and less expensive than other
semiconductor relay chips and designed to replace the electromechanical relay in
certain applications. These new products are targeted to the mixed signal
interface of datacommunications products. Also under development are products
 
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for certain telephone line card access, data acquisition, medical electronics
and automated process control applications.
 
     Electromagnetic Products.  The Company is engaged in a number of product
development projects for both dry reed switches and relays. Dry reed switch
product development is focusing on further miniaturizing the product with a
design similar to that of the DYAD(R) in order to address the market trend
toward smaller products, especially in certain applications in the security and
automatic test equipment markets, as well as for higher frequency switching
applications.
 
SALES AND DISTRIBUTION
 
     C.P. Clare sells its products to its worldwide customers through a network
of direct salespeople, contract sales representatives and distributors in North
America, Europe, Japan and the Far East.
 
     Sales through distributors represented 16% of the Company's overall sales
in fiscal year 1998. In general, sales representatives and distributors have
entered into agreements that allow for termination by either party upon 30 days
notice and return by distributors of some of the Company's products. These
agreements generally allow representatives and distributors to market and sell
products competitively with those of the Company and generally permit
representatives and distributors to return a portion of products purchased by
them during the term of such agreements and to return all products (other than
obsolete products) purchased by them upon termination of such agreements.
 
BACKLOG
 
     The Company's backlog method includes only those purchase orders scheduled
for shipment within 6 months following the order date. As of March 31, 1998, six
month order backlog was approximately $34.3 million compared with six month
backlog of $32.6 million as of March 31, 1997. Although the Company's contract
terms may vary from customer to customer, purchasers of standard products may
generally cancel or reschedule orders without significant penalty. Since backlog
can be canceled or rescheduled, the Company's backlog at any time is not
necessarily indicative of future revenue.
 
MANUFACTURING
 
     The Company's Beverly, Guadalajara and St. Louis manufacturing facilities
are ISO 9001 certified. ISO 9001 certification is an international certification
for quality control systems, the receipt of which emphasizes the Company's
commitment to quality control and assists the Company in becoming a qualified
supplier for certain customers.
 
     Semiconductor Products.  The manufacturing of semiconductor products
involves two general phases of production: the wafer fabrication (chip
manufacturing) process, and the assembly (chip packaging) process. The Company's
Massachusetts wafer fabrication facilities design, manufacture and test chips.
All fabricated chips are shipped for assembly to a subcontractor in the
Philippines. Certain assembled relays are returned to Massachusetts for testing,
packaging, and shipment to the customer.
 
     Electromagnetic Products.  The Company manufactures dry reed switches in
St. Louis, Missouri and assembles relays in Guadalajara, Mexico. In January,
1997, the Company sold the Tongeren Manufacturing Company ("TMC") to Gunther,
GmbH. This allowed the exit from a high cost wetted reed manufacturing
environment, while maintaining a strong European sales and marketing presence.
Wetted reed switches are purchased from the new owners of TMC in Tongeren,
Belgium under a long-term supply agreement. In March, 1998 the Company closed
its dry reed relay assembly operation in Chitu, Taiwan and shifted production to
Guadalajara, Mexico. Magnetic components are designed and assembled in
Guadalajara, Mexico.
 
     The Company's Mexican facilities perform assembly operations for all non
semiconductor business units and account for a significant portion of the
Company's overall manufacturing output. These facilities were established and
are operated under the Maquiladora program. In general, a company that operates
under the
 
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program is required to export at least 80% of its production from Mexico and is
afforded certain duty and tax preferences and incentives on products brought
back into the United States.
 
COMPETITION
 
     The markets in which the Company operates are highly competitive, and the
Company faces competition from a number of different manufacturers in each of
its product areas and geographic markets. The principal competitive factors
affecting the market for the Company's products include performance,
functionality, price, brand recognition, product size, customer service and
support and reliability.
 
     Many of the Company's competitors have substantially greater financial,
marketing, technical, manufacturing and distribution resources than those of the
Company. While the Company believes that its broad product offerings, worldwide
sales coverage, customer service and brand recognition enable the Company to
compete effectively, there can be no assurance that the Company will be able to
continue to do so.
 
EMPLOYEES
 
     As of March 31, 1998, the Company had 1,719 total employees including 1,517
in manufacturing, 88 in sales and marketing, 52 in research and development and
62 in administration. While none of the Company's United States employees are
unionized, the Company's employees in Mexico and Taiwan are represented by
government mandated collective bargaining agreements. The Company believes that
its relations with employees are generally good.
 
PROPRIETARY RIGHTS
 
     At March 31, 1998, the Company held a number of United States and foreign
patents and trademarks. The Company has additional U.S. and foreign patent and
trademark applications pending. The Company intends to continue to seek patents
on its products, as appropriate. The Company believes, that although these
patents may have value, given the rapidly changing nature of the industries in
which the Company competes, the Company depends primarily on the technical
competence and creativity of its technical work force and its ability to
continue to introduce product improvements rapidly. The Company does not believe
that the success of its business is materially dependent on the existence,
validity or duration of any patent, license or trademark.
 
     The Company attempts to protect its trade secrets and other proprietary
rights through formal agreements with employees, customers, suppliers and
consultants. Each employee of the Company is required to sign an agreement
regarding ownership of proprietary rights and trade secrets. Although the
Company intends to protect its intellectual property rights vigorously, there
can be no assurance that these and other security arrangements will be
successful. The process of seeking patent protection can be long and expensive,
and there can be no assurance that existing patents or any new patents that may
be issued will be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to the Company. The Company may be
subject to or may initiate interference proceedings in the patent office, which
can demand significant financial and management resources. The Company has from
time to time received, and may in the future receive, communications from third
parties asserting patents on certain of the Company's products and technologies.
Although the Company has not been a party to any material intellectual property
litigation other than that described herein, in the event any third party were
to make a valid claim and a license were not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation, which could result in substantial cost to and
diversion of resources of the Company, may also be necessary to enforce patents
or other intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. The failure to obtain
necessary licenses or the occurrence of litigation relating to patent
infringement or other intellectual property matters could have a material
adverse affect on the Company's business and operating results.
 
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ENVIRONMENTAL
 
     The Company's facilities are regulated pursuant to foreign, state and
federal statutes, including those addressing hazardous waste, clean water and
clean air. The Comprehensive Environmental Response, Compensation and
Liabilities Act of 1980, as amended (the "Superfund Act"), imposes retroactive,
strict and, in certain cases, joint and several liability upon certain persons
in connection with the cleanup of sites at which there has been a release or
threatened release of hazardous substances into the environment. The Superfund
Act provides for immediate response and removal actions coordinated by the
Environmental Protection Agency to releases of hazardous substances into the
environment, and authorizes the government to respond to the release or
threatened release of hazardous substances or to order persons responsible for
any such release to perform any necessary cleanup. The statute imposes liability
for these responses and other related costs, including the cost of damages to
natural resources, to the parties involved in the generation, transportation and
disposal of such hazardous substances and to those who currently own or operate
or who previously owned or operated the property upon which such releases
occurred. Under the statute, and given the manufacturing processes used by the
Company, the Company may be deemed liable as a generator or transporter of a
hazardous substance which is released into the environment, or as the current or
former owner or operator of a facility from which there is a release of a
hazardous substance into the environment. The Company has not to date had any
action brought against it under the Superfund Act, but there can be no assurance
that there will be no action brought against the Company in the future. Local
sewer discharge requirements are applicable to certain of the Company's
facilities. The Company's facilities are subject to local siting, zoning and
land use restrictions. The Company believes it is in compliance with all
foreign, federal, state and local laws regulating its business. The Company,
however, has not undertaken a comprehensive review of its properties to
determine whether or not hazardous materials have been discharged at any time in
the past, whether by the Company or a previous occupant of the facility. Any
failure by the Company to control the use of, or to restrict adequately the
discharge of, hazardous materials under present or future regulations could
subject the Company to fines or substantial liability. In addition, the Company
could be held financially responsible for remedial measures if its properties
were found to be contaminated whether or not the Company was responsible for
such contamination.
 
     An environmental site investigation commissioned by the Company in 1992, on
its West Pratt Avenue facility in Chicago, Illinois ("Site"), reported evidence
of contamination at the Site. The Company voluntarily reported the discovery to
the Illinois Environmental Protection Agency ("IEPA"), and has since been
involved in discussions with IEPA and the U.S. Environmental Protection Agency
regarding the implications of the investigation and the need for further
investigation and remedial work. The Company and General Instrument, the former
Site owner, have agreed to share the costs of implementing the proposed cleanup
plan at both the Site and the adjacent properties. Pursuant to that agreement,
General Instrument will pay for 75% of the costs of the soil remediation and
related environmental cleanup costs, and the Company will bear 25% of such costs
and the complete cost of removing asbestos from the building structure and
building demolition. The agreement is subject to a reservation of both parties'
rights to reallocate these costs or litigate concerning final liability at the
Site. If a final accounting acceptable to C.P. Clare cannot be attained, C.P.
Clare may commence litigation against General Instrument to recover its fair
share of such costs.
 
     During fiscal 1997 and fiscal 1998, the Company completed remediation of
the Site to industrial/commercial standards. The Company has received a
no-further-remediation letter from the IEPA and is in discussions regarding the
sale of the Site. See Note 8 of Notes to Consolidated Financial Statements.
 
     Further testing has confirmed that some of the contamination has migrated
onto two adjacent properties. The Company and General Instrument are continuing
to address contamination that has been found on adjacent sites. The Company has
completed the remediation agreed to by the parties on one of the adjacent sites
and expects that such site will receive a no further remediation letter with
respect to the remediation completed by the Company.
 
     Management continues to analyze the estimated environmental remediation
liability and has accrued additional amounts when known events have required
revised estimates. However, given the current stage of the remediation process
and the magnitude of contamination found at the Site and adjacent sites, the
ultimate
 
                                        8
<PAGE>   11
 
disposition of this environmental matter could have a significant negative
impact on the Company's consolidated financial results for a future reporting
period.
 
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
 
     The information contained in and incorporated by reference in this Form
10-K contains forward-looking statements with the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company's actual results could differ materially
from those set forth in the forward looking statements. Factors that may affect
future operating results include:
 
     Development of New Products.  The markets for the Company's products are
characterized by technological change and new product introductions. In
particular, the Company is dependent on the communications industry which is
characterized by intense competition and rapid technological change. The Company
expects sales to the communications industry to continue to represent a
significant portion of its sales for the foreseeable future. A decline in demand
for communications related equipment such as facsimile machines, modems and
cellular telephones would cause a significant decline in demand for the
Company's products. The Company has invested heavily over the past several years
in the capital expenditures necessary to develop its new products. Slower than
expected acceptance of these new products will have the effect of adversely
affecting the Company's operating results. To remain competitive, the Company
must continue to develop new process and manufacturing capabilities to meet
customer needs and introduce new products that reduce size and increase
performance. If the Company is unable to develop such new capabilities or is
unable to design, develop and introduce competitive new products, its operating
results would be adversely affected.
 
     Customer Concentration.  In fiscal year 1998, the Company's ten largest
customers accounted for 35% of total net sales as compared to 37% in fiscal year
1997. The Company is highly reliant upon continued revenues from its largest
customers and any material delay, cancellation or reduction of orders from these
customers could have a material, adverse effect on the Company's future results.
 
     International Operations.  The Company's international operations are
subject to several risks including, but not limited to, fluctuations in the
value of foreign currencies, changes to import and export duties or regulations,
greater difficulty in collecting accounts receivable and labor unrest. While to
date these factors have not had a material impact on the Company's results,
there can be no assurance that there will not be such an impact in the future.
 
     Competition.  C.P. Clare competes with various companies across the world.
Certain of the Company's competitors may have greater manufacturing, engineering
or financial resources than the Company. There can be no assurance for the
Company's performance under competitive market conditions.
 
     Full Operation of the New Wafer Fabrication Facility.  The Company recently
completed construction of a larger, more advanced semiconductor facility in
Beverly, Massachusetts to address current capacity constraints and operating
efficiencies in the production of its semiconductor products. Delays in the
delivery of equipment or the full qualification of the new facility could delay
the full operation of the new facility. Any such delay would have a material,
adverse effect on the Company's future operating results. The new facility must
be effectively and fully utilized in order for the Company's projected
efficiencies to be fully realized. Delays in full and effective utilization will
have a material, adverse effect on the Company's future operating results.
 
     Reliance on Key Suppliers.  The Company relies on certain suppliers of raw
materials and services for sole source supply of critical items. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's needs effectively and on a timely basis and any such disruption could
have a material, adverse impact on future results.
 
     New Systems.  The Company is in the process of implementing an Oracle
Enterprise Resource Planning ("ERP") system for all applications and locations.
The Company has been informed by the vendor that this new system is compliant
with year 2000 issues. This effort is consuming significant resources of the
Company and implementation of various applications is scheduled throughout
fiscal year 1999. As a result of the systems
 
                                        9
<PAGE>   12
 
transition, the Company may experience business disruptions or year 2000
compliance issues which may have material, adverse impact on the Company's
results of operations.
 
     Fluctuations in Operating Results.  The Company has experienced fluctuation
in its operating results in the past and its operating results may fluctuate in
the future. The Company has increased the scope and geographic area of its
operations. This expansion has resulted in new and increased responsibilities
for management personnel and has placed pressures on the Company's operating
systems. These operating systems are in the process of being updated and
centralized, while the existing operating systems are phased out. The Company's
future success will depend to a large part on its ability to manage these
changes and manage effectively its remote offices and facilities.
 
ITEM 2.  PROPERTIES
 
     C.P. Clare, headquartered in Beverly, Massachusetts, operates the following
manufacturing facilities worldwide:
 
<TABLE>
<CAPTION>
LOCATION                         SQUARE FOOTAGE    INTEREST            PRODUCTS MANUFACTURED
--------                         --------------    --------    -------------------------------------
<S>                              <C>               <C>         <C>
Beverly, Massachusetts.........      83,000         Leased            Corporate Headquarters
                                                                      Semiconductor Products
Wakefield, Massachusetts.......      25,000         Leased            Semiconductor Products
St. Louis, Missouri(1).........      20,000         Leased     Dry Reed Products and Surge Arresters
Guadalajara, Mexico(1).........     193,000         Leased       All products except Semiconductor
</TABLE>
 
---------------
(1) Multiple locations.
 
     The Company also leases additional sales offices in Illinois, Florida and
California in the United States, and also in Belgium, Canada, France, Germany,
Japan, and Taiwan. The Company believes its office facilities are adequate for
its current needs.
 
     The Company also has a site located at 3101 West Pratt Avenue, Chicago,
Illinois which the Company does not use and is being marketed to a commercial
buyer. See "Business -- Environmental."
 
ITEM 3.  LEGAL PROCEEDINGS
 
     The Company is subject to routine litigation incident to the conduct of its
business. None of such proceedings is considered material to the business or
financial condition of the Company.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                       10
<PAGE>   13
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock began trading on The Nasdaq National Market (the
"Nasdaq") on June 21, 1995, under the symbol "CPCL". The following table sets
forth the quarterly high and low closing sales prices per share reported on the
Nasdaq.
 
<TABLE>
<CAPTION>
                             QUARTER ENDED                                  HIGH    LOW
                             -------------                                  ----    ----
<S>              <C>  <C>                                                   <C>     <C>
April 1, 1997     --  June 30, 1997.....................................    $15 3/4 $8 1/8
July 1, 1997      --  September 30, 1997................................    19 7/8  13 1/2
October 1, 1997   --  December 31, 1997.................................    20      12 3/8
January 1, 1998   --  March 31, 1998....................................    16 5/8  12 1/8
</TABLE>
 
     On June 5, 1998, the last reported sale price of the Common Stock on the
Nasdaq was $12.50. On June 5, 1998, there were 153 holders of record of the
Company's Common Stock.
 
DIVIDEND POLICY
 
     The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements and earnings of the Company, as well
as other factors the Board of Directors may deem relevant. In addition, the
Company is currently restricted under the terms of certain credit agreements
from paying dividends in certain circumstances to stockholders.
 
                                       11
<PAGE>   14
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The following table sets forth selected consolidated financial and other
information on a consolidated historical basis for the Company and its
subsidiaries as of and for each of the years in the five-year period ended March
31, 1998. This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere in
this Form 10-K.
 
<TABLE>
<CAPTION>
                                                      FISCAL YEARS ENDED MARCH 31,
                                         ------------------------------------------------------
                                          1994       1995        1996        1997        1998
                                         -------    -------    --------    --------    --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                      <C>        <C>        <C>         <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
  Net sales............................  $75,970    $95,992    $127,928    $128,161    $156,271
  Cost of sales........................   58,425     69,546      86,464      85,603     107,427
                                         -------    -------    --------    --------    --------
     Gross profit......................   17,545     26,446      41,464      42,558      48,844
  Operating expenses:
     Selling, general and
       administrative..................   12,155     17,143      23,857      28,330      28,157
     Research and development..........    2,489      3,532       4,447       6,543       8,869
     Restructuring costs(1)............      730        727          --      14,250          --
                                         -------    -------    --------    --------    --------
  Operating income (loss)..............    2,171      5,044      13,160      (6,565)     11,818
  Interest income......................       --         --       1,052       1,578       1,454
  Interest expense.....................   (2,942)    (2,841)     (1,300)       (452)       (215)
  Other income (expense), net..........      190        476         (20)         (8)        135
                                         -------    -------    --------    --------    --------
  Income (loss) before provision for
     income taxes and extraordinary
     gain..............................     (581)     2,679      12,892      (5,447)     13,192
  Provision for income taxes...........       44      1,342       5,158       1,464       4,880
                                         -------    -------    --------    --------    --------
  Income (loss) before extraordinary
     gain..............................     (625)     1,337       7,734      (6,911)      8,312
  Extraordinary gain on early
     retirement of debt................    1,340      1,742          --          --          --
                                         -------    -------    --------    --------    --------
     Net income (loss).................  $   715    $ 3,079    $  7,734    $ (6,911)   $  8,312
                                         =======    =======    ========    ========    ========
  Basic and diluted earning (loss) per
     share(2)
  Basic earnings (loss) per share:
     Income (loss) before extraordinary
       gain............................  $ (0.21)   $  0.45    $   1.22    $  (0.77)   $   0.90
     Extraordinary gain................     0.45       0.59          --          --          --
                                         -------    -------    --------    --------    --------
     Net income (loss).................     0.24       1.04        1.22       (0.77)   $   0.90
                                         =======    =======    ========    ========    ========
  Diluted earnings (loss) per share
     Income (loss) before extraordinary
       gain............................  $ (0.18)   $  0.26    $   0.95    $  (0.77)   $   0.83
     Extraordinary gain................     0.39       0.35          --          --          --
                                         -------    -------    --------    --------    --------
     Net income (loss).................     0.21       0.61        0.95       (0.77)       0.83
                                         =======    =======    ========    ========    ========
  Weighted average number of common
     shares outstanding:
     Basic.............................    2,924      2,948       6,316       8,992       9,280
                                         =======    =======    ========    ========    ========
     Diluted...........................    3,472      5,081       8,176       8,992       9,967
                                         =======    =======    ========    ========    ========
CONSOLIDATED BALANCE SHEET DATA:
  Total Assets.........................  $42,883    $55,271    $115,208    $111,170    $114,186
  Long-term debt, net of current
     portion...........................   16,682     15,969       4,034         550          --
</TABLE>
 
---------------
(1) See Note 9 of the Notes to Consolidated Financial Statements for more
    information about the fiscal year 1997 restructuring costs.
 
(2) See Note 2(e) of the Notes to Consolidated Financial Statements.
 
                                       12
<PAGE>   15
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
     C.P. Clare is a leading provider of high voltage analog semiconductor
integrated packages and discrete components, electromagnetic relays and
switches, surge protection devices, transformers and specialized electronic
components to the world's foremost manufacturers of electronic communications
equipment.
 
RESULTS OF OPERATIONS
 
     The following table sets forth the relative percentages of certain income
and expense items to net sales for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                FISCAL YEARS ENDED
                                                                     MARCH 31,
                                                              -----------------------
                                                              1996     1997     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%   100.0%
Cost of sales...............................................   67.6     66.8     68.7
                                                              -----    -----    -----
  Gross profit..............................................   32.4     33.2     31.3
Operating expenses:
  Selling, general and administrative.......................   18.6     22.1     18.0
  Research and development..................................    3.5      5.1      5.7
  Restructuring costs.......................................     --     11.1       --
                                                              -----    -----    -----
Operating income (loss).....................................   10.3     (5.1)     7.6
Interest income.............................................    0.8      1.2      0.9
Interest expense............................................   (1.0)    (0.4)    (0.1)
                                                              -----    -----    -----
Income (loss) before provision for income taxes.............   10.1     (4.3)     8.4
Provision for income taxes..................................    4.1      1.1      3.1
                                                              -----    -----    -----
  Net income (loss).........................................    6.0%    (5.4)%    5.3%
                                                              =====    =====    =====
</TABLE>
 
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
 
     Net Sales.  In fiscal 1998, net sales increased to $156.3 million compared
with $128.2 million in fiscal 1997, an increase of 21.9%. Sales volume of the
Company's semiconductor products increased by 16.2%. Electromagnetic and other
products increased 27%.
 
     The Company's semiconductor products are primarily used in data
communication applications such as modems and sales have grown significantly
over the last few years as Internet usage has expanded. The Company believes
that the delay in adoption of a standard for 56 Kbps modem technology by the
International Telecommunications Union has slowed the potential growth of the
modem market place as customers postponed buying decisions awaiting a
finalization of the standard.
 
     The Company's electromagnetic products are primarily used in
telecommunication applications such as telephone switching gear, cellular phones
and accessories. The continued increased usage of cellular phones has been a
growth driver for the Company's dry reed switch business and the Company is
currently expanding capacity in this operation. Another area of growth in
electromagnetic products has been in the C.P. Clare Remtech Division, which
provides application specific design and manufacturing of magnetic components
for various uses.
 
     Net sales by major product category were as follows:
 
<TABLE>
<CAPTION>
                                                                FISCAL YEARS ENDED
                                                                    MARCH 31,
                                                                ------------------
                                                                 1997       1998
                                                                -------    -------
                                                                  (IN MILLIONS)
<S>                                                             <C>        <C>
Semiconductor products......................................     $60.0      $69.7
Electromagnetic and other products..........................      68.2       86.6
</TABLE>
 
                                       13
<PAGE>   16
 
     Net sales to customers located outside the United States (primarily Europe
and Asia) increased 36.3% in fiscal 1998 to $66.4 million from $48.7 million in
fiscal 1997, primarily due to increased demand in the Far East and Europe. Net
sales to customers in Europe represented 29.6% of the Company's net sales for
fiscal 1998 and increased 46.7% in local currencies and 28.1% in U.S. dollars
compared with the prior year and was impacted by a significant shifting of
production by a key customer from the U.S. to Europe. Net sales to customers in
Asia represented 12.8% of the Company's net sales for fiscal 1998 and increased
39.8% in local currencies and 61.5% in U.S. dollars compared with the prior
year.
 
     The Company expects that foreign sales will continue to account for a
substantial portion of product sales. Continued economic and currency related
uncertainties in a number of foreign countries, especially in Asia, could reduce
the Company's sales to these markets. The Company will continue to focus on new
markets and expansion of certain existing international markets.
 
     Gross Profit.  The Company's gross profit as a percentage of net sales
decreased to 31.3% in fiscal 1998 from 33.2% in fiscal 1997. The decrease in
gross profit was primarily due to start up costs related to the new
semiconductor wafer fabrication facility and the impact of the strengthening
U.S. dollar on the Company's international sales, mostly in Europe.
 
     Selling, General and Administrative Expense (SG&A).  SG&A expenses of $28.2
million in fiscal 1998 were flat as compared to fiscal 1997, and decreased as a
percentage of net sales to 18% in fiscal 1998 from 22.1% in fiscal 1997. The
largest single component of the fiscal 1997 expense was a non-recurring,
environmental charge of $2.1 million. Excluding this non-recurring charge, SG&A
expense would have increased to $28.2 million in fiscal 1998 from $26.2 million,
and decreased as a percentage of net sales to 18% in fiscal 1998 from 20.4% in
fiscal 1997. After excluding this charge, the dollar increase in SG&A spending
of $2.1 million in fiscal 1998 primarily relates to increase selling and
marketing costs associated with increased sales volume.
 
     Research and Development Expense.  Research and development expense
increased in fiscal 1998 to $8.9 million from $6.5 million in fiscal 1997 and
increased as a percentage of net sales to 5.7% in fiscal 1998 from 5.1% in
fiscal 1997, as a result of increased investments in new product development
programs, primarily for semiconductor products. The Company expects to maintain
its current rate of research and development spending as current R&D programs
are continued, especially at the Company's new semiconductor facility in
Beverly, Massachusetts.
 
     Restructuring Costs.  In fiscal 1997, the Company recorded a restructuring
charge of $14.3 million, or $1.42 per share after income taxes, to restructure
operations primarily in the Company's reed relay business. The restructuring
charge included costs associated with the sale of the Tongeren Manufacturing
Company ("TMC"), workforce reductions and worldwide facilities realignment. The
sale of TMC was consummated in January, 1997. The costs associated with the sale
of TMC were primarily the write-down of the Company's investment in its foreign
subsidiary and other Company costs associated with transfer of the facility.
Workforce reduction costs include severance costs related to involuntary
terminations. See Note 9 of Notes to Consolidated Financial Statements.
 
     Interest Income.  Interest income decreased in fiscal 1998 to $1.5 million
from $1.6 million in fiscal 1997 due to a lower cash balance. Interest income
was derived from the short-term investment of the Company's cash in both
commercial paper and tax exempt variable rate municipal bonds.
 
     Interest Expense.  Interest expense decreased in fiscal 1998 to $0.2
million from $0.5 million in fiscal 1997. This decrease was primarily the result
of the Company's further paydown of its remaining long term debt during fiscal
1998.
 
     Other Income (Expense), net.  Other income in fiscal 1998 was primarily
comprised of net foreign currency exchange transaction gains offset by other
expenses. In fiscal 1997, other expense was primarily comprised of net foreign
currency exchange transaction losses offset by other income.
 
     Income Taxes.  Income tax expense increased to $4.9 million in fiscal 1998,
a 37% effective tax rate, from $1.5 million in fiscal 1997, a 26.9% effective
tax rate. The Company's effective income tax rate in 1998 is
 
                                       14
<PAGE>   17
 
less than the combined federal, state and foreign tax rates due primarily to
utilization of state tax credits and investment income derived from tax exempt
securities. In fiscal 1997, the Company incurred a net operating loss before
income taxes. However, the Company did not record a benefit for income taxes in
fiscal 1997 because the Company anticipated it would not be able to fully
utilize the losses associated with the restructuring, effectively increasing the
Company's tax rate to 26.9%. See Note 12 of Notes to Consolidated Financial
Statements.
 
     At March 31, 1998, the Company had net operating loss carryforwards in the
United States and Taiwan of approximately $9.2 million. The Company also had
capital loss carryforwards of approximately $25.0 million in the United States.
The Company's ability to use its United States net operating loss carryforwards
against taxable income is subject to limitations under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), due to the change in
ownership of the Company in 1989. The Company's ability to use its capital loss
carryforwards is subject to its ability to generate future capital gains to
offset these capital losses. Accordingly, the Company has not benefited from all
its net operating and capital loss carryforwards. See Note 12 of Notes to
Consolidated Financial Statements.
 
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
 
     Net Sales.  In fiscal 1997, net sales remained consistent at $128.2 million
compared with $127.9 million in fiscal 1996. Sales volume of the Company's
semiconductor products increased by 28% which increase was offset by
significantly lower sales volume of reed relay and surge protection products. In
fiscal 1997, the Company's electromagnetic and other products sales decreased to
$68.2 from $81.0 or 15.8%, primarily due to lower demand of the Company's reed
relays and surge arrester products. The lower demand for wetted reed relays led
the Company to announce a restructuring of its operations, in order to gain
efficiencies in this declining market. See Note 9 of Notes to Consolidated
Financial Statements.
 
     Net sales by major product category were as follows:
 
<TABLE>
<CAPTION>
                                                                FISCAL YEARS ENDED
                                                                    MARCH 31,
                                                                ------------------
                                                                 1996       1997
                                                                -------    -------
                                                                  (IN MILLIONS)
<S>                                                             <C>        <C>
Semiconductor products......................................     $46.9      $60.0
Electromagnetic and other products..........................      81.0       68.2
</TABLE>
 
     Net sales to customers located outside the United States (primarily Europe
and Asia) decreased 10.6% in fiscal 1997 to $48.7 million from $54.5 million in
fiscal 1996, primarily due to decreased sales volume in Europe as a result of
decreased demand for the Company's wetted reed switches and relays and
unfavorable foreign exchange translation, which were partially offset by
increased sales in Asia.
 
     Gross Profit.  The Company's gross profit as a percentage of net sales
improved to 33.2% in fiscal 1997 from 32.4% in fiscal 1996. The increase in
gross profit was primarily attributable to a more favorable product mix, which
included increased sales of the Company's higher margin semiconductor products,
which was partially offset by the growth in sales of the Company's lower margin
advanced magnetics products.
 
     Selling, General and Administrative Expense (SG&A).  SG&A expense increased
in fiscal 1997 to $28.3 million from $23.9 million in fiscal 1996, and increased
as a percentage of net sales to 22.1% in fiscal 1997 from 18.6% in fiscal 1996.
The largest single component of the dollar and percentage increase was the
result of a $2.1 million non-recurring environmental charge. See Note 8 of Notes
to Consolidated Financial Statements. Excluding this non-recurring environmental
charge, SG&A expense would have increased in fiscal 1997 to $26.2 million from
$23.9 million in fiscal 1996, and increased as a percentage of net sales to
20.4% in fiscal 1997 from 18.6% in fiscal 1996. The increase in SG&A expenses
primarily relates to increased marketing expenditures, additional sales office
locations and increased communication costs compared to fiscal 1996.
 
     Research and Development Expense.  Research and development expense
increased in fiscal 1997 to $6.5 million from $4.4 million in fiscal 1996 and
increased as a percentage of net sales to 5.1% in fiscal 1997
 
                                       15
<PAGE>   18
 
from 3.5% in fiscal 1996, as a result of increased investments in new product
development programs, primarily for semiconductor products.
 
     Restructuring Costs.  In fiscal 1997, the Company recorded a restructuring
charge of $14.3 million, or $1.42 per share after income taxes, to restructure
operations primarily in the Company's reed relay business. The restructuring
charge includes costs associated with the sale of the Tongeren Manufacturing
Company ("TMC"), workforce reductions and worldwide facilities realignment. The
sale of TMC was consummated in January, 1997. The costs associated with the sale
of TMC were primarily the write-down of the Company's investment in its foreign
subsidiary and other Company costs associated with transfer of the facility.
Workforce reduction costs include severance costs related to involuntary
terminations. See Note 9 of Notes to Consolidated Financial Statements.
 
     Interest Income.  Interest income increased in fiscal 1997 to $1.6 million
from $1.1 million in fiscal 1996. Interest income was related to the short-term
investment of the Company's cash in both commercial paper and tax exempt
variable rate municipal bonds. In fiscal 1997, the increase in interest income
was caused by the full year of investment of excess cash versus fiscal 1996.
 
     Interest Expense.  Interest expense decreased in fiscal 1997 to $0.5
million from $1.3 million in fiscal 1996. This decrease was primarily the result
of the Company's reduced debt load following the repayment of the $7.5 million
in subordinated notes and the pay down of the Company's domestic lines of credit
during the first quarter of fiscal 1996. Also, in the fourth quarter of fiscal
1997, the Company's European credit facilities were assumed by the buyer of TMC.
 
     Other Income (Expense), net.  Other income (expense) in fiscal 1997 was
primarily comprised of net foreign currency exchange transaction losses. In
fiscal 1996, other income (expense) was primarily comprised of a foreign
currency exchange transaction loss which was partially offset by a gain on the
sale of certain equipment.
 
     Income Taxes.  Income tax expense decreased to $1.5 million in fiscal 1997
from $5.2 million in fiscal 1996. While the Company incurred a loss before
income taxes in 1997, the Company did not record a benefit for income taxes
because the Company anticipates it will not be able to fully utilize the losses
associated with the restructuring. See Note 12 of Notes to Consolidated
Financial Statements.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     In fiscal 1998, as well as fiscal 1997, the Company funded its operations
from cash flows generated from operations, and from the use of cash, cash
equivalents and investments.
 
     During the year ended March 31, 1998, the Company's cash, cash equivalents
and investments decreased by $11.1 million. Operations provided $2.8 million of
cash during this period. The Company made capital expenditures of $15.3 million
during the year ended March 31, 1998, predominantly for capacity expansion in
semiconductor products, dry reed switches and magnetic components. Financing
activities contributed $1.1 million of cash during this period, primarily
through proceeds from the exercise of options and warrants.
 
     At March 31, 1998, the Company had $0.7 million of outstanding debt which
consisted of subordinated notes outstanding which are due in January, 1999 and
bear an implicit annual interest rate of 12%. In fiscal 1998, the Company
established a new $40 million unsecured, committed revolving multicurrency
credit facility (the "Credit Facility"). Interest on loans is based on either
the London Interbank Offered Rate (LIBOR) plus a spread ranging from 0.25% to
1.25%, based on Company performance; or the higher at the latest Federal Funds
rate plus 0.50% or the bank's reference rate. Although the Company has had no
borrowings under this Credit Facility to date, the interest rate on borrowings
would have been 6.44% or 8.50%, respectively at March 31, 1998.
 
     In fiscal 1998, the Company obtained a $10.0 million operating lease line,
to be used primarily for the financing of production and MIS equipment. As of
March 31, 1998, the line was unused.
 
     The Company manages its foreign exchange exposure by monitoring its net
monetary position using natural hedges of its assets and liabilities denominated
in local currencies and entering into forward contract
 
                                       16
<PAGE>   19
 
hedges as needed. There can be no assurance that this policy will eliminate all
currency exposure. During the years ended March 31, 1998 and 1997, the Company
entered into several forward contracts to cover its exposure from trade
transactions.
 
     The Company believes that cash generated from operations, cash, cash
equivalents and investments and amounts available under its credit agreement and
operating lease facility will be sufficient to satisfy its working capital needs
and planned capital expenditures for the foreseeable future. However, there can
be no assurance that events in the future will not require the Company to seek
additional capital sooner or, if so required, that adequate capital will be
available on terms acceptable to the Company.
 
EFFECT OF INFLATION
 
     The Company does not believe that domestic inflation has had any material
effect on the Company's business over the past three years.
 
YEAR 2000 ISSUE
 
     The Company has conducted a review of its computer systems to identify
those areas that could be affected by the Year 2000 issue. The Company is in the
process of implementing an Oracle Enterprise Resource Planning ("ERP") system
for all applications and locations. The Company has been informed by the vendor
that the new system is compliant with Year 2000 issues. The Company presently
believes, with modification to existing software and conversion to the new ERP
system, the Year 2000 problem will not pose significant operational problems.
Costs to complete this process and install the new ERP system are significant
but are not expected to have a material adverse effect on the Company's
financial position or results of operations in any year. The Company's potential
exposure extends beyond financial applications to include suppliers, customers
and other communication and manufacturing equipment. The Company has established
cross functional teams to review these issues and develop effective strategies
to minimize risk.
 
NEW ACCOUNTING STANDARDS
 
     In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130
"Reporting Comprehensive Income," was issued, which establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The adoption of SFAS No. 130 is
not expected to have a material effect on the Company's consolidated results of
operations, financial position and cash flows.
 
     In June 1997, SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information," was issued, which establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 is not expected to
have a material effect on the Company's results of operations, financial
position or cash flows.
 
     In February 1998, SFAS No. 132 "Employers' Disclosures about Pension and
Other Postretirement Benefits," was issued, which standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes on the benefit
obligations for the fair market values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when SFAS No. 87 "Employers' Accounting for Pensions," SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," were
issued. SFAS No. 132 suggests combined formats for presentation of pension and
other postretirement benefit disclosures. This statement is effective for the
fiscal years beginning after December 15,
 
                                       17
<PAGE>   20
 
1997 and is not expected to have a material effect on the Company's results of
operations, financial position and cash flows.
 
     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires all costs associated with the
pre-opening, pre-operating and organization activities to be expensed as
incurred. The Company will adopt SOP 98-5 beginning April 1, 2000. Adoption of
the Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this item is set forth at the end of this Form
10-K.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     None.
 
                                       18
<PAGE>   21
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
 
                                       19
<PAGE>   22
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) (1) and (2) Financial Statements and Financial Statement Schedule
 
     The combined financial statements and financial statement schedule of the
Company and its subsidiaries are set forth at the end of this Form 10-K.
 
     (b) Reports on Form 8-K
 
     None.
 
     (c) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NO.                              TITLE
-----------                              -----
<S>           <C>
 2.1          Certificate of Ownership and Merger merging Clare Overseas
              Europe I, Inc. into C.P. Clare Corporation(5)
 2.2          Certificate of Ownership and Merger merging Clare Overseas
              Europe II, Inc. into C.P. Clare Corporation(5)
 2.3          Certificate of Ownership and Merger merging Clare Overseas
              Europe III, Inc. into C.P. Clare Corporation(5)
 2.4          Certificate of Ownership and Merger merging Clare Overseas
              America, Inc. into C.P. Clare Corporation(5)
 3.1          Amended and Restated Articles of Organization of the
              Registrant(2)
 3.2          Certificate of Vote of Directors Establishing a Series of A
              Class of Stock(5)
 3.3          Amended and Restated By-laws of the Registrant(1)
 4.1          Specimen Certificate for shares of Common Stock, $.01 par
              value, of the Registrant(1)
 4.2          Shareholder Rights Agreement, dated April 29, 1996, between
              C.P. Clare Corporation and State Street Bank and Trust
              Company, as Rights Agent(3)
10.1          Termination Agreement dated April 1, 1995(1)
10.2          Amended and Restated Multicurrency Credit Agreement by and
              among the Registrant, C.P. Clare N.V., Bank of America
              National Trust and Savings Association, as Agent and the
              Other Financial Institutions Party thereto dated March 6,
              1998*
10.3          Revolving Note in the amount of $20,000,000 made by the
              Registrant and C.P. Clare N.V. in favor of the Bank of
              America National Trust and Savings Association dated March
              6, 1998 pursuant to that certain Amended and Restated
              Multicurrency Credit Agreement of even date*
10.4          Revolving Note in the amount of $20,000,000 made by the
              Registrant and C.P. Clare N.V. in favor BankBoston, N.A.
              dated March 6, 1998 pursuant to that certain Amended and
              Restated Multicurrency Credit Agreement of even date*
10.6          Negative Pledge Agreement by certain subsidiaries to Bank of
              America National Trust and Savings Association dated
              September 11, 1995 pursuant to that certain Multicurrency
              Credit Agreement of even date(2)
10.7          Reaffirmation of guaranties and Negative Pledge Agreements
              by certain subsidiaries to Bank of America National Trust
              and Savings Association dated March 6, 1998, pursuant to
              that certain Amended and Restated Multicurrency Credit
              Agreement of even date*
</TABLE>
 
                                       20
<PAGE>   23
 
<TABLE>
<CAPTION>
EXHIBIT NO.                              TITLE
-----------                              -----
<S>           <C>
10.8          C.P. Clare Corporation Voluntary Deferred Compensation Plan
              for Key Employees effective as of April 1, 1998*
10.12         Lease Agreement by and between Fleet Credit Corporation and
              Registrant dated July 18, 1995, as amended October 10,
              1995(2)
10.13         Distributor Agreement between the Registrant and Bell
              Industries, Inc. dated July 17, 1978(1)
10.14         Authorized Distributor Agreement between the Registrant and
              Future Electronics, Inc. dated October 6, 1989(1)
10.15         Authorized Distributor Agreement between the Registrant and
              Marshall Industries dated September 15, 1989(1)
10.16         Authorized Distributor Agreement between the Registrant and
              Newark Electronics dated July 14, 1989(1)
10.17         Authorized Distributor Agreement between the Registrant and
              Pioneer Technologies Group dated November 16, 1989(1)
10.18         Authorized Distributor Agreement between the Registrant and
              Powell Electronics, Inc. dated June 28, 1989(1)
10.32         Technology and Equipment Transfer and Supply Agreement
              between the Registrant, Clare Europe, N.V. and American
              Telephone and Telegraph Company dated January 23, 1989 as
              supplemented by Supplemental Agreement effective June 1,
              1990, Second Supplemental Agreement effective January 23,
              1991, Technical Assistance Agreement effective January 23,
              1989, Supply Contract between the Registrant and AT&T
              Technologies, Inc. effective June 1, 1989, as amended by
              revised Attachment A dated March 1, 1993, and Subordination
              Agreement between the Registrant, American Telephone and
              Telegraph Company, Continental Bank N.A., Massachusetts
              Mutual Life Insurance Company, MassMutual Corporate
              Investors and MassMutual Participation Investors effective
              May 26, 1989(1)
10.32.1       Letter of Assignment and Promissory Note dated as of January
              17, 1997 with respect to that certain Technology and
              Equipment Transfer and Supply Agreement between the
              Registrant, Clare Europe, N.V. and American Telephone and
              Telegraph Company dated January 23, 1989(6)
10.34         Asset Purchase Agreement between C.P. Clare International
              N.V. and Hamlin, Incorporated dated November 14, 1994(1)
10.35         Commercial Lease between the Registrant and Rosner and
              Associates for 45 Progress Parkway, St. Louis, Missouri
              dated September 23, 1991, as amended November 25, 1992(1)
10.36         Standard Industrial Lease between General Instrument
              Corporation and Davis Properties for 48 Progress Parkway,
              St. Louis, Missouri dated December 15, 1987(1)
10.40         Office Lease between the Registrant and Great Lakes REIT,
              Inc. for 601 Campus Drive, Suite B, Arlington Heights,
              Illinois dated December 27, 1993(1)
10.41         First Amendment to Lease Agreement between the Registrant
              and Great Lakes REIT, Inc. for 601 Campus Drive, Suite B,
              Arlington Heights, Illinois dated August 3, 1995(2)
10.42         Lease Agreement between C.P. Clare Mexicana S.A. de C.V. and
              Jose Maria Gonzalez Martin for 1610 Tlaquepaque Boulevard,
              Guadalajara, Mexico dated August 25, 1990 (in Spanish with
              English summary)(1)
10.47         Cleanup Agreement between the Registrant and General
              Instrument Corporation dated May 1, 1995(1)
</TABLE>
 
                                       21
<PAGE>   24
 
<TABLE>
<CAPTION>
EXHIBIT NO.                              TITLE
-----------                              -----
<S>           <C>
10.49         Employment Agreement between the Registrant and Arthur R.
              Buckland dated September 15, 1993, as amended by Amendment
              dated March 20, 1995(1)
10.54         Amended and Restated Employment Agreement between the
              Company and Michael J. Ferrantino dated as of January 31,
              1997(7)
10.56         Amended and Restated Employment Agreement between the
              Company and Harsh Koppula dated as of January 31, 1997(7)
10.58         Termination Agreement between the Registrant and Andrew S.
              Kariotis dated April 26, 1995(1)
10.59         1995 Stock Option and Incentive Plan, as amended and
              restated as of September 29, 1996(2)
10.60         1995 Employee Stock Purchase Plan, as amended and restated
              as of October 23, 1995(2)
10.61         C.P. Clare Corporation Key Employee Incentive Plan effective
              April 1, 1995, as amended and restated as of October 2,
              1995(2)
10.63         The C.P. Clare Corporation Savings Plan(1)
10.64         Lease Agreement between C.P. Clare Mexicana S.A. de C.V. and
              Sra. Ma. Teresa Aranguren dated November, 1995(5)
10.66         Lease Agreement dated as of October 31, 1995, by and between
              Thomas J. Flatley, d/b/a The Flatley Company and C.P. Clare
              Corporation(4)
10.67         Employment Agreement between the Company and Richard Morgan
              dated as of April 8, 1996(7)
10.68         Employment Agreement between the Company and William Reed
              dated as of August 26, 1996(7)
10.69         Stock Purchase Agreement dated as of December 19, 1996,
              among the Company, Gunther GmbH, Tongeren Manufacturing
              Company, and W. Gunther, GmbH**(7)
10.70         Supply Agreement dated as of January 17, 1997 among the
              Company, Gunther GmbH, W. Gunther GmbH, and Robert
              Romano**(7)
10.71         Amended and Restated Employment Agreement between the
              Company and Thomas B. Sager, dated September 16, 1997(8).
21            Subsidiaries of the Registrant*
23.2          Consent of Arthur Andersen LLP*
27.0          Financial Data Schedule (Edgar)*
</TABLE>
 
---------------
  * Filed herewith
 
 ** Confidential treatment requested for portions of this documents
 
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
    (File No. 33-91972) and incorporated herein by reference thereto.
 
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
    (File No. 33-98646) and incorporated herein by reference thereto.
 
(3) Incorporated by reference to Current Report on Form 8-K filed with the
    Commission on April 30, 1996.
 
(4) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarterly period ended December 31, 1995 and incorporated herein by
    reference thereto.
 
(5) Filed as an exhibit to the Registrants Annual Report on Form 10-K for the
    year ended March 31, 1996 and incorporated herein by reference thereto.
 
                                       22
<PAGE>   25
 
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarterly period ended September 29, 1996 and incorporated herein by
    reference thereto.
 
(7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarterly period ended December 29, 1996 and incorporated herein by
    reference thereto.
 
(8) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarterly period ended September 28, 1997 and incorporated herein by
    reference thereto.
 
                                       23
<PAGE>   26
 
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULE
 
<TABLE>
<CAPTION>
                                                              FORM 10-K
                                                              PAGE NO.
                                                              ---------
<S>                                                           <C>
Report of Independent Public Accountants....................     25
Consolidated Balance Sheets -- March 31, 1997 and 1998......     26
Consolidated Statements of Operations for the years ended
  March 31, 1996, 1997 and 1998.............................     27
Consolidated Statements of Stockholders' Equity for the
  years ended March 31, 1996, 1997 and 1998.................     28
Consolidated Statements of Cash Flows for the years ended
  March 31, 1996, 1997 and 1998.............................     29
Notes to Consolidated Financial Statements..................     30
Report of Independent Public Accountants on Schedule II.....     48
Schedule II -- Valuation and Qualifying Accounts............     49
</TABLE>
 
                                       24
<PAGE>   27
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To C.P. Clare Corporation:
 
     We have audited the accompanying consolidated balance sheets of C.P. Clare
Corporation (a Massachusetts corporation) and subsidiaries as of March 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C.P. Clare Corporation and
subsidiaries as of March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
 
Boston, Massachusetts
April 29, 1998
 
                                       25
<PAGE>   28
 
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
 
<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                              --------------------
                                                                1997        1998
                                                              --------    --------
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash, cash equivalents and investments....................  $ 37,430    $ 26,364
  Accounts receivable, less allowance of $675 and $1,177,
     respectively...........................................    17,412      21,383
  Inventories...............................................    20,116      22,083
  Other current assets......................................       697         422
  Deferred income taxes.....................................     3,135       2,700
                                                              --------    --------
          Total current assets..............................    78,790      72,952
Property, plant and equipment, net..........................    28,976      38,777
Other assets:
  Intangibles, net of accumulated amortization of $495 and
     $517, respectively.....................................       150         128
  Deferred income taxes.....................................       945         869
  Other.....................................................     2,309       1,460
                                                              --------    --------
                                                              $111,170    $114,186
                                                              ========    ========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................  $    511    $    666
  Accounts payable..........................................    12,620      12,464
  Income taxes payable......................................       758         138
  Accrued expenses..........................................    13,676       9,761
                                                              --------    --------
          Total current liabilities.........................    27,565      23,029
Long-term debt, net of current portion......................       550          --
Pension liability, net of current portion...................     1,789          --
                                                              --------    --------
          Total liabilities.................................    29,904      23,029
Commitments and contingencies (Note 8)
Stockholders' equity:
  Preferred stock, $ .01 par value, Authorized: 2,500,000
     shares issued and outstanding: None....................        --          --
  Common stock, $ .01 par value, Authorized: 40,000,000
     shares issued and outstanding: 9,176,657 shares and
     9,356,452 shares, respectively.........................        92          94
  Additional paid-in capital................................    94,115      95,653
  Deferred compensation.....................................      (409)       (154)
  Accumulated deficit.......................................   (11,702)     (3,390)
  Cumulative translation adjustment.........................      (830)     (1,046)
                                                              --------    --------
          Total stockholders' equity........................    81,266      91,157
                                                              --------    --------
                                                              $111,170    $114,186
                                                              ========    ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       26
<PAGE>   29
 
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED MARCH 31,
                                                            -----------------------------------
                                                              1996         1997         1998
                                                            ---------    ---------    ---------
<S>                                                         <C>          <C>          <C>
Net sales.................................................   $127,928     $128,161     $156,271
Cost of sales.............................................     86,464       85,603      107,427
                                                            ---------    ---------    ---------
  Gross profit............................................     41,464       42,558       48,844
Operating expenses:
  Selling, general and administrative.....................     23,857       28,330       28,157
  Research and development................................      4,447        6,543        8,869
  Restructuring costs.....................................         --       14,250           --
                                                            ---------    ---------    ---------
Operating income (loss)...................................     13,160       (6,565)      11,818
Interest income...........................................      1,052        1,578        1,454
Interest expense..........................................     (1,300)        (452)        (215)
Other (expense) income, net...............................        (20)          (8)         135
                                                            ---------    ---------    ---------
Income (loss) before provision for income taxes...........     12,892       (5,447)      13,192
Provision for income taxes................................      5,158        1,464        4,880
                                                            ---------    ---------    ---------
  Net income (loss).......................................   $  7,734     $ (6,911)    $  8,312
                                                            =========    =========    =========
Basic earnings (loss) per share...........................      $1.22       $(0.77)       $0.90
                                                            =========    =========    =========
Diluted earnings (loss) per share.........................      $0.95       $(0.77)       $0.83
                                                            =========    =========    =========
Weighted average number of common shares outstanding:
Basic.....................................................  6,316,144    8,991,520    9,280,424
                                                            =========    =========    =========
Diluted...................................................  8,175,667    8,991,520    9,967,366
                                                            =========    =========    =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       27
<PAGE>   30
 
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED MARCH 31, 1996, 1997, 1998
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                            COMMON STOCK
                          -----------------
                           NUMBER     $.01    ADDITIONAL                                           CUMULATIVE        TOTAL
                             OF        PAR     PAID-IN                  DEFERRED     ACCUMULATED   TRANSLATION   STOCKHOLDERS'
                           SHARES     VALUE    CAPITAL     WARRANTS   COMPENSATION     DEFICIT     ADJUSTMENT       EQUITY
                          ---------   -----   ----------   --------   ------------   -----------   -----------   -------------
<S>                       <C>         <C>     <C>          <C>        <C>            <C>           <C>           <C>
Balance, March 31,
  1995..................  2,949,427    $29     $14,613       $378        $(277)       $(12,525)      $   734        $ 2,952
Exercise of stock
  options...............    985,155     10         605         --           --              --            --            615
Issuance of stock
  options...............         --     --         651         --         (651)             --            --             --
Issuance of common stock
  under the Employee
  Stock Purchase Plan...      9,085     --         127         --           --              --            --            127
Issuance of common
  stock, net of issuance
  costs of $2,146.......  4,292,070     43      76,208         --           --              --            --         76,251
Exercise of warrants....    471,662      5         750         --           --              --            --            755
Repurchase of
  warrants..............         --     --      (3,547)      (378)          --              --            --         (3,925)
Tax benefit of
  disqualifying
  disposition of
  incentive stock
  options...............         --     --       2,133         --           --              --            --          2,133
Net income..............         --     --          --         --           --           7,734            --          7,734
Translation
  adjustment............         --     --          --         --           --              --          (351)          (351)
Amortization of deferred
  compensation..........         --     --          --         --          321              --            --            321
                          ---------    ---     -------       ----        -----        --------       -------        -------
Balance, March 31,
  1996..................  8,707,399     87      91,540         --         (607)         (4,791)          383         86,612
Exercise of stock
  options...............    369,829      4       1,336         --           --              --            --          1,340
Issuance of common stock
  under the Employee
  Stock Purchase Plan...     32,276     --         468         --           --              --            --            468
Exercise of warrants....     67,153      1          44         --           --              --            --             45
Tax benefit of
  disqualifying
  disposition of
  incentive stock
  options...............         --     --         727         --           --              --            --            727
Net loss................         --     --          --         --           --          (6,911)           --         (6,911)
Translation
  adjustment............         --     --          --         --           --              --        (1,213)        (1,213)
Amortization of deferred
  compensation..........         --     --          --         --          198              --            --            198
                          ---------    ---     -------       ----        -----        --------       -------        -------
Balance, March 31,
  1997..................  9,176,657     92      94,115         --         (409)        (11,702)         (830)        81,266
Exercise of stock
  options...............    132,599      2         904         --           --              --            --            906
Common stock issued for
  services rendered.....      2,000     --          50         --           --              --            --             50
Issuance of common stock
  under the Employee
  Stock Purchase Plan...     30,837     --         290         --           --              --            --            290
Exercise of warrants....     14,359     --          27         --           --              --            --             27
Tax benefit of
  disqualifying
  disposition of
  incentive stock
  options...............         --     --         267         --           --              --            --            267
Net income..............         --     --          --         --           --           8,312            --          8,312
Translation
  adjustment............         --     --          --         --           --              --          (216)          (216)
Amortization of deferred
  compensation..........         --     --          --         --          255              --            --            255
                          ---------    ---     -------       ----        -----        --------       -------        -------
Balance, March 31,
  1998..................  9,356,452    $94     $95,653       $ --        $(154)       $ (3,390)      $(1,046)       $91,157
                          =========    ===     =======       ====        =====        ========       =======        =======
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       28
<PAGE>   31
 
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                             --------------------------------
                                                               1996        1997        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..........................................  $  7,734    $ (6,911)   $  8,312
Adjustments to reconcile net income (loss) to net cash
  (used in) provided by operating activities:
  Loss on sale of European manufacturing operation.........        --       5,069          --
  Depreciation and amortization............................     4,349       4,805       5,341
  Gain on sale of property, plant and equipment............       (55)         --          --
  (Benefit) provision for deferred income taxes............    (1,376)     (1,587)        356
  Compensation expense associated with stock options.......       321         198         255
  Common stock issued for services rendered................        --          --          50
  Provision for environmental remediation costs............        --       2,050         925
  Changes in assets and liabilities, net of effect from
     disposition:
     Accounts receivable...................................    (4,358)      2,059      (4,239)
     Inventories...........................................    (5,403)     (4,872)     (2,083)
     Other current assets..................................       288         750       1,373
     Accounts payable......................................    (1,031)      5,617          10
     Accrued expenses and income taxes payable.............      (784)     (3,150)     (7,505)
                                                             --------    --------    --------
          Net cash (used in) provided by operating
            activities.....................................      (315)      4,028       2,795
                                                             --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment..................    (9,135)    (15,047)    (15,262)
Proceeds from sale of property, plant and equipment........        55          --          --
                                                             --------    --------    --------
          Net cash used in investing activities............    (9,080)    (15,047)    (15,262)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit............................    (7,065)     (1,199)         --
Net proceeds from issuance of common stock.................    76,378         468         290
Proceeds from exercise of options and warrants.............     1,370       1,385         933
Repurchase of warrants.....................................    (3,925)         --          --
Payments of principal on long-term debt....................   (11,627)     (2,040)       (371)
Tax benefit of disqualifying disposition of incentive stock
  options..................................................     2,133         727         267
                                                             --------    --------    --------
          Net cash provided by (used in) financing
            activities.....................................    57,264        (659)      1,119
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS......        32          26         282
                                                             --------    --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......    47,901     (11,652)    (11,066)
Cash, cash equivalents and investments, beginning of
  year.....................................................     1,181      49,082      37,430
                                                             --------    --------    --------
Cash, cash equivalents and investments, end of year........  $ 49,082    $ 37,430    $ 26,364
                                                             ========    ========    ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       29
<PAGE>   32
 
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
NOTE 1.  SUMMARY OF OPERATIONS
 
     C.P. Clare is a leading provider of high voltage analog semiconductor
integrated packages and discrete components, electromagnetic relays and
switches, surge protection devices, transformers and specialized electronic
components to the world's foremost manufacturers of electronic communications
equipment.
 
NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES
 
     The accompanying consolidated financial statements reflect the application
of the following significant accounting policies:
 
  (a) Fiscal Periods
 
     The Company's fiscal year is comprised of either 52 or 53 weeks and ends on
the Sunday closest to March 31st each year. Fiscal years 1996, 1997 and 1998
were each 52 weeks. For convenience, the Company's fiscal year end has been
presented as March 31.
 
  (b) Principles of Consolidation
 
     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
 
  (c) Cash, Cash Equivalents and Investments
 
     The Company considers all highly liquid investment instruments with
maturities of three months or less to be cash equivalents. Short-term
investments are instruments with maturities less than one year. The Company
carries its investments in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Investments at March 31, 1997 and 1998 principally consist
of overnight and short-term tax exempt commercial paper and tax exempt variable
rate municipal bonds. The Company has the option to require the issuers of the
tax exempt variable rate municipal bonds to purchase these investments upon 7
day's notice. The Company has deemed these investments to be available-for-sale
at both March 31, 1997 and 1998 and they are carried at cost, which approximates
market value.
 
  (d) Revenue Recognition
 
     Revenues from product sales are recognized when the products are shipped.
Certain shipments to distributors are subject to limited right-of-return
provisions. The Company provides for estimated returns when material.
 
  (e) Earnings (Loss) Per Common and Common Share Equivalent
 
     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," replaces the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of stock options and warrants that could share in the
earnings of the Company.
 
                                       30
<PAGE>   33
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The reconciliation of amounts used in the computation of basic and diluted
earnings (loss) per share consist of the following at March 31, 1996, 1997 and
1998:
 
<TABLE>
<CAPTION>
                                                    1996          1997          1998
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
Net income (loss)..............................  $    7,734    $   (6,911)   $    8,312
                                                 ==========    ==========    ==========
Basic weighted average shares outstanding......   6,316,144     8,991,520     9,280,424
Weighted average common equivalent shares......   1,859,523            --       686,942
                                                 ----------    ----------    ----------
Diluted weighted average shares outstanding....   8,175,667     8,991,520     9,967,366
                                                 ==========    ==========    ==========
Basic earnings per share.......................  $     1.22    $    (0.77)   $     0.90
                                                 ==========    ==========    ==========
Diluted earnings per share.....................  $     0.95    $    (0.77)   $     0.83
                                                 ==========    ==========    ==========
</TABLE>
 
     Securities that were not included in computing diluted earnings per share
because their effect would be antidilutive consist of the following at March 31,
1996, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                        1996        1997        1998
                                                       -------    ---------    -------
<S>                                                    <C>        <C>          <C>
Options to purchase common stock.....................  135,500    1,777,626    434,750
                                                       =======    =========    =======
</TABLE>
 
  (f) Foreign Currency Translation and Transactions
 
     The Company translates the assets and liabilities of its foreign
subsidiaries at the exchange rates in effect at fiscal year-end in accordance
with SFAS No. 52, "Foreign Currency Translation." Revenues and expenses are
translated using exchange rates in effect during each period. Because Mexico and
Taiwan are considered extensions of domestic operations, the translation losses
of ($104), ($49) and ($139) recognized in fiscal years 1996, 1997 and 1998,
respectively, have been included in the accompanying consolidated statements of
operations and, accordingly, are classified as other income (expense). See Note
13. The cumulative translation adjustment component of stockholders' equity
relates primarily to the Company's European operations.
 
  (g) Research and Development Expense
 
     Expenditures for research and development of products and manufacturing
processes are expensed as incurred.
 
  (h) Derivative Financial Instruments and Fair Value of Financial Instruments
 
     SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," requires disclosure of any significant
derivative or other financial instruments. The Company hedges its net
intercompany trade balance (Belgian francs) which relates to trade sales to
third party customers in the ordinary course of business. At March 31, 1998, the
Company had thirteen outstanding Belgian franc ("BF") forward contracts
amounting to 215,740 BF or $5,908 with a gross deferred loss of $163 from the
rollover of such contracts to the planned settlement date. At March 31, 1998,
the Company also had one outstanding Mexican peso ("MXP") forward contract
amounting to 2,160 MXP or $255. The Mexican peso forward contracts had no
deferred gain or loss. At March 31, 1997, the Company had five outstanding
forward contracts amounting to 170,000 BF or $4,923 with a gross deferred loss
of $28 from the rollover of such contracts to the planned settlement date.
 
     SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of an estimate of the fair value of certain financial
instruments. The fair value of financial instruments pursuant to
 
                                       31
<PAGE>   34
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
SFAS No. 107 approximated their carrying values at March 31, 1997 and 1998. Fair
values have been determined through information obtained from market sources and
management estimates.
 
  (i) Concentration of Credit Risk
 
     Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents, short term
investments and trade accounts receivable. The Company places its temporary cash
investments in financial institutions. The Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any specific industry or by geographic area. Due to these factors,
no additional credit risk beyond amounts provided for collection losses is
believed by management to be inherent in the Company's accounts receivable.
During fiscal years 1996, 1997 and 1998, one customer accounted for 16%, 17% and
14%, respectively, of the Company's net sales. One customer accounted for 10% of
the Company's accounts receivables at March 31, 1998.
 
  (j) Stock-Based Compensation
 
     The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." SFAS No. 123, effective in fiscal 1997, establishes a fair value
method of accounting for stock-based compensation plans. The Company has adopted
the disclosure only alternative under SFAS No. 123, which requires disclosures
of the pro forma effects on earnings and earnings per share as if SFAS No. 123
had been adopted as well as certain other information. See Note 10.
 
  (k) Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  (l) New Accounting Standard
 
     In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of SFAS No. 130 is not expected to have a material effect on the
Company's consolidated results of operations, financial position and cash flows.
 
     In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued, which establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company is in the process of evaluating
the disclosure requirements and estimates. The adoption of SFAS No. 131 is not
expected to have a material effect on the Company's results of operations,
financial position or cash flows.
 
     In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued, which standardizes the disclosure
requirements for pensions and other postretirement
 
                                       32
<PAGE>   35
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
benefits to the extent practicable, requires additional information on changes
of the benefit obligations for the fair market values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures that are no
longer as useful as they were when SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
were issued. SFAS No. 132 suggests combined formats for presentation of pension
and other postretirement benefit disclosures. This statement is effective for
the fiscal years beginning after December 15, 1997 and is not expected to have a
material effect on the Company's results of operations, financial position and
cash flows.
 
     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires all costs associated with the
pre-opening, pre-operating and organization activities to be expensed as
incurred. The Company will adopt SOP 98-5 beginning April 1, 2000. Adoption of
the statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
 
  (m) Reclassification
 
     Certain amounts in the prior years' financial statements have been
reclassified to conform with the current year's presentation.
 
NOTE 3.  INVENTORIES
 
     Inventories include materials, labor and manufacturing overhead, and are
stated at the lower of cost (first-in, first-out) or market and consist of the
following at March 31, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                               1997       1998
                                                              -------    -------
<S>                                                           <C>        <C>
Raw materials...............................................  $ 8,905    $ 9,568
Work in process.............................................    6,117      4,835
Finished goods..............................................    5,094      7,680
                                                              -------    -------
                                                              $20,116    $22,083
                                                              =======    =======
</TABLE>
 
NOTE 4.  PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment are stated at cost and consist of the
following at March 31, 1997 and 1998:
 
<TABLE>
<CAPTION>
DESCRIPTION                                     1997       1998      ESTIMATED USEFUL LIFE
-----------                                    -------    -------    ---------------------
<S>                                            <C>        <C>        <C>
Machinery and equipment......................  $29,544    $35,800         3 to 7 years
Furniture and fixtures.......................    2,212      3,000        5 to 10 years
Leasehold improvements.......................    3,165     13,271        Life of lease
Projects in process..........................   14,533     10,829
Property held for sale (Note 8)..............    1,500      1,500
                                               -------    -------
                                                50,954     64,400
Less: Accumulated depreciation and
  amortization...............................   21,978     25,623
                                               -------    -------
                                               $28,976    $38,777
                                               =======    =======
</TABLE>
 
     The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the cost
of property, plant and equipment over their estimated useful lives as noted
above.
 
NOTE 5.  OTHER ASSETS
 
     The Company assesses the realizability of its intangible assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
 
                                       33
<PAGE>   36
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Intangible assets consists primarily of goodwill acquired in connection
with the acquisition of the Clare Division from General Instrument Corporation
in 1989. Goodwill is amortized on a straight-line basis over 30 years. In fiscal
1997, approximately $1,500 of the unamortized balance of goodwill costs were
charged to the Company's restructuring reserve as part of the disposition of
Tongeren Manufacturing Company ("TMC") and the restructuring of operations,
primarily in the Company's reed relay business.
 
     Other assets consist of the following at March 31, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                               1997      1998
                                                              ------    ------
<S>                                                           <C>       <C>
Long-term equipment deposit.................................  $  750    $   --
Long-term receivable........................................     946        --
Other.......................................................     613     1,460
                                                              ------    ------
                                                              $2,309    $1,460
                                                              ======    ======
</TABLE>
 
     The Company's long-term equipment deposit in fiscal 1997 relates to reed
relay equipment purchased from Gunther Belgium N.V. and installed in fiscal
1998.
 
     The long-term receivable in fiscal 1997 relates to the initial payment
under an asset purchase agreement with another party, which was completed during
the first quarter of fiscal 1998 upon receipt of equipment.
 
NOTE 6.  ACCRUED EXPENSES
 
     Accrued expenses consist of the following at March 31, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                               1997       1998
                                                              -------    ------
<S>                                                           <C>        <C>
Payroll and benefits........................................  $ 3,768    $5,793
Restructuring (Note 9)......................................    5,884        --
Environmental remediation (Note 8)..........................    1,017     1,172
Other.......................................................    3,007     2,796
                                                              -------    ------
                                                              $13,676    $9,761
                                                              =======    ======
</TABLE>
 
NOTE 7.  BORROWINGS AND CREDIT FACILITIES
 
  (a) Multicurrency Credit Facility
 
     The Company has a $40,000 unsecured, committed revolving multicurrency
credit facility (the "Credit Facility"). Interest on 30 day loans is based on
either LIBOR plus a spread ranging from 0.25% to 1.25%, based on Company
performance (6.44% at March 31, 1998); or the higher of the latest Federal Funds
rate plus 0.50% or the bank's reference rate (8.50% at March 31, 1998). There
have been no borrowings since the inception of the Credit Facility in September
1995.
 
     The Credit Facility contains certain financial covenants that require the
Company to maintain minimum tangible net worth, maintain an interest coverage
ratio, maintain a ratio of total funded debt to EBITDA and limit the payment of
cash dividends. The Credit Facility also contains certain non-financial
covenants. The Credit Facility expires on June 30, 2001. The Company is in
compliance with all covenants as of March 31, 1998.
 
                                       34
<PAGE>   37
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  (b) Long-term Debt
 
     At March 31, 1997 and 1998, long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                               1997     1998
                                                              ------    ----
<S>                                                           <C>       <C>
Non--interest bearing note payable due to Lucent
  Technologies in annual principal and interest payments of
  $480 through 1998 and a final payment of $720 in 1999 with
  interest imputed at 12%...................................  $  976    $626
Other.......................................................      85      40
                                                              ------    ----
                                                               1,061     666
Less Current portion........................................     511     666
                                                              ------    ----
                                                              $  550    $ --
                                                              ======    ====
</TABLE>
 
NOTE 8.  COMMITMENTS AND CONTINGENCIES
 
  (a) Commitments
 
     The Company leases certain office and production facilities and various
equipment under operating leases expiring at various dates through September
2011.
 
     Future minimum rent payments under these leases are as follows as of March
31, 1998:
 
<TABLE>
<CAPTION>
                         MARCH 31,                            AMOUNT
                         ---------                            -------
<S>                                                           <C>
1999........................................................  $ 4,358
2000........................................................    3,644
2001........................................................    2,681
2002........................................................    2,382
2003........................................................      951
Thereafter..................................................    5,606
                                                              -------
Total.......................................................  $19,622
                                                              =======
</TABLE>
 
     Total rent expense for fiscal years 1996, 1997 and 1998 was $2,194, $3,401
and $4,663, respectively.
 
  (b) Environmental Matters
 
     The Company accrues for estimated costs associated with known environmental
matters when such costs are probable and can be reasonably estimated. The actual
costs to be incurred for environmental remediations may vary from estimates,
given the inherent uncertainties in evaluating and estimating environmental
liabilities, including the possible effects of changing laws and regulations,
the stage of the remediation process and the magnitude of contamination found as
the remediation progresses. Management believes the ultimate disposition of
known environmental matters will not have a material adverse effect upon the
liquidity, capital resources, business or consolidated financial position of the
Company. However, one or more environmental matters could have a significant
negative impact on the Company's consolidated financial results for a particular
reporting period.
 
     (i) United States
 
     In connection with the acquisition of the Clare Division of General
Instrument Corporation in 1989, the Company purchased a manufacturing facility
located in Chicago. From the acquisition date until January, 1994, the Company
used this facility primarily as office space. During fiscal 1993, the Company
discovered environmental contamination at this facility and voluntarily reported
this discovery to the Illinois Environmen-
 
                                       35
<PAGE>   38
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
tal Protection Agency ("IEPA") and has since been involved in discussions with
the IEPA and the U.S. Environmental Protection Agency regarding the need for
remediation. The Company believes that any environmental contamination predates
the Company's acquisition of the facility from General Instrument. The Company
and General Instrument jointly retained an independent environmental consulting
firm to assess the remediation requirements and develop a plan to voluntarily
remediate this property in accordance with federal and state law such that the
property could be used for residential purposes. Prior to commencing such
voluntary remediation, the Company and General Instrument entered into a
cost-sharing agreement; however, both parties have reserved their rights to
litigate concerning the final cost-sharing arrangement.
 
     During fiscal 1997, the Company and General Instrument began the
remediation at the site. The approved clean-up method produced conditions that
were not acceptable to the community. As a result, the Company determined the
most likely scenario was to remediate the property to make it useable as
industrial/commercial, rather than residential property, as originally assessed.
 
     During the year ended March 31, 1997, the Company incurred $2,567 of
remediation costs and related expenses including a write-down of the facility to
net realizable value of $1,500, which is included on the accompanying balance
sheet as property held for sale.
 
     During the year ended March 31, 1998, the Company incurred $301 of
remediation costs. By the end of the fiscal 1998 year, the Company completed its
industrial/commercial remediation for the Chicago facility and has subsequently
received a no further remediation letter from the IEPA.
 
     The Company and General Instrument continue to address contamination that
has been found on adjacent sites. Management continues to analyze the estimated
environmental remediation liability and has accrued additional amounts when
known events require.
 
     (ii) Belgium
 
     During fiscal 1997, the Company retained an independent environmental
consulting firm to assess the environmental condition of its facility located in
Tongeren, Belgium. The scope of their work was to assess potential contamination
in light of newly adopted Belgium legal requirements and develop a plan to
remediate the property if necessary. Preliminary results show certain
groundwater contamination that may have resulted from the Company's past
operations or from neighboring manufacturing companies.
 
     In January 1997, the Company completed the sale of the TMC. Upon the sale
of TMC, the Company agreed to indemnify Gunther for up to $350 for established
environmental remediation costs, subject to certain condition and limitations.
The Company has accrued this environmental remediation indemnification as of
March 31, 1998.
 
  (c) Legal Proceedings
 
     In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all claims,
and in its opinion, all litigation currently pending or threatened will not have
a material effect on the Company's financial position or results of operations.
 
NOTE 9.  RESTRUCTURING
 
     In fiscal 1997, the Company announced a restructuring of its operations,
primarily in the Company's reed relay business, and recorded a restructuring
charge of $14,250. This restructuring met the criteria set forth in Emerging
Issues Task Force 94-3. Restructuring charge included costs associated with the
sale of the TMC,
 
                                       36
<PAGE>   39
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
workforce reductions and worldwide facilities realignments. The components of
the restructuring costs are as follows:
 
<TABLE>
<S>                                                           <C>
Loss on disposition of assets, including TMC................  $ 7,600
Severance benefits and associated legal costs...............    4,550
Lease termination and relocation costs......................    1,100
Other.......................................................    1,000
                                                              -------
          Total.............................................  $14,250
                                                              =======
</TABLE>
 
     The sale of TMC was consummated in January 1997. The Company sold for
nominal value all of the stock of TMC. Pro forma information reflecting the sale
of TMC has not been presented as TMC was not material. The costs associated with
the sale of TMC were primarily the write-down of the Company's investment in its
foreign subsidiary and included other Company costs associated with transfer of
the facility. As part of the sale, the Company entered into a long-term supply
agreement with the newly formed Gunther Belgium N.V. Workforce reduction costs
include severance costs related to involuntary terminations of approximately 75
persons on a worldwide basis, primarily in manufacturing. The Company completed
its restructuring as of March 31, 1998.
 
NOTE 10.  STOCKHOLDERS' EQUITY
 
  (a) Shares Reserved
 
     As of March 31, 1998, the shares of common stock reserved for issuance were
as follows:
 
<TABLE>
<S>                                                           <C>
Exercise of stock options...................................  2,192,417
Exercise of warrants........................................     66,485
Employee Stock Purchase Plan................................    227,802
                                                              ---------
                                                              2,486,704
                                                              =========
</TABLE>
 
  (b) Stock Options
 
     The Company maintains an equity incentive plan, the C. P. Clare Corporation
Amended and Restated 1995 Stock Option and Incentive Plan (the "1995 Plan"). The
1995 Plan provides for the issuance of options to purchase up to 3,680,000
shares of the Company's common stock. The number of shares available for future
grants as of March 31, 1998 was 348,218. The 1995 Plan permits the issuance of
both incentive stock options and non-qualified stock options. All options,
grants, pricing, expiration periods and vesting periods are determined by the
Board of Directors, or pursuant to delegated authority, by the President of the
Company, and options must be granted at a price not less than 100% of the fair
market value at the date of grant in the case of incentive stock options or at
85% of the fair market value in the case of non-qualified stock options. The
Company recognizes the difference, if any, between the fair market value of the
Company's stock on the date of grant and the exercise price of the options, as
deferred compensation and recognizes any compensation expense over the
applicable vesting periods.
 
     In fiscal 1996, the Company recorded $651 of deferred compensation related
to the issuance of 605,600 options during the period. The Company is amortizing
the deferred compensation over the vesting period of the related options of one
to five years. During fiscal years 1996, 1997 and 1998, the Company recognized
$321, $198, and $255 respectively, of compensation expense in the consolidated
statements of operations related to the grant of these options.
 
     The 1995 Plan also provides for an automatic grant of non-qualified stock
options to purchase 10,000 shares of common stock to each independent director
as of June 20, 1995. Each new director elected after
 
                                       37
<PAGE>   40
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
June 20, 1995 was granted a non-qualified stock option to purchase 10,000 shares
of common stock. Currently, each independent director serving as a Director five
days after the Company's annual stockholders meeting shall automatically be
granted a non-qualified stock option to purchase 5,000 shares of common stock.
 
     The 1995 Plan also provides for stock appreciation awards, stock awards,
performance share awards and dividend equivalent rights. The stock appreciation
rights may be granted in tandem with or independent of stock options. The
Company has not granted any stock appreciation rights or dividend equivalent
rights as of March 31, 1998.
 
     The following table summarizes incentive and non-qualified stock option
activity under the 1995 Plan for the fiscal years ended March 31, 1996, 1997 and
1998:
 
<TABLE>
<CAPTION>
                                                                                WEIGHTED
                                                                                 AVERAGE
                                                 NUMBER OF    EXERCISE PRICE    PRICE PER
                                                  OPTIONS       PER SHARE         SHARE
                                                 ---------    --------------    ---------
<S>                                              <C>          <C>               <C>
Outstanding at March 31, 1995..................  1,552,626    $0.25 - $ 1.87     $ 0.63
Granted........................................    970,400     8.97 -  25.88      13.27
Exercised......................................   (985,155)    0.25 -   8.97       0.62
Canceled.......................................    (36,000)    0.50 -   8.97       3.32
                                                 ---------    --------------     ------
Outstanding at March 31, 1996..................  1,501,871     0.50 -  25.88       8.74
Granted........................................  1,065,100     8.13 -  24.75       9.94
Exercised......................................   (369,829)    0.50 -   8.97       2.48
Canceled.......................................   (500,360)    0.50 -  25.88      14.81
                                                 ---------    --------------     ------
Outstanding at March 31, 1997..................  1,696,782     0.50 -  24.63       9.06
Granted........................................    337,144     8.12 -  19.00      15.38
Exercised......................................   (132,599)    0.50 -  13.62       7.03
Canceled.......................................    (57,128)    0.50 -  24.63       8.47
                                                 ---------    --------------     ------
Outstanding at March 31, 1998..................  1,844,199    $0.50 - $24.63     $10.36
                                                 =========    ==============     ======
Exercisable at March 31, 1998..................    392,929    $0.50 - $24.63     $ 8.29
                                                 =========    ==============     ======
Exercisable at March 31, 1997..................    202,441    $0.50 - $24.63     $10.72
                                                 =========    ==============     ======
Exercisable at March 31, 1996..................    146,229    $0.50 - $ 8.97     $ 1.58
                                                 =========    ==============     ======
</TABLE>
 
     The following table summarizes information about stock options outstanding
and exercisable at March 31, 1998:
 
<TABLE>
<CAPTION>
                                       OUTSTANDING OPTIONS             OPTIONS EXERCISABLE
                                ----------------------------------    ---------------------
                                             WEIGHTED
                                              AVERAGE
                                               YEARS      WEIGHTED                 WEIGHTED
                                             REMAINING    AVERAGE                  AVERAGE
                                NUMBER OF    CONTRACT     EXERCISE    NUMBER OF    EXERCISE
EXERCISE PRICE RANGE             OPTIONS       LIFE        PRICE       OPTIONS      PRICE
--------------------            ---------    ---------    --------    ---------    --------
<S>                             <C>          <C>          <C>         <C>          <C>
  $ 0.50......................    134,021      5.71        $ 0.50      108,821      $ 0.50
    8.12 - $ 8.97.............    713,728      7.71          8.56      177,008        8.69
    9.12 -  13.37.............    556,000      6.95          9.80       40,100       10.01
  $13.50 - $24.63.............    440,450      8.90        $16.98       67,000      $18.89
                                ---------                              -------
                                1,844,199                              392,929
                                =========                              =======
</TABLE>
 
                                       38
<PAGE>   41
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Options granted in 1996, 1997 and 1998 have been valued using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The
weighted-average assumptions used for fiscal years 1996, 1997 and 1998 are as
follows:
 
<TABLE>
<CAPTION>
                                                     1996          1997          1998
                                                  ----------    ----------    ----------
<S>                                               <C>           <C>           <C>
Risk free interest rate.........................         6.4%          6.2%          6.0%
Expected dividend yield.........................          --            --            --
Expected lives..................................     6 years       6 years       6 years
Expected volatility.............................          80%           80%           80%
Weighted average grant-date fair value of
  options granted at fair market value during
  the period....................................  $    14.05    $     4.75    $     9.14
Weighted average grant-date fair value of
  options granted at below fair market value
  during the period.............................  $     6.88            --            --
Weighted average exercise price of options
  granted at fair market value during the
  period........................................  $    22.29    $     9.94    $    15.38
Weighted average exercise price of options
  granted below fair market value during the
  period........................................  $     9.19            --            --
Weighted average remaining contractual life of
  options outstanding...........................   8.4 years     8.2 years     7.6 years
</TABLE>
 
     The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
 
     Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income (loss) and pro forma net income (loss) per common share
outstanding on a basic and diluted basis for fiscal years 1996, 1997 and 1998
would have been as follows:
 
<TABLE>
<CAPTION>
                                                           1996      1997       1998
                                                          ------    -------    ------
<S>                                                       <C>       <C>        <C>
Net income (loss):
  As Reported...........................................  $7,734    $(6,911)   $8,312
                                                          ======    =======    ======
  Pro Forma.............................................  $6,851    $(8,169)   $6,491
                                                          ======    =======    ======
Basic earnings (loss) per share:
  As Reported...........................................  $ 1.22    $ (0.77)   $ 0.90
                                                          ======    =======    ======
  Pro Forma.............................................  $ 1.08    $ (0.91)   $ 0.70
                                                          ======    =======    ======
Diluted earnings (loss) per share:
  As Reported...........................................  $ 0.95    $ (0.77)   $ 0.83
                                                          ======    =======    ======
  Pro Forma.............................................  $ 0.84    $ (0.91)   $ 0.65
                                                          ======    =======    ======
</TABLE>
 
  (c) Warrants
 
     In fiscal 1989 and fiscal 1991, the Company issued warrants to employees
and others to purchase up to 626,617 shares of common stock at $1.87 per share.
As of March 31, 1998, 66,485 warrants are exercisable and expire on December 31,
1998. The warrants are subject to certain provisions as described in the
 
                                       39
<PAGE>   42
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
stockholders' agreement that grants certain rights to the Company and certain
other stockholders to repurchase warrants for $0.05 upon the occurrence of
certain events. Certain of these warrants enable the warrantholder to exercise
the warrant by surrendering shares of common stock also held by the
warrantholder for over six months.
 
  (d) Employee Stock Purchase Plan
 
     Under the C.P. Clare Corporation 1995 Employee Stock Purchase Plan (the
"Purchase Plan"), all U.S., Belgian and Mexican employees (including officers)
of the Company, as defined, are eligible to purchase the Company's common stock
at an exercise price equal to 85% of the fair market value of the common stock.
The Purchase Plan provides for up to 300,000 shares for issuance under the
Purchase Plan. As of March 31, 1998, 72,198 shares have been issued under this
Purchase Plan, and rights to purchase 227,802 shares are available for purchase.
 
  (e) Shareholder Rights Plan
 
     On April 29, 1996, the Board of Directors of the Company adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Pursuant to the terms of
the Rights Agreement, the Board of Directors declared a dividend distribution of
one Preferred Stock Purchase Right (a "Right") for each outstanding share of
common stock of the Company to stockholders of record as of the close of
business on May 15, 1996 (the "Record Date"). In addition, one Right will
automatically attach to each share of common stock issued subsequent to the
Record Date, until April 29, 2006. Each Right entitles the registered holder to
purchase from the Company, upon the occurrence of certain events, a unit
consisting of one one-thousandth of a share (a "Unit") of Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), at a cash exercise price of $100 per Unit (the "Exercise
Price"), subject to adjustment. The Company has reserved 150,000 shares of the
Preferred Stock for issuance upon exercise of the Rights.
 
     The Rights currently are not exercisable and are attached to and trade with
the outstanding shares of common stock. Under the Rights Agreement, the Rights
become exercisable (i) if a person as defined in the rights plan becomes an
"acquiring person" by acquiring 15% or more of the outstanding shares of common
stock (ii) if a person who owns 10% or more of the common stock is determined to
be an "adverse person" by the Board of Directors, or (iii) if a person commences
a tender offer that would result in that person owning 15% or more of the common
stock. Upon the occurrence of any one of these events, each holder of a Right
(other than the acquiring person or the adverse person) would be entitled to
acquire such number of shares of the Company's preferred stock which are
equivalent to such number of shares of common stock having a value of twice the
then current exercise price of the Right. If the Company is acquired in a merger
or other business combination transaction after any such event, each holder of a
Right would then be entitled to purchase, at the then current exercise price,
shares of the acquiring company's common stock having a value of twice the
exercise price of the Right.
 
     Until a Right is exercised, the holder will have no rights as a stockholder
of the Company (beyond those as an existing stockholder), including the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Units, other securities of the Company, other consideration or
for common stock of an acquiring company.
 
NOTE 11.  EMPLOYEE BENEFIT PLANS
 
  (a) 401(k) Benefit Plan
 
     U.S. employees of the Company may participate in a supplemental retirement
program (the "401(k) Plan") established under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The Company
 
                                       40
<PAGE>   43
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
matches 75% of individual contributions, up to 3% of base pay, as defined.
Employee contributions vest immediately, while Company matching contributions
fully vest after two years of service, as defined. For fiscal years 1996, 1997
and 1998, the Company contributed $230, $262, and $245, respectively, under the
401(k) Plan.
 
  (b) Postretirement Health Care Benefits
 
     The Company provides certain employees with postretirement health benefits,
accounted for under SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Subsequent to March 31, 1995, the Company curtailed the
plan and initially recorded a liability of $463. This represented the
unrecognized prior service costs associated with the remaining eligible plan
participants. At March 31, 1997, the Company's liability was $460. During fiscal
1998, the plan was remeasured. Based on a decrease in the number of plan
participants and a change in medical carriers, the liability was reduced by $200
resulting in a liability of $260 at March 31, 1998.
 
  (c) Foreign Retirement Insurance Benefits
 
     The Company also provides certain defined retirement annuity payments on
behalf of its employees in Europe and Mexico. For fiscal years 1996, 1997 and
1998, the Company contributed $184, $219, and $129, respectively, for the
annuity premium payments.
 
  (d) Defined Benefit Plan
 
     All employees of the Company located in Taiwan are entitled to retirement
benefits under regulatory requirements. The actuarial present value of these
benefits has been recorded in the accompanying consolidated financial statements
in accordance with SFAS No. 87, "Employers' Accounting for Pensions."
 
     The components of the net periodic pension cost for fiscal years 1996, 1997
and 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                              1996    1997    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Service cost -- benefit earned during the period............  $ 87    $ 84    $ 78
Interest cost on projected benefit obligation...............   150     153     140
Expected return on assets...................................   (19)    (20)    (19)
                                                              ====    ====    ====
Net periodic pension cost...................................  $218    $217    $199
                                                              ====    ====    ====
</TABLE>
 
     The funded status of the plan at March 31, 1996, 1997 and 1998 was as
follows:
 
<TABLE>
<CAPTION>
                                                              1996      1997     1998
                                                             ------    ------    ----
<S>                                                          <C>       <C>       <C>
Actuarial present value of accumulated plan benefits:
  Vested...................................................  $   --    $   --    $109
  Non-vested...............................................   1,123     1,212      61
                                                             ------    ------    ----
                                                              1,123     1,212     170
Additional amounts related to projected salary increases...     978       968     239
                                                             ------    ------    ----
Actuarial present value of projected benefit obligation....   2,101     2,180     409
Plan assets at fair value..................................     246       290     287
                                                             ======    ======    ====
Projected benefit obligation in excess of plan assets......  $1,855    $1,890    $122
                                                             ======    ======    ====
</TABLE>
 
                                       41
<PAGE>   44
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                              1996      1997     1998
                                                             ------    ------    ----
<S>                                                          <C>       <C>       <C>
Assumptions:
Rate of return on plan assets..............................      7%        7%      7%
Discount rate for projected benefit obligations............      7%        7%      7%
Rate of increase in future compensation levels
  Indirect labor...........................................      6%        6%      7%
  Direct labor.............................................      4%        4%      --
</TABLE>
 
     The Company closed the manufacturing operations located in Taiwan and the
number of participants in the pension plan was reduced from the 156 employees in
fiscal 1997 to 12 employees in fiscal 1998. In future years, the net periodic
pension costs will be reduced.
 
  (e) Bonus Plan
 
     Under the 1995 Key Employee Incentive Plan (the "Bonus Plan"), the Company
has the discretion to determine certain employees of the Company who are
eligible for a bonus if certain milestones established for the Company and each
individual are achieved, as defined. Participants may elect to defer payment of
their bonus to a later date and will be entitled to interest on deferred
amounts. The Company also has the discretion to pay the bonus in cash, or
partially or fully in stock, options or discount options under the 1995 Stock
Plan. During fiscal years 1996, 1997 and 1998, the Company incurred $640, $310
and $1,629, respectively, related to the Bonus Plan.
 
NOTE 12.  INCOME TAXES
 
     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The statement requires that deferred income tax
accounts reflect the tax consequences on future years of differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts for income tax purposes. In addition, SFAS No. 109 requires the
recognition of future tax benefits, such as net operating loss carryforwards
("NOL"), to the extent that realization of such benefits is more likely than
not.
 
     The components of domestic and foreign income (loss) before the provision
for income taxes for fiscal years ended March 31, 1996, 1997 and 1998 are as
follows:
 
<TABLE>
<CAPTION>
                                                         1996       1997       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Domestic..............................................  $11,949    $(5,991)   $ 9,214
Foreign...............................................      943        544      3,978
                                                        =======    =======    =======
                                                        $12,892    $(5,447)   $13,192
                                                        =======    =======    =======
</TABLE>
 
                                       42
<PAGE>   45
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of current and deferred provision for income taxes for
fiscal years ended March 31, 1996, 1997 and 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                          1996       1997       1998
                                                         -------    -------    ------
<S>                                                      <C>        <C>        <C>
Current:
  Federal..............................................  $ 4,761    $ 2,131    $2,631
  State................................................    1,285        383       522
  Foreign..............................................      488        322     1,371
                                                         -------    -------    ------
     Total current.....................................    6,534      2,836     4,524
                                                         -------    -------    ------
Deferred:
  Federal..............................................     (354)    (1,074)      801
  State................................................      (51)      (222)     (370)
  Foreign..............................................     (971)       (76)      (75)
                                                         -------    -------    ------
     Total deferred....................................   (1,376)    (1,372)      356
                                                         =======    =======    ======
Provision for Income Taxes.............................  $ 5,158    $ 1,464    $4,880
                                                         =======    =======    ======
</TABLE>
 
     The income tax provision is different from that which would be computed by
applying the U.S. federal income tax rate to income before taxes for fiscal
years ended March 31, 1996, 1997 and 1998, as follows:
 
<TABLE>
<CAPTION>
                                                            1996      1997      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Federal statutory tax rate...............................    35.0%    (34.0)%    34.0%
State income taxes, net of federal income tax benefit....     5.7       4.6       0.2
Tax exempt interest......................................    (1.3)     (8.3)     (2.4)
Foreign Sales Corporation benefits.......................    (1.0)     (1.4)     (0.5)
Capital loss carryforward valuation allowance............      --      62.8        --
Non-deductible foreign expenses..........................      --        --       4.4
Difference in foreign provision versus statutory U.S.
  rate...................................................     3.2       1.1      (0.5)
Decrease in valuation allowance relating to net operating
  loss carryforwards.....................................    (8.6)     (1.9)     (0.8)
Deemed repatriation of foreign earnings..................     7.0       2.3        --
Other                                                          --       1.7       2.6
                                                           ======    ======    ======
                                                             40.0%     26.9%     37.0%
                                                           ======    ======    ======
</TABLE>
 
                                       43
<PAGE>   46
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Significant components of deferred income tax assets and liabilities at
March 31, 1997 and 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                                1997        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Current deferred income tax assets:
  Net operating loss carryforwards..........................  $    106    $    106
  Inventory reserves........................................       762       1,013
  Accrued environmental remediation costs...................        35         265
  Accrued restructuring.....................................     1,140          --
  Accrued payroll related costs.............................     1,095       1,611
  Other temporary differences...............................       721         275
  Less: Valuation allowance.................................      (724)       (570)
                                                              --------    --------
     Net current deferred income tax assets.................  $  3,135    $  2,700
                                                              ========    ========
Long-term deferred income tax assets:
  Net operating loss carryforwards..........................  $  3,293    $  2,725
  Net capital loss carryforwards............................     9,424       9,581
  State tax credits.........................................        --         310
  Less: Valuation allowance.................................   (11,744)    (11,690)
                                                              --------    --------
     Net long-term deferred income tax assets...............       973         926
                                                              --------    --------
Long-term deferred income tax liabilities:
  Depreciation..............................................       (28)        (57)
                                                              --------    --------
Long-term deferred income tax asset, net....................  $    945    $    869
                                                              ========    ========
</TABLE>
 
     The Internal Revenue Code (the "Code") limits the amount of net operating
loss and tax credit carryforwards that companies may utilize in any one year in
the event of cumulative changes in ownership over a three-year period in excess
of 50%. In connection with the acquisition of the Clare Division of General
Instrument in 1989 and the simultaneous issuance of common stock and warrants,
the Company incurred a cumulative change in ownership in excess of 50% as
defined in the Code. This change in ownership has limited the Company's ability
to utilize, in any one year, the net operating loss and credit carryforwards
incurred prior to this change in ownership. The Company estimates that the total
NOL through January 1989 subject to this limitation is $7,803. The use of the
available NOL is limited to $311 in each year subsequent to this change in
ownership. In Taiwan, the Company has NOL and tax credit carryforwards of $1,668
at March 31, 1998, which begin to expire in fiscal 1999.
 
     In January 1997, the Company completed the sale of TMC to Gunther GmbH. As
a result of this transaction, the Company incurred a capital loss of
approximately $25,000, which the Company may carry forward for a period of five
(5) years. The Company's ability to utilize this capital loss carryforward is
limited to the amount of capital gains that the Company generates in the
carryforward period. The Company has provided a full valuation allowance against
the capital loss carryforward as the Company believes that it is more likely
than not that the Company will not be able to utilize such a carryforward.
 
     The remainder of the valuation allowance relates to the limited use of
certain net operating loss carryforwards. The valuation allowance decreased by
$208 due to the utilization of the NOL during fiscal 1998, partially offset by
net capital loss carryforwards generated in fiscal 1998. Taxes have not been
provided on foreign subsidiaries' undistributed earnings of $10,757 at March 31,
1998, which are deemed indefinitely invested.
 
                                       44
<PAGE>   47
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 13.  OTHER INCOME (EXPENSE)
 
     Other income (expense) consists of the following for fiscal years 1996,
1997 and 1998:
 
<TABLE>
<CAPTION>
                                                              1996     1997    1998
                                                              -----    ----    -----
<S>                                                           <C>      <C>     <C>
Net gain (loss) from foreign currency exchange..............  $(243)   $(40)   $ 378
Other.......................................................    223      32     (243)
                                                              -----    ----    -----
                                                              $ (20)   $ (8)   $ 135
                                                              =====    ====    =====
</TABLE>
 
NOTE 14.  CASH FLOWS
 
  (a) Supplemental Disclosure of Cash Flow Information
 
     Supplemental disclosure of cash flow information consists of the following
for fiscal years 1996, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                            1996      1997      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Interest paid............................................  $1,097    $  224    $  143
                                                           ======    ======    ======
Income taxes paid........................................  $3,125    $2,160    $5,283
                                                           ======    ======    ======
</TABLE>
 
  (b) Summary Information on Sale of European Manufacturing Operation
 
     During fiscal 1997, the Company sold the following assets and the purchaser
assumed the following obligations in connection with the Company's disposition
of TMC:
 
<TABLE>
<S>                                                           <C>
Fair value of assets sold:
  Cash......................................................  $   743
  Intercompany and other receivable.........................    1,479
  Inventory, net............................................    1,395
  Other current assets......................................       26
  Property, plant and equipment.............................    4,890
  Other non-current assets..................................    1,466
                                                              -------
          Total fair value of assets sold...................    9,999
                                                              -------
Liabilities assumed by purchaser:
  Accounts payable..........................................     (529)
  Accrued expenses..........................................   (1,447)
  Income taxes payable......................................     (429)
  Long-term debt, net of current portion....................   (1,515)
  Deferred income taxes.....................................     (938)
  Other non-current liabilities.............................      (72)
                                                              -------
          Total liabilities assumed by purchaser............   (4,930)
                                                              -------
 
Loss on disposition of TMC..................................  $ 5,069
                                                              =======
</TABLE>
 
  (c) Supplemental Disclosure of Noncash Transactions for fiscal years 1996,
1997 and 1998:
 
     Supplemental disclosures of noncash transactions consists of the following
for fiscal years 1996, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                              1996   1997    1998
                                                              ----   ----    ----
<S>                                                           <C>    <C>     <C>
Deferred compensation associated with the issuance of stock
  options...................................................  $651    $--     $--
                                                              ====    ==      ==
</TABLE>
 
                                       45
<PAGE>   48
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 15.  GEOGRAPHIC INFORMATION
 
     Geographic information is as follows for fiscal years 1996, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                              1996    1997    1998
              Geographic Sales by Destination:                ----    ----    ----
<S>                                                           <C>     <C>     <C>
  United States.............................................   58%     62%     57%
  Europe....................................................   34      28      30
  Far East..................................................    8      10      13
                                                              ---     ---     ---
                                                              100%    100%    100%
                                                              ===     ===     ===
</TABLE>
 
     Sales, operating income and identifiable assets for the Company's United
States and foreign operations are summarized as follows for fiscal years 1996,
1997 and 1998:
 
<TABLE>
<CAPTION>
                                         UNITED                                            TOTAL
                                         STATES     EUROPE     FAR EAST    ELIMINATION    COMPANY
                                        --------    -------    --------    -----------    --------
<S>                                     <C>         <C>        <C>         <C>            <C>
1996
Sales to unaffiliated customers.......  $ 73,562    $43,585    $10,781      $     --      $127,928
Transfers between geographic areas....    26,038     10,805         --       (36,843)           --
                                        --------    -------    -------      --------      --------
     Total sales......................    99,600     54,390     10,781       (36,843)      127,928
                                        ========    =======    =======      ========      ========
Operating income (loss)...............    11,645      1,723       (208)           --        13,160
                                        ========    =======    =======      ========      ========
Identifiable assets...................   103,521     16,014      2,082        (6,409)      115,208
                                        ========    =======    =======      ========      ========
1997
Sales to unaffiliated customers.......    79,652     36,141     12,368            --       128,161
Transfers between geographic areas....    24,508      5,205         --       (29,713)           --
                                        --------    -------    -------      --------      --------
     Total sales......................   104,160     41,346     12,368       (29,713)      128,161
                                        ========    =======    =======      ========      ========
Operating income (loss)...............    (7,797)       930        302            --        (6,565)
                                        ========    =======    =======      ========      ========
Identifiable assets...................   106,874      3,077      1,909          (690)      111,170
                                        ========    =======    =======      ========      ========
1998
Sales to unaffiliated customers.......    89,951     46,300     20,020            --       156,271
Transfers between geographic areas....    33,627      1,280         --       (34,907)           --
                                        --------    -------    -------      --------      --------
     Total sales......................   123,578     47,580     20,020       (34,907)      156,271
                                        ========    =======    =======      ========      ========
Operating income......................     8,352      2,040      1,426            --        11,818
                                        ========    =======    =======      ========      ========
Identifiable assets...................  $110,352    $ 3,760    $   593      $   (519)     $114,186
                                        ========    =======    =======      ========      ========
</TABLE>
 
     Management believes transfers between geographic areas are accounted for on
an arms' length basis.
 
                                       46
<PAGE>   49
                    C.P. CLARE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 16.  SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
 
     Quarterly financial information for the fiscal years 1997 and 1998 is as
follows:
 
<TABLE>
<CAPTION>
                                          FIRST      SECOND      THIRD     FOURTH      TOTAL
                                         QUARTER    QUARTER     QUARTER    QUARTER      YEAR
                 1997                    -------    --------    -------    -------    --------
<S>                                      <C>        <C>         <C>        <C>        <C>
Net sales..............................  $34,038    $ 30,019    $31,374    $32,730    $128,161
Gross profit...........................   11,624      10,223     10,147     10,564      42,558
Net income (loss)......................    2,791     (12,439)(1)   1,193     1,544      (6,911)
Basic earnings (loss) per share........     0.32       (1.39)      0.13       0.17       (0.77)
Diluted earnings (loss) per share......  $  0.29    $  (1.39)   $  0.13    $  0.16    $  (0.77)
</TABLE>
 
<TABLE>
<CAPTION>
                                          FIRST      SECOND      THIRD     FOURTH      TOTAL
                                         QUARTER    QUARTER     QUARTER    QUARTER      YEAR
                 1998                    -------    --------    -------    -------    --------
<S>                                      <C>        <C>         <C>        <C>        <C>
Net sales..............................  $34,667    $ 39,204    $40,683    $41,717    $156,271
Gross profit...........................   11,157      12,181     12,613     12,893      48,844
Net income.............................    1,652       2,141      2,228      2,291       8,312
Basic earnings per share...............     0.18        0.23       0.24       0.25        0.90
Diluted earnings per share.............  $  0.17    $   0.21    $  0.22    $  0.23    $   0.83
</TABLE>
 
---------------
(1) See Note 9 for more information on the fiscal 1997 restructuring costs.
 
                                       47
<PAGE>   50
 
              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
 
To C.P. Clare Corporation:
 
     We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of C.P. Clare Corporation and subsidiaries
included in this Form 10-K and have issued our report thereon dated April 29,
1998. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
 
                                          ARTHUR ANDERSEN LLP
 
Boston, Massachusetts
April 29, 1998
 
                                       48
<PAGE>   51
 
                                                                     SCHEDULE II
 
                             C.P. CLARE CORPORATION
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  RECOVERIES
                                   BALANCE AS OF                 FOR ACCOUNTS    UNCOLLECTIBLE    BALANCE AT
ACCOUNTS RECEIVABLE                  BEGINNING                    PREVIOUSLY       ACCOUNTS         END OF
ALLOWANCE                            OF PERIOD      PROVISION    WRITTEN OFF      WRITTEN OFF       PERIOD
-------------------                -------------    ---------    ------------    -------------    ----------
<S>                                <C>              <C>          <C>             <C>              <C>
Year Ended March 31, 1998........      $675           $579           $66             $143           $1,177
Year Ended March 31, 1997........       535            273            --              133              675
Year Ended March 31, 1996........       617            199            19              300              535
</TABLE>
 
                                       49
<PAGE>   52
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, C.P. Clare Corporation certifies that it has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Beverly, Massachusetts on June 24, 1998.
 
                                          C.P. Clare Corporation
 
Date: June 24, 1998                                   By:
                                                 /s/ ARTHUR R. BUCKLAND
                                            ------------------------------------
                                            Arthur R. Buckland, President
                                            and Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
 
<TABLE>
<CAPTION>
                   SIGNATURES                                     TITLE                      DATE
                   ----------                                     -----                      ----
<C>                                                 <S>                                  <C>
 
             /s/ ARTHUR R. BUCKLAND                 President, Chief Executive           June 24, 1998
------------------------------------------------    Officer and Chairman
               Arthur R. Buckland
 
              /s/ THOMAS B. SAGER                   Vice President of Finance and        June 24, 1998
------------------------------------------------    Chief Financial Officer
                Thomas B. Sager
 
           /s/ WINSTON R. HINDLE, JR.               Director                             June 24, 1998
------------------------------------------------
             Winston R. Hindle, Jr.
 
             /s/ CLEMENTE C. TIAMPO                 Director                             June 24, 1998
------------------------------------------------
               Clemente C. Tiampo
 
               /s/ JOHN G. TURNER                   Director                             June 24, 1998
------------------------------------------------
                 John G. Turner
 
               /s/ JAMES K. SIMS                    Director                             June 24, 1998
------------------------------------------------
                 James K. Sims
</TABLE>
 
                                       50
<PAGE>   53
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NO.                              TITLE
-----------                              -----
<C>           <S>
   10.2       Amended and Restated Multicurrency Credit Agreement dated
              March 6, 1998 among C.P. Clare Corporation and C.P. Clare
              N.V.
   10.3       Revolving Note Dated March 6, 1998
   10.4       Revolving Note Dated March 6, 1998
   10.7       Reaffirmation of Guaranty and Negative Pledge Agreement
   10.8       Voluntary Deferred Compensation Plan for Key Employees
    21.       Subsidiaries of the Registrant
   23.2       Consent of Arthur Andersen LLP
</TABLE>
 
                                       51