SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15D OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE EXCHANGE ACT OF 1934 (No Fee
Required)
For the transition period from ( ) to ( )
Commission File No. 0-8955
THE CHERRY CORPORATION
DELAWARE 36-2977756
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3600 Sunset Avenue, Waukegan, IL 60087
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(708) 662-9200
Not Applicable
(Former name, former address and former fiscal year if changed
since last report)
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 report), and (2) has been subject to such filing
requirements for the past 90 days.
( X ) Yes ( ) No
Number of Common Shares outstanding as of August 31, 1994:
7,553,185 shares of Class A Common
4,678,185 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
August 31, February 28,
1994 1994
(Unaudited) (Note 1)
---------- ----------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 4,042 $ 2,697
Receivables, net of allowances 45,708 45,016
Inventories (Note 2) 42,515 34,481
Income taxes, net 2,013 1,154
Prepaid expenses 1,828 931
-------- --------
Total Current Assets 96,106 84,279
Land, buildings and equipment, net 110,069 97,676
Investment in affiliates and
other, net 12,797 11,593
-------- --------
TOTAL ASSETS $218,972 $193,548
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Short-term debt $ 6,294 $ 5,736
Accounts payable 14,449 14,243
Payroll related accruals 9,768 8,452
Other accruals 13,489 11,527
Current maturities of long-term debt 14,029 4,926
-------- --------
Total Current Liabilities 58,029 44,884
Long-term debt 11,659 42,970
Deferred income taxes, net and
deferred credits 14,079 12,218
Stockholders' Investment (Note 4):
Class A Common stock 7,553 -
Class B Common Stock 4,678 4,661
Additional paid-in capital 40,637 10,200
Retained earnings 73,998 73,042
Cumulative translation adjustments 8,339 5,573
-------- --------
Total Stockholders' Investment 135,205 93,476
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $218,972 $193,548
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Share Data)
<CAPTION>
Three Months Ended Six Months Ended
August 31 August 31
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 74,241 $ 61,805 $ 153,888 $ 131,436
Cost of Products Sold 53,427 45,639 108,171 95,167
--------- --------- --------- --------
Gross Margin 20,814 16,166 45,717 36,269
Engineering, Distribution and
Administrative Expenses 17,577 15,038 35,654 30,905
-------- --------- --------- ---------
Operating Income 3,237 1,128 10,063 5,364
Interest Expense (918) (964) (1,793) (1,995)
Other Income, Net 467 484 885 794
-------- --------- --------- ---------
Earnings Before Income Taxes and
Cumulative Effect of Change
in Accounting Principle 2,786 648 9,155 4,163
Income Tax Provision 1,074 187 3,526 1,467
-------- --------- --------- ---------
Earnings before Cumulative Effect
of Change in Accounting
Principle 1,712 461 5,629 2,696
Cumulative Effect of Change in
Method of Accounting for Income
Taxes (Note 3) - - - 1,542
-------- --------- --------- ---------
Net Earnings $ 1,712 $ 461 $ 5,629 $ 4,238
========= ========= ========= =========
Earnings per Share (Note 4):
Before Cumulative
Effect of Change
in Accounting Principle $ .18 $ .05 $ .59 $ .29
Cumulative Effect of Change
in Accounting Principle - - - .17
--------- --------- --------- ---------
Net Earnings $ .18 $ .05 $ .59 $ .46
========= ========= ========= =========
Average Shares Outstanding 9,747,550 9,295,670 9,536,283 9,292,436
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<CAPTION>
Six Months Ended August 31,
---------------------------
1994 1993
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 9,600 $ 14,541
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (17,497) (10,598)
Other, net (334) (130)
-------- --------
Net Cash Used by Investing Activities $(17,831) $(10,728)
-------- --------
Cash Flows from Financing Activities:
Increase in Short-term Debt 85 2,329
(Decrease) in Domestic Revolver and Uncommitted
Credit Facilities (21,800) (549)
Principal Payments on Long-term Debt (2,369) (4,330)
Net Proceeds from Equity Offering 33,176 -
Other Equity Transactions 157 41
-------- --------
Net cash Provided (Used) by Financing
Activities 9,249 (2,509)
-------- --------
Effect of Exchange Rate Changes on Cash Flows 327 (268)
-------- --------
Net Increase in Cash and
Equivalents 1,345 1,036
Cash and Equivalents, at Beginning of Year 2,697 1,331
-------- --------
Cash and Equivalents, at End of Period $ 4,042 $ 2,367
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of August 31, 1994 and the
condensed consolidated statements of earnings and the condensed
consolidated statements of cash flows for the three and six months ended
August 31, 1994 and 1993, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at August 31, 1994, and for all
periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
February 28, 1994 Annual Report to Stockholders and the Form S-2 filing
dated July 12, 1994 described further in footnote 4. The results of
operations for the three and six months ended August 31, 1994 are not
necessarily indicative of the operating results for a full year.
2. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
August 31, February 28,
1994 1994
--------- -----------
<S> <C> <C>
Finished Goods $12,091 $11,470
Work-in-Process 15,586 12,114
Component Parts 10,502 7,627
Raw Materials 4,336 3,270
--------- -----------
$42,515 $34,481
========= ===========
</TABLE>
3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109") Accounting for Income Taxes.
Under this statement, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred tax assets are to
be recognized for temporary differences that will result in deductible
amounts in future years, if in the opinion of management, it is more likely
than not that the deferred tax assets will be realized.
The result of adopting SFAS No. 109 was a one time increase to net
income of $1.5 million reported as the cumulative effect of a change in
accounting principle in the first quarter of fiscal 1994.
<PAGE>
4. AMENDMENT TO CERTIFICATE OF INCORPORATION AND EQUITY OFFERING
On July 12, 1994, the Company filed with the Delaware Secretary of State
an amended and restated certificate of incorporation which (i) increased
the number of authorized shares of common stock of the Company from
10,000,000 to 30,000,000, consisting of 20,000,000 shares of Class A Common
Stock and 10,000,000 shares of Class B Common Stock, (ii) reclassified the
Prior Common Stock as Class B Common Stock, (iii) authorized a new class of
non-voting stock designated as Class A Common Stock, and (iv) established
the rights, powers and limitations of the Class A Common Stock and the
Class B Common Stock. On June 16, 1994 the Board of Directors authorized a
stock dividend of one share of Class A Common Stock for each share of Prior
Common Stock outstanding on July 11, 1994. The stock dividend had the same
effect on the total number of shares of Common Stock outstanding as a two-
for-one stock split. The earnings per share and average shares outstanding
have been restated to reflect the stock dividend.
On July 12, 1994, the Company made a Form S-2 Filing with the Securities
and Exchange Commission to offer 2,500,000 shares of Class A common stock
to the public. The Company also granted the underwriters an option to
purchase an additional 375,000 shares to cover over-allotments. On August
12, 1994, the entire 2,875,000 shares were sold to the public. The $33.2
million of net proceeds was used to repay domestic debt.
Earnings per share for the six months ended August 31, 1994, would have
been $.50 had the equity offering been made on March 1, 1994, and the
domestic debt repaid at that time.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Record second quarter sales of $74.2 million for fiscal 1995 were 20%
higher than the same quarter of the prior year. Two consecutive quarters
of record sales in fiscal 1995 resulted in six month record sales and net
earnings of $153.9 million and $5.6 million, respectively. Current year
six month sales were 17% higher than the comparable period of the prior
year, while net earnings were 33% higher. Foreign currency translation had
no impact on the six month sales nor net earnings. The net earnings record
was achieved even though the six month period of the prior year included a
$1.5 million or $.17 per share increase to net earnings for the cumulative
effect of the change to the SFAS 109 method of accounting for income taxes.
Second quarter sales from domestic operations increased 19% over the prior
year's comparable quarter, as double digit increases continue in the
current year. These increases are primarily attributable to increased
sales to the automotive industry. Sales by our foreign operations
increased 22% over last year's second quarter in dollars and 16% in the
applicable local currency. Foreign sales, primarily in Europe, are being
fueled by our increasing penetration into the European automotive market,
expanding sales of keyboards and by a recovering European economy.
The consolidated gross margin rate for the current year second quarter
increased to 28.0% of sales from 26.2% for the prior year second quarter,
primarily from improving foreign operations which benefitted from higher
sales volume and ongoing cost reduction programs. Domestic gross margins
declined slightly from 30.1% to 29.2% of sales. This decline results
primarily from significantly higher model changeover costs in our
automotive power option control business where 70% of our programs in
fiscal 1995 are new. Additional model changeover costs will continue into
the third quarter, but are anticipated to be lower than those incurred in
the second quarter. Foreign gross margins increased from 20.4% to 26.4% of
sales. As noted above, these improvements resulted from increased volume
and ongoing cost reduction programs..
The current year first half consolidated gross margin increased to 29.7% of
sales from 27.6% for the comparable period of the prior year as a result of
increased volume and ongoing cost reduction programs, partially offset by
higher model changeover costs.
Consolidated operating expenses for the second quarter of the current year
increased only 17%, thereby providing some economies of scale from the 20%
increase in sales. Domestic operating expenses increased 19% in line with
their applicable sales increases, as we continue to staff for increasing
business. Foreign operating expenses increased 13% in dollars and 8% in
their applicable local currency, versus sales increases of 22% in dollars
and 16% in local currency. Consolidated operating expenses for the first
half of the current year held steady at 23.2% of sales compared to 23.5%
for the comparable period of the prior year.
<PAGE>
Consolidated operating profit for the current year second quarter, as a
result of the above factors, improved from 1.8% of sales for the comparable
quarter of the prior year to 4.4% of sales. Domestic operating profit
declined from 6.2% to 5.2% of sales while foreign operating profit
increased from a 4.4% of sales operating loss to a 3.2% of sales operating
profit. For the current year first half the consolidated operating profit
increased to 6.5% of sales from 4.1% for the comparable prior year period.
Domestic operating profit improved to 8.1% of sales from 7.1%, while
foreign operating profit improved from zero to 4.4% of sales.
Consolidated interest expense for the second quarter and first six months
declined 5% and 10%, respectively, from the comparable periods of the prior
year, as the result of reduced borrowings and improved financing rates.
The consolidated effective income tax rate for the current year first half
increased to 38.5% from 35.2% for the comparable period of the prior year.
A combination of higher state income taxes and increased foreign
profitability account for the increase in the effective income tax rate.
In the first quarter of last year, the Company implemented SFAS 109. In
accordance with the provisions of SFAS 109, the Company recognized tax
assets principally related to the expected benefit of future tax deductions
for expenses previously recorded for financial reporting purposes. The
resulting $1.5 million benefit ($.17 per share) was recorded in the income
statement and is reported as a cumulative effect of a change in accounting
principle.
Since a significant portion of the Company's sales and manufacturing are
overseas, foreign currency translation could have an impact on future
sales, earnings, and financial position of the Company as denominated in
U.S. dollars. The Company engages in insignificant amounts of hedging
contracts with regard to foreign currency transactions and therefore does
not have a material derivative exposure.
Liquidity and Capital Resources
On August 19, 1994, the Company successfully concluded its offering of
2,875,000 shares of Class A common stock to the public. The $33.2 million
of net proceeds was used to repay domestic debt. As a result, the
consolidated debt to capital ratio declined to 19.1% at August 31, 1994
from 36.5% at February 28, 1994. The operational benefit from lower
interest expense will become evident in the remainder of fiscal 1995.
Consolidated operations generated $9.6 million in cash for the six month
period ended August 31, 1994. Additional financing was provided by the
$33.2 million in net proceeds from the equity offering, $85 thousand from
an increase in short term debt and $157 thousand from stock options'
exercised.
<PAGE>
For the first half of fiscal 1995, capital expenditures totaled $17.5
million with $13.7 million expended on domestic operations and $3.8 million
on foreign operations. Our emphasis on higher domestic capital
expenditures is consistent with the needs created by recent significant
domestic growth versus the slowly recovering European economy. The Company
repaid $21.8 million on the domestic revolver and uncommitted credit
facilities and $2.4 million on other long term debt.
The Company intends to spend approximately $35 million on capital
expenditures in fiscal 1995 and to average a capital expenditure level of
10% of sales over fiscal 1995, 1996 and 1997. To accommodate the Company's
increased domestic production needs, building and capacity expansion
programs are currently underway.
Although the debt to capital ratio was substantially reduced in the current
period by funds provided from the equity offering, debt is expected to
increase to fund some of our production capacity expansions noted above.
Even so, the debt to capital ratio is not expected to increase
significantly. As a result of the equity offering, the line of credit
under the domestic revolver was reduced to $28 million from $45 million and
is now unsecured. Total domestic borrowings are limited to the amount
available under this facility. Foreign debt arrangements are currently
unchanged but are being reviewed. The Company has sufficient debt funding
to finance its operations in the foreseeable future.
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a. The annual meeting of stockholders was held on July 11, 1994.
b. Seven directors were elected and received the following votes:
<TABLE>
Votes
-------------------------------
<CAPTION>
For Withheld
------------- ------------
<S> <C> <C>
1. Peter B. Cherry 4,201,229 226,119
2. Walter L. Cherry 4,201,229 226,119
3. Alfred S. Budnick 4,198,558 228,790
4. Thomas L. Martin, Jr. 4,201,224 226,124
5. Robert B. McDermott 4,198,558 228,790
6. Peter A. Guglielmi 4,201,208 226,140
7. Charles W. Denny 4,201,208 226,140
</TABLE>
c. A proposal to amend Article Four of the Certificate of
Incorporation was approved and received the following votes:
<TABLE>
Votes
-------------------------------------------------------------------
<CAPTION>
For Against Abstained Broker Non-Votes
----------- ----------- ----------- ----------------
<C> <C> <C> <C>
3,186,390 960,173 4,498 276,287
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description of Exhibit
-------------- -----------------------------------------
27 Article 5 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter, the following Form 8-K Report was filed:
(1) Form 8-K dated July 13, 1994 (Item 5)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHERRY CORPORATION
Registrant
DATE: October 5, 1994 By: Dan A. King
--------------------------
Dan A. King
Treasurer, Secretary and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of income and condensed consolidated balance
sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> AUG-31-1994
<CASH> 4,042
<SECURITIES> 0
<RECEIVABLES> 45,708
<ALLOWANCES> 0
<INVENTORY> 42,515
<CURRENT-ASSETS> 96,106
<PP&E> 263,738
<DEPRECIATION> 153,669
<TOTAL-ASSETS> 218,972
<CURRENT-LIABILITIES> 58,029
<BONDS> 11,659
<COMMON> 12,231
0
0
<OTHER-SE> 122,974
<TOTAL-LIABILITY-AND-EQUITY> 218,972
<SALES> 153,888
<TOTAL-REVENUES> 153,888
<CGS> 108,171
<TOTAL-COSTS> 108,171
<OTHER-EXPENSES> 35,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,793
<INCOME-PRETAX> 9,155
<INCOME-TAX> 3,526
<INCOME-CONTINUING> 5,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,629
<EPS-PRIMARY> .59
<EPS-DILUTED> 0
</TABLE>
