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 November 30, 1993
( ) 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
4,649,967 Common Shares were outstanding as of November 30, 1993.
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
November 30, February 28,
1993 1993
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS:
Cash and equivalents $ 2,513 $ 1,331
Receivables, net of allowances 44,840 42,821
Inventories (Note 2) 32,273 32,091
Income taxes, net 1,982 1,800
Prepaid expenses 2,200 2,509
-------- --------
Total Current Assets 83,808 80,552
Land, buildings and equipment, net 94,279 93,365
Investment in affiliate and other
assets 10,979 9,302
-------- --------
TOTAL ASSETS $189,066 $183,219
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Short-term debt $ 4,984 $ 1,479
Accounts payable 12,503 13,644
Payroll related accruals 8,592 7,904
Other accruals 13,109 7,782
Current maturities of long-term debt 4,882 5,952
-------- --------
Total Current Liabilities $ 44,070 $ 36,761
Long-term debt 44,648 50,817
Deferred taxes and credits 11,276 13,627
Stockholders' Investment:
Common stock 4,650 4,644
Additional paid-in capital 10,019 9,979
Retained earnings 69,304 62,009
Cumulative translation adjustments 5,099 5,382
-------- --------
Total Stockholders' Investment 89,072 82,014
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $189,066 $183,219
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollars in Thousands Except Share Data)
<CAPTION>
Three Months Ended Nine Months Ended
November 30 November 30
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 72,954 $ 69,206 $ 204,390 $ 200,028
Cost of Products Sold 51,633 49,683 146,800 141,910
--------- --------- --------- ---------
Gross Margin 21,321 19,523 57,590 58,118
Expenses:
Engineering 3,696 3,587 11,105 10,461
Distribution 5,806 5,609 17,323 16,201
Administration 6,480 6,204 18,459 18,387
-------- --------- --------- ---------
15,982 15,400 46,887 45,049
-------- --------- --------- ---------
Operating Income 5,339 4,123 10,703 13,069
Interest Expense, Net (939) (1,236) (2,895) (4,023)
Other Income, Net 381 205 1,136 519
-------- --------- --------- ---------
Earnings Before Income Taxes,
Extraordinary Credit and Cumulative
Effect of Change in Accounting
Principle 4,781 3,092 8,944 9,565
Income Tax Provision 1,724 1,078 3,191 3,533
-------- --------- --------- ---------
Earnings before Extraordinary
Credit and Cumulative Effect of
Change in Accounting Principle 3,057 2,014 5,753 6,032
Extraordinary Tax Credit - 670 - 2,097
Cumulative Effect of Change in
Method of Accounting for Income
Taxes (Note 3) - - 1,542 -
-------- --------- --------- ---------
Net Earnings $ 3,057 $ 2,684 $ 7,295 $ 8,129
========= ========= ========= =========
Earnings per Share:
Before Extraordinary Tax Credit
and Cumulative Effect of Change
in Accounting Principle $ .66 $ .44 $ 1.24 $ 1.32
Extraordinary Tax Credit - .15 - .46
Cumulative Effect of Change
in Accounting Principle - - .33 -
--------- --------- --------- ---------
Net Earnings $ .66 $ .59 $ 1.57 $ 1.78
========= ========= ========= =========
Average Shares Outstanding 4,649,967 4,593,603 4,647,468 4,577,154
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<CAPTION>
Nine Months Ended November 30,
1993 1992
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,295 $ 8,129
Adjustments to reconcile net earnings to net
cash provided by (used for) operating
activities:
Depreciation and amortization 12,982 13,939
Cumulative effect of change in accounting
principle (1,542) -
(Charges) for restructuring costs (455) (1,608)
Provisions for losses on receivables 254 441
(Gain) Loss on sale of land, buildings and (14) 1,512
equipment
(Income) from unconsolidated affiliate (491) (504)
Changes in assets and liabilities:
(Increase) decrease in receivables (2,908) (5,583)
(Increase) in inventories (339) (450)
(Decrease) increase in accounts payable (1,245) 1,007
(Decrease) increase in income taxes, net (202) 445
(Decrease) increase in deferred income taxes 185 107
Decrease in other working capital,
excluding cash and short-term debt 6,465 3,424
------- --------
Total Adjustments $ 12,690 $ 12,730
-------- --------
Net cash provided by operating activities 19,985 20,859
Cash flows from investing activities:
Proceeds from sale of land, buildings and
equipment 23 204
Expenditures for land, building and equipment (16,242) (14,686)
Other (467) 547
-------- --------
Net cash used by investing activities: $(16,686) $(13,935)
-------- --------
Cash flows from financing activities:
Increase (decrease) in short-term debt 3,694 (7,108)
Principal payments on long-term debt (11,638) (9,987)
Proceeds from long-term debt 5,551 9,392
Equity and other transactions 45 369
-------- --------
Net cash provided (used) by financing
activities (2,348) (7,334)
-------- --------
Effect of exchange rate changes on cash flows 231 48
-------- --------
Net increase (decrease) in cash and
equivalents 1,182 ( 362)
Cash and equivalents, at beginning of year 1,331 4,546
-------- --------
Cash and equivalents, at end of period $ 2,513 $ 4,184
======== ========
<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 November 30, 1993 and
the consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and nine months ended November 30,
1993 and 1992, 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 November 30, 1993, 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, 1993 Annual Report to Stockholders. The results of operations
for the three and nine months ended November 30, 1993 are not necessarily
indicative of the operating results for a full year.
2. INVENTORIES
Inventories were as follows:
November 30 February 28
1993 1993
Finished Goods $10,710 $11,234
Work-in-Process 11,504 10,570
Component Parts 6,763 7,251
Raw Materials 3,296 3,036
------ ------
$32,273 $32,091
======= =======
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 is a one time increase to net
income of $1.5 million reported as the cumulative effect of a change in
accounting principle. This income is primarily the expected benefit of
future tax deductions for expenses previously recorded for financial
reporting purposes. The Company also recorded additional deferred tax
assets related to foreign tax credit carryforwards and pre-merger U.S. NOL
carryforwards among other items, however, valuation allowances were
provided for these items. The foreign tax credit carryforwards of $1,603
expire in the years 1995 to 1998. The pre-merger U.S. NOL carryforwards of
$2,142 expire in 1999 and 2000.
As of March 1, 1993, after having given effect to SFAS No. 109, the
Company had recorded the following deferred taxes:
Deferred tax assets $ 8,361
Less: Valuation Allowance 2,576
-------
Deferred tax assets, net $ 5,785
=======
Deferred tax liabilities $11,646
=======
<PAGE>
The significant temporary differences and carryforwards which give rise
to the above deferred tax assets are: reserves not yet deducted for tax
purposes ($1,736), foreign tax credit carryforwards ($1,603) and pre-merger
U.S. NOL carryforwards ($728). The significant temporary differences
giving rise to the deferred tax liabilities are: accelerated depreciation
($7,180) and translation adjustments ($3,591).
The undistributed earnings of the Company's United Kingdom subsidiary
and Japanese affiliate will continue to be invested indefinitely. Federal
income taxes on distribution of these earnings, if any, would not be
significant.
There were no other impacts on net earnings for any periods presented
as a result of the adoption of SFAS 109.
4. EMPLOYEE BENEFIT PLANS
The Company currently offers no postretirement benefits to employees
other than pensions. Therefore, the Statement of Financial Accounting
Standards No. 106 "Employers Accounting for Postretirement Benefits Other
Than Pensions" does not apply.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Record net sales of $73.0 million were achieved in the third quarter of the
current year and replaced the prior year's record of $69.2 million. Fiscal
1994 third quarter domestic sales increased $7.3 million or 21.8% over the
comparable quarter of the prior year, whereas foreign sales declined $3.5
million or 9.9%. Over 94% of the $3.5 million decline in foreign sales
relates to foreign currency translation. Otherwise, foreign sales were
down only slightly. Steadily improving sales of our automotive products
continue to propel the significant increases registered by our domestic
operations.
Net sales of $204.4 million for the first nine months of the current year
were $4.4 million or 2.2% higher than the comparable period of the prior
year. Domestic sales, again led by automotive products, increased $18.9
million or 19.5%, whereas foreign sales declined $14.5 million or 14.1%.
Foreign currency translation accounts for approximately 44% of this decline
in foreign sales. The recession in Europe combined with reduced demand and
increased selling price pressures have all contributed to the lower overall
foreign sales. However, third quarter foreign sales were approximately 25%
higher than the second quarter of the current year. We doubt the recession
in Europe is over, but the near term outlook is better than we've seen in
some time, with new order input increasing in the third quarter. Time will
tell us if this is sustainable and how rapidly the European economies will
recover.
The gross margin for the third quarter of the current year increased $1.8
million to $21.3 million from $19.5 million for the comparable period of
the prior year. Increased domestic sales volume and cost containment and
reduction programs at our foreign locations were the primary reasons for
this improvement.
On a year-to-date basis, the gross margin for the current year declined $.5
million to $57.6 million from $58.1 million for the comparable period of
the prior year. Manufacturing efficiencies resulting from increases in
domestic sales volume were negated by European sales declines.
Operating expenses for the third quarter of the current year were $16.0
million, an increase of $.6 million, over the $15.4 million for the
comparable period of the prior year. Domestic operating expenses increased
$1.2 million, while foreign operating expenses declined $.6 million.
Foreign operating expenses essentially held firm with the entire reduction
attributable to favorable currency translation rate effects. The increase
in domestic operating expenses relate primarily to additional selling and
engineering support in response to our continued growth in domestic sales.
On a year-to-date basis, operating expenses increased $1.8 million, over
the comparable prior year period with domestic expenses up $3.1 million and
foreign down $1.3 million. Foreign operating expenses were approximately
$1.4 million lower than the prior year due to favorable currency
translation rate effects. Reasons for the changes between domestic and
foreign basically follow those noted for the third quarter above.
<PAGE>
As a result of the above factors, operating profit for the third quarter of
the current year increased $1.2 million over the comparable period of the
prior year, with $1.1 million coming from domestic operations. On a year-
to-date basis, operating profit is still down $2.4 million (18%) from the
prior year.
Other income,net for the current quarter and nine months averaged $.2
million higher per quarter than the comparable prior year periods primarily
from foreign exchange transaction gains in the current year versus losses
in the prior year.
Net interest expense for the current quarter and nine month periods
declined $.3 million or 24% and $1.1 million or 28%, respectively, from the
comparable periods of the prior year. Lower interest rates and reductions
in total foreign debt are the primary reasons for the decline in the net
interest expense.
The effective tax rate for the current year nine month period was 35.7%
versus 36.9% for the comparable period of the prior year. With the
majority of current year pre-tax income associated with domestic operations
the current year's rate is more closely associated with the U.S. statutory
rate than in prior years.
Earnings before extraordinary credit and the cumulative effect of a change
in accounting principle were a record $3.1 million or $.66 per share for the
current year third quarter versus $2.0 million or $.44 per share for the
comparable prior year period. Current year nine month earnings were $5.8
million or $1.24 per share versus $6.0 million or $1.32 per share for the
comparable period of the prior year. The change in earnings resulted from
the combination of factors noted above.
In the first quarter of the current year, the Company implemented Statement
of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income
Taxes." 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 $1.5 million benefit($.33 per share) was recorded
in the income statement and is reported as a cumulative effect of a change
in accounting principle. The implementation of SFAS 109 had no other
impact on income for the current year first quarter.
The extraordinary tax credit for the prior year third quarter and nine
months results from the utilization of net operating loss carryforwards,
primarily from domestic operations, in accordance with the provisions of
Accounting Principles Board Opinion No. 11.
Liquidity and Capital Resources
We have continued to make progress in lowering our overall debt, bringing
our debt to capital ratio to 38.0% at November 30, 1993 from 41.5% at
February 28, 1993.
Consolidated operations generated $20.0 million in cash for the nine month
period ended November 30, 1993. Additional financing was obtained from
$3.6 million of short-term foreign borrowings and $5.6 million from our
long-term domestic credit line.
<PAGE>
We invested $16.3 million in capital equipment and repaid $11.6 million of
long-term debt, $5.1 million of which was foreign. The effect of exchange
rate changes on cash flows and increases in miscellaneous other assets
account for the remaining net change in cash.
Despite difficult operating conditions, our foreign facilities continue to
generate cash from good working capital management, and contributed
approximately $8.1 million of the $20.0 million generated by consolidated
operations.
To sustain our strong domestic growth in sales, domestic capital
expenditures have been increased and comprise $10.8 million of the
consolidated capital expenditures.
The Company has various loan agreements and lines of credit, which together
with internally generated funds are considered sufficient to finance
working capital and capital asset requirements through February 1994.
However, projected growth in fiscal 1995 and beyond will require additional
financing and the Company is in the process of analyzing various options
available.
During the current fiscal quarter, the Company entered into two
uncommitted, unsecured credit facilities totaling $25 million. Under these
facilities, the Company is able to borrow funds at a rate of LIBOR plus
.75% which is below the rate available to the Company on its domestic
revolving credit facility. Since these new facilities are uncommitted, the
Company will not cancel its committed revolving credit facility, but will
rather utilize the new facilities, while available, to reduce the cost of
borrowings.
<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: January 11, 1994 By: Dan A. King
Dan A. King
Treasurer, Secretary and
Corporate Controller
