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 May 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
4,665,765 Common Shares were outstanding as of May 31, 1994.
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
May 31, February 28,
1994 1994
(Unaudited) (Note 1)
--------- ---------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 5,093 $ 2,697
Receivables, net of allowances 46,306 45,016
Inventories (Note 2) 35,988 34,481
Income taxes, net 1,058 1,154
Prepaid expenses 1,762 931
-------- --------
Total Current Assets 90,207 84,279
Land, buildings and equipment, net 103,318 97,676
Investment in affiliates and
other, net 11,994 11,593
-------- --------
TOTAL ASSETS $205,519 $193,548
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Short-term debt $ 2,899 $ 5,736
Accounts payable 15,292 14,243
Payroll related accruals 10,332 8,452
Other accruals 11,774 11,527
Current maturities of long-term debt 13,761 4,926
-------- --------
Total Current Liabilities 54,058 44,884
Long-term debt 39,551 42,970
Deferred income taxes, net and
deferred credits 13,317 12,218
Stockholders' Investment(Note 4):
Common stock 4,666 4,661
Additional paid-in capital 10,242 10,200
Retained earnings 76,959 73,042
Cumulative translation adjustments 6,726 5,573
-------- --------
Total Stockholders' Investment 98,593 93,476
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $205,519 $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 May 31,
-------------------------
1994 1993
--------- ---------
<S> <C> <C>
Net Sales $ 79,647 $ 69,631
Cost of Products Sold 54,744 49,528
--------- ---------
Gross Margin 24,903 20,103
Engineering, Distribution and
Administrative Expenses 18,077 15,867
-------- ---------
Operating Income 6,826 4,236
Interest Expense (875) (1,031)
Other Income, Net 418 310
-------- ---------
Earnings Before Income Taxes and
Cumulative Effect of Change
in Accounting Principle 6,369 3,515
Income Tax Provision 2,452 1,280
-------- ---------
Earnings Before Cumulative Effect
of Change in Accounting Principle 3,917 2,235
Cumulative Effect of Change in
Method of Accounting for Income
Taxes (Note 3) - 1,542
-------- ---------
Net Earnings $ 3,917 $ 3,777
========= =========
Earnings per Share (Note 4):
Before Cumulative
Effect of Change
in Accounting Principle $ .84 $ .48
Cumulative Effect of Change
in Accounting Principle - .33
--------- ---------
Net Earnings $ .84 $ .81
========= =========
Average Shares Outstanding (Note 4) 4,662,876 4,644,602
========= =========
<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>
Three Months Ended May 31,
--------------------------
1994 1993
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 8,524 $ 5,843
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (8,046) (4,063)
Other, net (278) (40)
-------- ---------
Net Cash Used by Investing Activities (8,324) (4,103)
-------- --------
Cash Flows from Financing Activities:
(Decrease) Increase in Short-term Debt (2,991) 1,531
Increase in Domestic Revolver and Uncommitted
Credit Facilities 5,200 1,051
Principal Payments on Long-term Debt (823) (2,113)
Equity and Other Transactions 49 4
-------- --------
Net Cash Provided by Financing
Activities 1,435 473
-------- --------
Effect of Exchange Rate Changes on Cash Flows 761 102
-------- --------
Net Increase in Cash and
Equivalents 2,396 2,315
Cash and Equivalents, at Beginning of Year 2,697 1,331
-------- --------
Cash and Equivalents, at End of Period $ 5,093 $ 3,646
======== ========
<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 May 31, 1994 and the
condensed consolidated statements of earnings and the condensed
consolidated statements of cash flows for the three months ended May 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 May 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. The results of operations
for the three months ended May 31, 1994 are not necessarily indicative of
the operating results for a full year.
2. INVENTORIES
Inventory values were as follows:
<TABLE>
<CAPTION>
May 31, Feb. 28,
1994 1994
------- -------
<S> <C> <C>
Finished Goods $10,511 $11,470
Work-in-Process 13,148 12,114
Component Parts 8,748 7,627
Raw Materials 3,581 3,270
------ ------
$35,988 $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. PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION
On May 3, 1994, the Board of Directors authorized adoption of a
proposed amendment to the Company's certificate of incorporation which
would among other things (i) reclassify the existing Common Stock
("Existing Common Stock") of the Company as Class B Common Stock and (ii)
authorize a new class of non-voting common stock, designated as Class A
Common Stock. The stockholders of the Company are being asked to approve
the amendment at the Annual Meeting of stockholders on July 11, 1994.
The Board of Directors authorized a stock dividend of one share of
Class A Common Stock for each share of Existing Common Stock outstanding
subject to the stockholders approval of the above amendment. This stock
dividend will have the same effect on the total number of shares of Common
Stock outstanding as a two-for-one stock split. Because this has not yet
been approved by the Company's stockholders, the financial statements have
not been restated to reflect the results of the proposed amendment and
stock dividend. The pro-forma capitalization and earnings per share of the
Company reflecting the proposed amendment and stock dividend is as follows:
<TABLE>
<CAPTION>
May 31,
1994
-------
<S> <C>
Pro-Forma Stockholders' Investment:
Class A Common Stock, par value $1.00
per share; 20,000,000 shares
authorized; 4,665,765 shares issued
and outstanding $ 4,666
Class B Common Stock, par value $1.00
per share; 10,000,000 shares
authorized; 4,665,765 shares issued
and outstanding 4,666
Additional paid-in capital 10,242
Retained earnings 72,293
Cumulative translation adjustment 6,726
-------
Total Stockholders' Investment $98,593
=======
<CAPTION>
May 31, May 31,
1994 1993
------- -------
<S> <C> <C>
Pro-forma Earnings per share:
Before Cumulative Effect of
Change in Accounting Principle $ .42 $ .24
Cumulative Effect of Change in
Accounting Principle -- .17
------- -------
Net Earnings $ .42 $ .41
======= =======
Average Shares Outstanding 9,325,752 9,289,204
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
First quarter sales of $79.6 million exceeded last year's first quarter
sales by 14% and the previous quarterly sales record by 9%. First quarter
net earnings of $3.9 million or $.84 per share, also a record, exceeded
last year's first quarter comparable earnings, before the effects of an
accounting change, of $2.2 million or $.48 per share by 75% and last year's
first quarter net earnings of $3.8 million or $.81 per share by 4%. The
first quarter of last year included a $1.5 million or $.33 per share
increase to net earnings for the cumulative effect of the change to the
SFAS 109 method of accounting for income taxes.
Domestic sales increased 22% over last year's first quarter, paced by sales
to the automotive industry. European operations continued the improvement
which began late last year with a 5% sales increase over last year's first
quarter in dollars and a 10% increase over last year in the applicable
local currency.
Consolidated gross margins increased from 28.9% to 31.3% of sales.
Domestic gross margins increased from 32.2% to 34.5% of sales. Foreign
gross margins increased from 24.8% to 26.6% of sales. These improvements
are the result of increased volume, cost reduction programs, and improved
production efficiencies. The Company's semiconductor operation went to a
continuous seven day work week in the second half of last year. Cost
reductions have been successfully implemented, especially in the Company's
keyboard product line.
Consolidated operating expenses increased 14% which is in line with the
Company's increase in sales. Domestic and foreign operating expenses
increased 20% and 5%, respectively, which is also in line with the
applicable sales increases. Any anticipated economies of scale from the
increase in sales were partially offset by the need to staff for increasing
business.
Consolidated operating profit, as a result of the above factors, improved
from 6.1% to 8.6% of sales. Domestic operating profit improved from 8.0%
to 10.7% of sales while foreign operating profit increased from 3.7% to
5.5% of sales.
Consolidated interest expense decreased $156 thousand or 15% as the result
of reduced borrowings and improved financing rates.
Consolidated other income increased by $108 thousand primarily because of
higher income from an unconsolidated affiliate.
The consolidated effective income tax rate increased from 36.5% to 38.5%.
A combination of higher state income taxes and increased foreign
profitability resulted in the increase to the effective 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 $1.5 million benefit ($.33 per share) was recorded in the income
statement and is reported as a cumulative effect of a change in accounting
principle.
<PAGE>
A normal seasonal slowdown in sales is expected in the upcoming second
quarter as the result of automotive and appliance model changeovers and
summer vacations. The slowdown, however, is expected to be less pronounced
than the prior year since the prior year's second quarter was also affected
by the height of the European recession.
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
In the first quarter of fiscal 1995, the Company modestly improved its
financial condition further in spite of significant first quarter capital
expenditure increases. The consolidated debt to capital ratio declined to
36.3% from 36.5% at February 28, 1994. First quarter capital expenditures
were $8 million versus $4.1 million in the first quarter of last year.
In the first quarter of fiscal 1995, domestic capital expenditures were
$6.2 million while foreign capital expenditures were $1.8 million. The
higher domestic capital expenditures are consistent with the recent
significant domestic growth versus the slowly recovering European economy.
Funds were needed domestically for capacity increases and working capital;
$5.2 million of the funding came from increased borrowings under the
domestic revolver and the balance from operating activities. Foreign
operating activities generated sufficient funds to repay $3.8 million of
foreign debt and also fund their capital expenditures.
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 production needs, building and capacity expansion programs are
currently underway at both domestic locations.
Although the debt to capital ratio improved, debt increased to $56.2
million from $53.6 million. Debt is expected to increase further as the
result of the needed production capacity increases. The Company has
sufficient debt funding to finance its operations in the foreseeable
future. An equity offering is presently under consideration as a means to
increase the Company's financial flexibility. Any decision regarding an
equity offering is subject to further analysis and stock market conditions.
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K
During the quarter, the following Form 8-K Report was filed:
1. Form 8-K dated May 18, 1994 (Item 7)
<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: July 8, 1994 By: Dan A. King
--------------------------
Dan A. King
Treasurer, Secretary and
Corporate Controller
