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, 1995
( ) 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
(Exact name of registrant as specified in its charter)
DELAWARE 36-2977756
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3600 Sunset Avenue, Waukegan, IL 60087
(Address of principal executive offices) (Zip Code)
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 May 31, 1995:
7,563,652 shares of Class A Common
4,715,341 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
May 31, February 28,
1995 1995
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 2,960 $ 5,694
Receivables, net of allowances 59,576 56,247
Inventories (Note 2) 53,139 48,071
Income taxes, net -- 459
Other current assets 5,483 4,811
---------- --------
Total Current Assets 121,158 115,282
Land, buildings and equipment, net 144,275 132,055
Investment in affiliates and other, net 16,084 13,856
---------- --------
TOTAL ASSETS $ 281,517 $261,193
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 18,385 $ 18,464
Accounts payable 22,935 21,273
Payroll related accruals 14,622 10,938
Income taxes, net 1,815 --
Other accruals 14,268 14,275
Current maturities of long-term debt 4,513 4,331
---------- --------
Total Current Liabilities 76,538 69,281
Long-term debt 28,869 25,863
Deferred income taxes, net and deferred credits 20,118 18,422
Stockholders' Equity:
Class A Common stock 7,564 7,561
Class B Common stock 4,715 4,712
Additional paid-in capital 40,943 40,924
Retained earnings 87,456 83,192
Cumulative translation adjustments 15,314 11,238
---------- --------
Total Stockholders' Equity 155,992 147,627
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 281,517 $261,193
========== ========
<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
1995 1994
---------- --------
<S> <C> <C>
Net Sales $ 108,401 $ 79,647
Cost of Products Sold 79,138 54,744
--------- --------
Gross Margin 29,263 24,903
Engineering, Distribution and
Administrative Expenses 22,367 18,077
--------- --------
Earnings from Operations 6,896 6,826
Other Income, Net 366 390
--------- --------
Earnings Before Interest and Taxes 7,262 7,216
Interest Expense, net 804 847
--------- --------
Earnings before Income Taxes 6,458 6,369
Income Tax Provision 2,194 2,452
--------- --------
Net Earnings $ 4,264 $ 3,917
========= ========
Earnings per Share $ .35 $ .42
========= ========
Average Shares Outstanding 12,274,819 9,325,016
========== =========
<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>
Three Months Ended May 31,
---------------------------
1995 1994
---------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 10,455 $ 8,524
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (15,128) (8,046)
Other, net 323 (278)
--------- ---------
Net Cash Used by Investing Activities (14,805) (8,324)
--------- ---------
Cash Flows From Financing Activities:
(Decrease) in Short-term Debt (1,110) (2,991)
Increase in Domestic Revolver and
Uncommitted Credit Facilities 3,200 5,200
Principal Payments on Long-term Debt (804) (823)
Equity and other Transactions 25 49
--------- ---------
Net Cash Provided by Financing Activities 1,311 1,435
--------- ---------
Effect of Exchange Rate Changes on Cash Flows 305 761
--------- ---------
Net (Decrease) Increase in Cash and Equivalents (2,734) 2,396
Cash and Equivalents, at Beginning of Year 5,694 2,697
--------- ---------
Cash and Equivalents, at End of Period $ 2,960 $ 5,093
========= =========
<FN>
The accompanying notes are in 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, 1995 and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three months ended May 31, 1995 and 1994, 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, 1995, 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, 1995 Annual
Report to Stockholders. The results of operations for the three months ended
May 31, 1995, are not necessarily indicative of the operating results for a full
year.
2. INVENTORIES
Inventory values were as follows:
May 31, February 28
1995 1995
--------- ---------
Finished Goods $ 16,083 $ 14,033
Work-in-Process 18,015 16,670
Component Parts 12,521 11,787
Raw Materials 6,520 5,581
-------- --------
$ 53,139 $ 48,071
======== ========
3. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
4. EARNINGS PER SHARE
Prior year earnings per share and average shares outstanding have been
restated to reflect the stock dividend in July 1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Current year first quarter sales of $108.4 million increased 36% over the prior
year's record first quarter sales and represents four consecutive years of
record first quarter sales. One fourth of the increase in consolidated sales is
attributable to foreign currency translation. First quarter net earnings of
$4.3 million is also a new record, edging out last year's first quarter net
earnings of $3.9 million. The current year first quarter earnings per share of
$.35 are lower than the prior year's $.42 primarily from the dilution caused by
the equity offering in August 1994.
Domestic sales continue their upward trend and increased 34% over the last
year's first quarter. Sales to the automotive market continues to be the major
driver of this growth. Sales overseas increased 39% in the quarter, reflecting
both an improved European economy and the lower value of the dollar, which
accounted for slightly over half the increase.
Consolidated gross margins declined to 27% from 31.3% of sales. The lower first
quarter margins are the result of the U.S. dollar devaluation impact on the cost
of imported products of approximately $1.0 million, the increased costs of
plastic and copper raw materials of approximately $500 thousand, the
approximately $500 thousand of higher costs for purchased parts resulting from
temporary supplier shortages and equipment delays, the approximately $350
thousand of residual costs associated with last fall's automotive switch
assembly product introductions, and the approximately $500 thousand of startup
costs associated with the introduction of a new standard keyboard. Any
additional decline in margins is attributable to a change in product mix.
Some economy of scale was derived in the current year first quarter as
consolidated operating expenses increased 24% over the prior year's first
quarter, while sales increased 36%. Domestic and foreign operating expenses
increased 17% and 35%, respectively. Approximately 63% of the foreign increase
related to foreign currency translation.
Consolidated operating profit margins, as a result of the above factors,
declined to 6.4% from 8.6% of sales.
Consolidated net interest expense was approximately 5% lower than the comparable
quarter of the prior year primarily from lower borrowing levels in the current
year.
Consolidated other income of $366 thousand declined slightly from the prior
year.
The consolidated effective income tax rate decreased to 34% in the current year
from 38.5% in the prior year. The rate declined primarily from higher domestic
tax credits and lower state income taxes.
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 moderate and in the range
of the prior year's second quarter slowdown.
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 the financial position of the Company as denominated in U.S.
dollars. The Company selectively enters into forward contracts to hedge certain
firm purchase commitments denominated in foreign currencies (principally German
marks). At May 31, 1995, the U.S. dollar equivalent of forward contracts
outstanding approximated $6.0 million.
Liquidity and Capital Resources
At May 31, 1995, the consolidated debt to capital ratio edged up slightly to
24.9% from 24.8% at February 28, 1995. Cash from operating activities of $10.5
million provided the majority of funds needed for the $15.1 million in capital
expenditures. The remaining funds came from net financing activities.
Domestic capital expenditures were $10.3 million while foreign capital
expenditures were $4.8 million. This continues a trend in recent years
supported by our higher domestic growth rate and the need for additional
production capacity at our U.S. facilities.
If currently anticipated sales growth materializes, capital expenditures will
continue to average approximately 12% of sales for the remainder of fiscal 1996
and fiscal 1997. A significant portion of these capital expenditures will be to
increase production capacity to accommodate growth. Although operations are
expected to finance a majority of the funds needed, debt is expected to increase
to fund the remaining cash needs. The Company's credit facilities and bank
lines should be sufficient to finance these needs. In addition, the Company is
in the process of finalizing $25 million of long-term debt with a twelve year
final maturity.
<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 June 15, 1995.
(b) Seven directors were elected and received the following Class B
stockholder votes:
For Withheld
--------- ----------
1. Peter B. Cherry 4,365,333 213,788
2. Walter L. Cherry 4,365,333 213,788
3. Alfred S. Budnick 4,365,333 213,788
4. Thomas L. Martin, Jr. 4,365,322 213,789
5. Robert B. McDermott 4,365,328 213,793
6. Peter A. Guglielmi 4,365,322 213,799
7. Charles W. Denny 4,365,322 213,799
(c) A proposal to approve the 1995 Stock Incentive Plan was approved and
received the following Class B stockholder votes:
For Against Abstained Broker Non-Votes
--------- --------- ------------ --------------------
3,976,623 305,152 18,366 278,980
(d) A proposal to approve the 1995 Nonemployee Director Stock Option
Plan was approved and received the following Class B stockholder votes:
For Against Abstained Broker Non-Votes
--------- --------- ------------ --------------------
4,040,071 242,127 21,639 275,284
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 May 19, 1995. (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 5, 1995 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> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-END> MAY-31-1995
<CASH> 2,960
<SECURITIES> 0
<RECEIVABLES> 59,576
<ALLOWANCES> 0
<INVENTORY> 53,139
<CURRENT-ASSETS> 121,158
<PP&E> 324,411
<DEPRECIATION> 180,136
<TOTAL-ASSETS> 281,517
<CURRENT-LIABILITIES> 76,538
<BONDS> 28,869
<COMMON> 12,279
0
0
<OTHER-SE> 143,713
<TOTAL-LIABILITY-AND-EQUITY> 281,517
<SALES> 108,401
<TOTAL-REVENUES> 108,401
<CGS> 79,138
<TOTAL-COSTS> 79,138
<OTHER-EXPENSES> 22,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 837
<INCOME-PRETAX> 6,458
<INCOME-TAX> 2,194
<INCOME-CONTINUING> 4,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,264
<EPS-PRIMARY> .35
<EPS-DILUTED> 0
</TABLE>
