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, 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
(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 (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 November 30, 1994:
7,560,652 shares of Class A Common
4,685,652 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
November 30, February 28,
1994 1994
(Unaudited) (Note 1)
----------- -----------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 6,172 $ 2,697
Receivables, net of allowances 52,210 42,807
Inventories (Note 2) 45,247 34,481
Income taxes, net 61 1,154
Other current assets 5,661 3,140
-------- --------
Total Current Assets 109,351 84,279
Land, buildings and equipment, net 118,773 97,676
Investment in affiliates and other, net 13,047 11,593
-------- --------
TOTAL ASSETS $241,171 $193,548
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Short-term debt $ 6,062 $ 5,736
Accounts payable 16,569 14,243
Payroll related accruals 11,101 8,452
Other accruals 13,980 11,527
Current maturities of long-term debt 13,635 4,926
-------- --------
Total Current Liabilities 61,347 44,884
Long-term debt 25,323 42,970
Deferred income taxes, net and deferred credits 14,305 12,218
Stockholders' Investment (Note 4):
Class A Common stock 7,560 -
Class B Common stock 4,686 4,661
Additional paid-in capital 40,685 10,200
Retained earnings 78,275 73,042
Cumulative translation adjustments 8,990 5,573
-------- --------
Total Stockholders' Investment 140,196 93,476
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $241,171 $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 Nine Months Ended
November 30, November 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 91,490 $ 72,954 $245,378 $204,390
Cost of Products Sold 66,206 51,633 174,377 146,800
-------- -------- -------- --------
Gross Margin 25,284 21,321 71,001 57,590
Engineering, Distribution and
Administrative Expenses 18,482 15,982 54,136 46,887
-------- -------- -------- --------
Operating Income 6,802 5,339 16,865 10,703
Interest Expense (739) (968) (2,532) (2,963)
Other Income, Net 450 410 1,335 1,204
-------- -------- -------- --------
Earnings Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle 6,513 4,781 15,668 8,944
Income Tax Provision 2,236 1,724 5,762 3,191
-------- -------- -------- --------
Earnings before Cumulative Effect of
Change in Accounting Principle 4,277 3,057 9,906 5,753
Cumulative Effect of Change in Method
of Accounting for Income Taxes
(Note 3) - - - 1,542
-------- -------- -------- --------
Net Earnings $ 4,277 $ 3,057 $ 9,906 $ 7,295
======== ======== ======== ========
Earnings per Share (Note 4):
Before Cumulative Effect of Change
in Accounting Principle $ .35 $ .33 $ .95 $ .62
Cumulative Effect of Change in
Accounting Principle - - - .17
-------- -------- -------- --------
Net Earnings $ .35 $ .33 $ .95 $ .79
======== ======== ======== ========
Average Shares Outstanding 12,240,499 9,299,934 10,431,133 9,294,936
=========== ========= ========== =========
<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>
Nine Months Ended November 30,
-------------------------------
1994 1993
-------- --------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 12,455 $ 19,985
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (31,785) (16,242)
Other, net 489 (444)
-------- --------
Net Cash Used by Investing Activities $(31,296) $(16,686)
-------- --------
Cash Flows From Financing Activities:
(Decrease) Increase in Short-term Debt (216) 3,694
(Decrease) in Domestic Revolver and
Uncommitted Credit Facilities (7,000) (949)
Principal Payments on Long-term Debt (4,227) (5,138)
Net Proceeds from Equity Offering 33,176 -
Other Equity Transactions 221 45
-------- --------
Net Cash Provided (Used) by Financing Activities 21,954 (2,348)
-------- --------
Effect of Exchange Rate Changes on Cash Flows 362 231
-------- --------
Net Increase in Cash and Equivalents 3,475 1,182
Cash and Equivalents, at Beginning of Year 2,697 1,331
-------- --------
Cash and Equivalents, at End of Period $ 6,172 $ 2,513
======== ========
<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 November 30, 1994 and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and nine months ended November 30, 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 November 30, 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 nine months
ended November 30, 1994 are not necessarily indicative of the operating results
for a full year.
2. INVENTORIES
Inventory values were as follows:
November 30, February 28,
1994 1994
----------- -----------
Finished Goods $ 12,413 $ 11,470
Work-in-Process 16,937 12,114
Component Parts 11,205 7,627
Raw Materials 4,692 3,270
----------- -----------
$ 45,247 $ 34,481
=========== ===========
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.
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 nine months ended November 30, 1994, would have
been $.85 had the equity offering been made on March 1, 1994, and the domestic
debt repaid at that time.
5. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Record third quarter sales of $91.5 million for fiscal 1995 were 25% higher than
the same quarter of the prior year. Third quarter sales from domestic
operations increased 27% 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 23% over last year's third quarter in dollars and
15% 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.
Record sales for each of the first three quarters of fiscal 1995 resulted in
nine month record sales and net earnings of $245.4 million and $9.9 million,
respectively. Current year nine month sales were 20% higher than the comparable
period of the prior year, while net earnings were 36% higher. Foreign currency
translation did not have a significant impact on consolidated nine month sales
or net earnings. The net earnings record was achieved even though the nine
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.
The consolidated gross margin rate for the current year third quarter decreased
to 27.6% of sales from 29.2% for the prior year third quarter. This decline
results primarily from higher than anticipated model changeover costs in our
domestic automotive armrest control business where 70% of our programs in fiscal
1995 are new and demand is significantly higher than anticipated. As a result,
domestic gross margins declined from 31.8% to 26.5% of sales. The Company is
aggressively pursuing cost improvements which will be fully implemented over the
next several quarters. Foreign gross margins increased from 25.9% to 29.2% of
sales. These improvements resulted from increased volume and ongoing cost
reduction programs.
The year-to-date consolidated gross margin increased to 28.9% of sales from
28.2% primarily due to increased volume and ongoing cost reduction programs
offset by higher model changeover costs.
Consolidated operating expenses for the third quarter of the current year
increased only 15.6%, thereby providing some economies of scale from the 25%
increase in sales. Domestic operating expenses increased 11%, well below their
applicable sales increases. Foreign operating expenses increased 23% in dollars
and 14% in their applicable local currency, consistent with their applicable
sales increases. Consolidated operating expenses for the first nine months of
the current year improved to 22.1% of sales compared to 22.9% for the first nine
months of the prior year.
Consolidated operating profit for the third quarter, as a result of a
combination of the above factors, remained consistent with the prior year at
7.4% of sales. Domestic operating profit declined from 8.5% to 6.1% of sales
while foreign operating profit increased from 5.8% of sales to 9.1% of sales.
For the current nine month period, the consolidated operating profit increased
to 6.9% of sales from 5.2% for the comparable prior year period. Domestic
operating profit slipped to 7.4% of sales from 7.6%, while foreign operating
profit improved from 2.1% to 6.2% of sales.
Consolidated interest expense for the third quarter and first nine months
declined 24% and 15%, respectively, from the comparable periods of the prior
year due to reduced borrowings resulting from the August equity offering.
The consolidated effective income tax rate of 34.3% for the third quarter is
below the 36.1% rate for the comparable period of the prior year. This is
primarily attributable to the recognition of tax credits which have been
realized. The effective rate for the first nine months is comparable to the
same period of the prior year.
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 24.3% at November 30, 1994 from 36.5% at February 28, 1994.
Consolidated operations generated $12.5 million in cash for the nine month
period ended November 30, 1994. Additional cash was provided by the $33.2
million in net proceeds from the equity offering.
For the first nine months of fiscal 1995, capital expenditures totaled $31.8
million with $24.1 million expended on domestic operations and $7.7 million on
foreign operations. Our emphasis on higher domestic capital expenditures is
consistent with the needs created by recent significant domestic growth. The
Company repaid $7.0 million on the domestic revolver and uncommitted credit
facilities and $4.2 million on other long term debt.
The Company anticipates spending approximately $40 million on capital
expenditures in fiscal 1995. If currently anticipated sales growth
materializes, the Company estimates that capital expenditures will average 12%
of sales over fiscal 1996 and 1997. A significant portion of these capital
expenditures would be to increase capacity to accommodate this growth.
Although the debt to capital ratio was reduced in the current year by funds
provided from the equity offering, debt is expected to increase to fund some of
our production capacity increases noted above. As a result of the equity
offering, the borrowing capacity under the domestic revolver was reduced to $28
million from $45 million. Total domestic borrowings are limited to the amount
available under this facility which is now unsecured. The Company currently
anticipates increasing the credit available under domestic and foreign committed
facilities which should provide the Company with sufficient borrowing capacity
for the forseeable future.
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
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, no Form 8-K reports were filed.
<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 12, 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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> NOV-30-1994
<CASH> 6,172
<SECURITIES> 0
<RECEIVABLES> 52,210
<ALLOWANCES> 0
<INVENTORY> 45,247
<CURRENT-ASSETS> 109,351
<PP&E> 277,655
<DEPRECIATION> 158,882
<TOTAL-ASSETS> 241,171
<CURRENT-LIABILITIES> 61,347
<BONDS> 25,323
<COMMON> 12,246
0
0
<OTHER-SE> 127,950
<TOTAL-LIABILITY-AND-EQUITY> 241,171
<SALES> 245,378
<TOTAL-REVENUES> 245,378
<CGS> 174,377
<TOTAL-COSTS> 174,377
<OTHER-EXPENSES> 54,136
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,532
<INCOME-PRETAX> 15,668
<INCOME-TAX> 5,762
<INCOME-CONTINUING> 9,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,906
<EPS-PRIMARY> .95
<EPS-DILUTED> 0
</TABLE>
