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, 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 August 31, 1995:
7,566,403 shares of Class A Common
4,718,092 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
August 31, February 28,
1995 1995
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 3,141 $ 5,694
Receivables, net of allowances 61,473 56,247
Inventories (Note 2) 57,157 48,071
Income taxes, net 265 459
Other current assets 3,900 4,811
--------- --------
Total Current Assets 125,936 115,282
Land, buildings and equipment, net 145,302 132,055
Investment in affiliates and other, net 13,694 13,856
--------- --------
TOTAL ASSETS $ 284,932 $261,193
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 21,991 $ 18,464
Accounts payable 19,312 21,273
Payroll related accruals 12,781 10,938
Other accruals 17,738 14,275
Current maturities of long-term debt 4,215 4,331
--------- --------
Total Current Liabilities 76,037 69,281
Long-term debt 36,650 25,863
Deferred income taxes, net and deferred credits 19,150 18,422
Stockholders' Equity:
Class A Common stock 7,566 7,561
Class B Common stock 4,718 4,712
Additional paid-in capital 40,969 40,924
Retained earnings 88,987 83,192
Cumulative translation adjustments 10,855 11,238
--------- --------
Total Stockholders' Equity 153,095 147,627
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 284,932 $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 Six Months Ended
August 31, August 31,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 99,055 $ 74,241 $ 207,456 $ 153,888
Cost of Products Sold 75,596 53,427 154,734 108,171
--------- --------- --------- ---------
Gross Margin 23,459 20,814 52,722 45,717
Engineering, Distribution and
Administrative Expenses 22,098 17,577 44,465 35,654
--------- --------- --------- ---------
Earnings from Operations 1,361 3,237 8,257 10,063
Other Income, Net 1,906 445 2,272 835
--------- --------- --------- ---------
Earnings Before Interest and Taxes 3,267 3,682 10,529 10,898
Interest Expense, Net 944 896 1,748 1,743
--------- --------- --------- ---------
Earnings before Income Taxes 2,323 2,786 8,781 9,155
Income Tax Provision 792 1,074 2,986 3,526
--------- --------- --------- ---------
Net Earnings $ 1,531 $ 1,712 $ 5,795 $ 5,629
========= ========= ========= =========
Earnings per Share $ .12 $ .18 $ .47 $ .59
========= ========= ========= =========
Average Shares Outstanding 12,283,158 9,747,550 12,278,988 9,536,283
========== ========= ========== =========
<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,
---------------------------
1995 1994
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 8,813 $ 9,600
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (27,792) (17,497)
Proceeds from Sales of Land, Building
and Equipment 1,970 -
Other, net 209 (334)
--------- ---------
Net Cash Used by Investing Activities (25,613) (17,831)
--------- ---------
Cash Flows From Financing Activities:
Increase in Short-term Debt 3,650 85
Increase (Decrease) in Domestic Revolver and
Uncommitted Credit Facilities (12,100) (21,800)
Principal Payments on Long-term Debt (2,307) (2,369)
Proceeds from Long Term Debt Issuance 25,000 -
Net Proceeds from Equity Offering - 33,176
Other Equity Transactions 56 157
--------- ---------
Net Cash Provided by Financing Activities 14,299 9,249
--------- ---------
Effect of Exchange Rate Changes on Cash Flows (52) 327
--------- ---------
Net (Decrease) Increase in Cash and Equivalents (2,553) 1,345
Cash and Equivalents, at Beginning of Year 5,694 2,697
--------- ---------
Cash and Equivalents, at End of Period $ 3,141 $ 4,042
========= =========
<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 August 31, 1995 and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and six months ended August 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 August 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 and six months
ended August 31, 1995 are not necessarily indicative of the operating results
for a full year.
2. INVENTORIES
Inventory values were as follows:
August 31, February 28,
1995 1995
--------- ---------
Finished Goods $ 17,717 $ 14,033
Work-in-Process 19,584 16,670
Component Parts 13,254 11,787
Raw Materials 6,602 5,581
--------- --------
$ 57,157 $ 48,071
========= ========
3. 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 second quarter sales of $99.1 million for fiscal 1996 were 33% higher
than the same quarter of the prior year. Second quarter sales from domestic
operations increased 32%, while foreign operations increased 36%. The robust
increase in sales was broad based, coming from new products, increased market
share, the strength of the underlying markets and a weaker dollar.
Approximately 20% of the consolidated sales increase resulted from favorable
currency translation.
Record sales of $207.5 million for the current year six month period were 35%
higher than the comparable period of the prior year. Foreign currency
translation accounted for approximately 23% of the increase in consolidated six
month sales.
Consolidated operating profit for the second quarter of the current year
declined to 1.4% of sales from 4.4% for the comparable period of the prior year.
This decline results primarily from $1.3 million of costs associated with the
introduction of a new standard keyboard, $500 thousand of costs from
difficulties in the ramp up of a new integrated circuit fabrication operation,
and $1.2 million of increased product costs resulting from the weaker dollar and
raw material price increases. This decline occured primarily at the gross
margin level, since operating expenses were under control and actually declined,
as a percent of sales.
The year-to-date consolidated operating margin declined to 4% of sales from 6.5%
in the prior year primarily from the problems noted above which began in the
first quarter of the current year.
Consolidated interest expense for the second quarter increased 5.4% from the
comparable period of the prior year primarily from slightly higher borrowing
levels. Six month interest expense was largely unchanged.
Consolidated other income for the current year second quarter and six months
increased $1.5 million and $1.4 million, respectively, over the comparable prior
year periods. The increases resulted primarily from a $1.3 million gain on the
sale of a facility in Germany.
The consolidated effective income tax rate of approximately 34% for the current
year is lower than the 38.5% rate for the comparable periods of the prior year.
The rate declined primarily from higher domestic tax credits and lower state
income taxes.
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 selectively enters into forward contracts to hedge certain firm
purchase commitments denominated in foreign currencies (primarily German Marks).
At August 31, 1995, the U.S. dollar equivalent of forward contracts outstanding
approximated $ 6.2 million.
<PAGE>
Liquidity and Capital Resources
On July 28, 1995, the Company completed a $25 million long-term debt placement
with an insurance company in the form of 6.99% Senior Notes due July 15, 2007
with principal prepayments of $5 million required in years 8 through 11. The
notes are unsecured and interest is payable semi-annually each January and July.
Covenants pertain to consolidated net worth and debt to capital ratios, among
others. The proceeds were used to repay outstanding debt under the Company's
multicurrency revolver and uncommitted domestic facilities. During the second
quarter, the three uncommitted, unsecured credit facilities were reduced from
$45 million to $31 million.
At August 31, 1995, the consolidated debt to capital ratio increased to 29.1%
from 24.8% at February 28, 1995. Consolidated operations generated $8.8 million
in cash for the six month period ended August 31, 1995. Additional cash was
provided by the $25 million long term debt issuance, $3.7 million from the
increase in short term debt and $2.0 million from proceeds on the sale of a
German facility.
Of the funds generated above, $27.8 million was invested in buildings and
equipment, with $18.6 million for domestic operations and $9.2 million for
foreign locations. The Company also repaid $12.1 million on the domestic
revolver and uncommitted credit facilities and $2.3 million on other long term
debt.
If currently anticipated sales growth materializes, capital expenditures will
continue to average 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 this growth. Although operations are
expected to finance a majority of the funds needed, debt is expected to increase
to fund the remaining cash needs. With the new long term debt placement and the
existing credit facilities and bank lines, the Company should have sufficient
capital to finance these needs.
<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: October 5, 1995 By: Dan A. King
--------------
Dan A. King
V.P. of Finance, Secretary
and Treasurer
<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> 6-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> AUG-31-1995
<CASH> 3,141
<SECURITIES> 0
<RECEIVABLES> 61,473
<ALLOWANCES> 0
<INVENTORY> 57,157
<CURRENT-ASSETS> 125,936
<PP&E> 324,393
<DEPRECIATION> 179,091
<TOTAL-ASSETS> 284,932
<CURRENT-LIABILITIES> 76,037
<BONDS> 36,650
<COMMON> 12,284
0
0
<OTHER-SE> 140,811
<TOTAL-LIABILITY-AND-EQUITY> 284,932
<SALES> 207,456
<TOTAL-REVENUES> 207,456
<CGS> 154,734
<TOTAL-COSTS> 154,734
<OTHER-EXPENSES> 44,465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,820
<INCOME-PRETAX> 8,781
<INCOME-TAX> 2,986
<INCOME-CONTINUING> 5,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,795
<EPS-PRIMARY> .47
<EPS-DILUTED> 0
</TABLE>
