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, 1996
( ) 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: (847) 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, 1996:
7,627,593 shares of Class A Common
4,745,829 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
August 31, February 29,
1996 1996
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 3,245 $ 4,213
Receivables, net of allowances 56,420 58,815
Inventories (Note 2) 57,285 54,734
Income taxes, net 157 2,218
Other current assets 9,332 9,958
--------- --------
Total Current Assets 126,439 129,938
Land, buildings and equipment, net 167,572 159,308
Investment in affiliates and other, net 13,143 14,093
--------- --------
TOTAL ASSETS $ 307,154 $303,339
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 26,452 $ 24,699
Accounts payable 17,300 20,598
Payroll related accruals 12,489 13,435
Other accruals 20,077 16,273
Current maturities of long-term debt 3,315 4,199
--------- --------
Total Current Liabilities 79,633 79,204
Long-term debt 42,832 44,237
Deferred income taxes, net and deferred credits 21,733 21,606
Stockholders' Equity:
Class A Common stock 7,628 7,608
Class B Common stock 4,746 4,727
Additional paid-in capital 41,511 41,400
Retained earnings 99,153 94,443
Cumulative translation adjustments 9,918 10,114
--------- --------
Total Stockholders' Equity 162,956 158,292
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 307,154 $303,339
========= ========
<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,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 102,377 $ 99,055 $ 214,078 $ 207,456
Cost of Products Sold 76,939 75,596 159,265 154,734
--------- --------- --------- ---------
Gross Margin 25,438 23,459 54,813 52,722
Engineering, Distribution and
Administrative Expenses 22,706 22,098 46,251 44,465
--------- --------- --------- ---------
Earnings from Operations 2,732 1,361 8,562 8,257
Other Income, Net 526 1,906 841 2,272
--------- --------- --------- ---------
Earnings Before Interest and Taxes 3,258 3,267 9,403 10,529
Interest Expense, Net 946 944 2,043 1,748
--------- --------- --------- ---------
Earnings before Income Taxes 2,312 2,323 7,360 8,781
Income Tax Provision (Credit) 807 792 2,650 2,986
--------- --------- --------- ---------
Net Earnings $ 1,505 $ 1,531 $ 4,710 $ 5,795
========= ========= ========= =========
Earnings per Share $ .12 $ .12 $ .38 $ .47
========= ========= ========= =========
Average Shares Outstanding 12,368,642 12,283,158 12,353,740 12,278,988
========== ========== ========== ==========
<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,
---------------------------
1996 1995
---------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 21,647 $ 8,813
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (23,907) (27,792)
Proceeds from Sales of Land, Building
and Equipment 374 1,970
Dividend from joint venture affiliate 1,050 --
Other, net 74 209
--------- ---------
Net Cash Used by Investing Activities (22,409) (25,613)
--------- ---------
Cash Flows From Financing Activities:
Increase(decrease) in Short-term Debt 1,894 3,650
(Decrease) in Domestic Revolver and
Uncommitted Credit Facilities (2,000) (12,100)
Principal Payments on Long-term Debt (215) (2,307)
Proceeds from Long Term Debt Issuance -- 25,000
Other Equity Transactions 150 56
--------- ---------
Net Cash Provided by Financing Activities (171) 14,299
--------- ---------
Effect of Exchange Rate Changes on Cash Flows (35) (52)
--------- ---------
Net (Decrease) Increase in Cash and Equivalents (968) (2,553)
Cash and Equivalents, at Beginning of Year 4,213 5,694
--------- ---------
Cash and Equivalents, at End of Period $ 3,245 $ 3,141
========= =========
<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, 1996, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and six months ended August 31, 1996 and
1995, 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, 1996, 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 29, 1996 Annual
Report to Stockholders. The results of operations for the three and six months
ended August 31, 1996 are not necessarily indicative of the operating results
for a full year.
2. INVENTORIES
Inventory values were as follows:
August 31, February 29,
1996 1996
--------- ---------
Finished Goods $ 16,130 $ 16,380
Work-in-Process 20,412 18,036
Component Parts 9,944 11,663
Raw Materials 10,799 8,655
--------- --------
$ 57,285 $ 54,734
========= ========
3. RECLASSIFICATONS
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
Second quarter sales of $102.4 million for fiscal 1997 were 3% higher than the
same quarter of the prior year. Second quarter sales by domestic operations
increased 14%, while sales by foreign operations decreased 11%. Domestically,
most of our businesses, except for our semiconductor operation, enjoyed double
digit sales increases primarily as a result of a good automotive market and new
product sales. The revenues of our semiconductor business were essentially flat
from the slower economic conditions in that industry and because of price
pressures. Approximately 50% of the decline in sales at our foreign operations
resulted from currency translation with the remainder attributable to slower
economic conditions in Europe.
Sales of $214.1 million for the current year six month period were 3% higher
than the comparable period of the prior year. Domestic operations increased
10%, while foreign operations decreased 7%. Approximately 76% of the decline in
sales at foreign operations resulted from currency translation.
Consolidated operating profit for the second quarter of the current year
increased to 2.7% of sales from 1.4% for the comparable period of the prior
year. The increase is primarily attributable to improved gross margins. The
Company's efforts at productivity improvements, cost reductions and program
execution are beginning to show results even though this is traditionally the
Company's lowest sales quarter and the semiconductor market is also soft this
year.
The year-to-date consolidated operating margin of 4% of sales remains the same
as in the prior year.
Consolidated interest expense for the second quarter is largely unchanged from
the comparable period of the prior year. Six month interest expense for the
current year is 17% higher than the prior year primarily from higher borrowing
levels.
Consolidated other income for the current year second quarter and six months
decreased $1.4 million from the comparable prior year periods. The decreases
resulted primarily from a nonrecurring $1.3 million gain on the sale of a German
facility during the second quarter of the prior year.
The consolidated effective income tax rate of 36% for the current year six month
period is higher than the 34% rate for the comparable period of the prior year.
The rate increased primarily from lower domestic tax credits.
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, 1996, the U.S. dollar equivalent of forward contracts outstanding
approximated $4.6 million.
Liquidity and Capital Resources
At August 31, 1996, the consolidated debt to capital ratio declined slightly to
30.8% from 31.6% at February 29, 1996. Consolidated operations generated $21.6
million in cash for the six month period ended August 31, 1996. Additional cash
was provided by a $1.0 million dividend from our joint venture affiliate in
Japan, $1.9 million from an increase in short term borrowings and $.6 million
from miscellaneous investing and financing activities.
Of the funds generated above, $23.9 million was invested in buildings and
equipment, with $11.5 million for domestic operations and $12.4 million for
foreign locations. The Company also repaid $2.0 million on its domestic
revolving credit agreement and $.2 million in principal on other long term debt.
As a result of the above, cash decreased to $3.2 million at August 31, 1996 from
$4.2 million at February 29, 1996.
Capital expenditures are expected to moderate somewhat in fiscal 1997 to
approximately 10% of sales compared to the 12 to 13% of sales recorded in fiscal
1995 and 1996. The capital expenditure rate may be revised further as sales
growth estimates are updated. Operations are expected to generate enough cash
to fund capital expenditures. Existing credit facilities and bank lines should
be sufficient, together with internally generated cash, to finance the Company's
operations.
<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 19, 1996.
(b) Nine directors were elected and received the following Class B
stockholder votes:
For Withheld
--------- ----------
1. Peter B. Cherry 4,379,312 225,877
2. Walter L. Cherry 4,379,335 225,854
3. Alfred S. Budnick 4,379,335 225,854
4. Thomas L. Martin, Jr. 4,379,335 225,854
5. Robert B. McDermott 4,379,335 225,854
6. Peter A. Guglielmi 4,377,324 227,865
7. Charles W. Denny 4,379,324 225,865
8. W. Ed Tyler 4,377,324 227,865
9. Henry J. West 4,379,324 225,865
(c) A proposal to approve the 1996 Employee Stock Purchase Plan was
approved and received the following Class B stockholder votes:
For Against Abstained Broker Non-Votes
--------- ---------- ----------------- --------------------
4,016,274 213,317 10,845 364,753
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 9, 1996 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-28-1997
<PERIOD-END> AUG-31-1996
<CASH> 3,245
<SECURITIES> 0
<RECEIVABLES> 56,420
<ALLOWANCES> 0
<INVENTORY> 57,285
<CURRENT-ASSETS> 126,439
<PP&E> 367,178
<DEPRECIATION> 199,606
<TOTAL-ASSETS> 307,154
<CURRENT-LIABILITIES> 79,633
<BONDS> 42,832
0
0
<COMMON> 12,374
<OTHER-SE> 150,582
<TOTAL-LIABILITY-AND-EQUITY> 307,154
<SALES> 214,078
<TOTAL-REVENUES> 214,078
<CGS> 159,265
<TOTAL-COSTS> 159,265
<OTHER-EXPENSES> 46,251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,141
<INCOME-PRETAX> 7,360
<INCOME-TAX> 2,650
<INCOME-CONTINUING> 4,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,710
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
</TABLE>
