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, 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 May 31, 1996:
7,616,258 shares of Class A Common
4,734,494 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
May 31, February 29,
1996 1996
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 2,724 $ 4,213
Receivables, net of allowances 62,446 62,640
Inventories (Note 2) 56,161 54,734
Income taxes, net 631 2,218
Prepaid expenses and other current assets 6,961 6,133
--------- --------
Total Current Assets 128,923 129,938
Land, buildings and equipment, net 158,867 159,308
Investment in affiliates and other assets, net 14,178 14,093
--------- --------
TOTAL ASSETS $ 301,968 $303,339
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 22,078 $ 24,699
Accounts payable 18,547 20,598
Payroll related accruals 14,367 13,435
Other accruals 18,196 16,273
Current maturities of long-term debt 4,040 4,199
--------- --------
Total Current Liabilities 77,228 79,204
Long-term debt 44,248 44,237
Deferred income taxes, net and deferred credits 20,617 21,606
Stockholders' Equity:
Class A Common stock 7,616 7,608
Class B Common stock 4,735 4,727
Additional paid-in capital 41,444 41,400
Retained earnings 97,648 94,443
Cumulative translation adjustments 8,432 10,114
--------- --------
Total Stockholders' Equity 159,875 158,292
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 301,968 $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
May 31,
1996 1995
--------- --------
<S> <C> <C>
Net Sales $ 111,701 $ 108,401
Cost of Products Sold 82,326 79,138
--------- ---------
Gross Margin 29,375 29,263
Engineering, Distribution and
Administrative Expenses 23,545 22,367
--------- ---------
Earnings from Operations 5,830 6,896
Other Income, Net 315 366
--------- ---------
Earnings Before Interest and Taxes 6,145 7,262
Interest Expense, Net 1,097 804
--------- ---------
Earnings before Income Taxes 5,048 6,458
Income Tax Provision 1,843 2,194
--------- ---------
Net Earnings $ 3,205 $ 4,264
========= =========
Earnings per Share $ .26 $ .35
========= =========
Average Shares Outstanding 12,338,837 12,274,819
========== ==========
<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,
--------------------------
1996 1995
---------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 10,353 $ 10,455
Cash Flows from Investing Activities:
Expenditures for Land, Buildings and Equipment (10,474) (15,128)
Other, net 11 323
--------- ---------
Net Cash Used by Investing Activities (10,463) (14,805)
--------- ---------
Cash Flows From Financing Activities:
(Decrease) in Short-term Debt (1,848) (1,110)
Increase in Domestic Revolver and
Uncommitted Credit Facilities 1,000 3,200
Principal Payments on Long-term Debt (691) (804)
Other Equity Transactions 60 25
--------- ---------
Net Cash (Used) Provided by Financing Activities (1,479) 1,311
--------- ---------
Effect of Exchange Rate Changes on Cash Flows 100 305
--------- ---------
Net (Decrease) Increase in Cash and Equivalents (1,489) (2,734)
Cash and Equivalents, at Beginning of Year 4,213 5,694
--------- ---------
Cash and Equivalents, at End of Period $ 2,724 $ 2,960
========= =========
<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, 1996, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three months ended May 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
May 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 months ended
May 31, 1996 are not necessarily indicative of the operating results for a full
year.
2. INVENTORIES
Inventory values were as follows:
May 31, February 29,
1996 1996
--------- ---------
Finished Goods $ 15,103 $ 16,380
Work-in-Process 20,463 18,036
Component Parts 10,668 11,663
Raw Materials 9,927 8,655
--------- --------
$ 56,161 $ 54,734
========= ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
First quarter sales of $111.7 million for fiscal 1997 were 3% higher than the
record sales for the same quarter of the prior year. Sales by domestic
operations increased 7%, while foreign operation sales declined 3%. Although
sales by foreign operations were 2% higher in local currency, primarily German
Marks, they were $2.2 million lower when translated into current U.S. dollars.
Although the percentage increase in sales has moderated compared to prior
periods, we still achieved record first quarter sales despite the negative
impact from foreign currency translation noted above, a labor strike at General
Motors(GM) and a 3 % decline in sales at our semiconductor facility. The labor
strike at GM in March 1996 resulted in approximately $1 million of lower sales
than expected for the first quarter of the current year. It is anticipated that
the delayed first quarter sales caused by the GM strike will be recovered in
subsequent quarters of the current year, subject to general automotive market
conditions An increase in semiconductor sales to the automotive market was
more than offset by declines in sales to the computer and cellular telephone
markets due to selling price reductions and related market conditions.
The consolidated operating profit margin for the first quarter of the current
year declined to 5.2% of sales from 6.4% for the comparable period of the prior
year. Consolidated gross margin declined slightly to 26.3% of sales for the
current year first quarter versus 27.0% for the comparable quarter of the prior
year. Operating expenses for the first quarter of the current year increased
$1.2 million or 5.3% to $23.5 million, with $1.0 million of the operating
expense increase attributable to nonrecurring charges and expenses.
Consolidated net interest expense for the first quarter increased 36.4% over the
comparable period of the prior year primarily as a result of higher debt levels.
Debt has been used to help finance the expansion of production capacity to
accomodate continued sales growth.
The consolidated effective income tax rate is 36.5% for the current year versus
34.0% for the comparable period of the prior year. The income tax rate for the
current year is higher primarily because of the expiration of the tax credit for
research and development expenditures.
We normally experience a seasonal slowdown in orders and sales in the second
quarter. This traditionally results from customer plant shutdowns for model
changeovers in the automotive and appliance markets and from summer vacations.
At this point it appears that the summer slowdown in Europe may be more
pronounced than last year.
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 May 31, 1996, the U.S. dollar equivalent of forward contracts outstanding
approximated $5.1 million.
Liquidity and Capital Resources
As of May 31, 1996, the consolidated debt to capital ratio decreased to 30.6%
from 31.6% at February 29, 1996.
Consolidated operations generated $10.4 million in cash for the first quarter
ended May 31, 1996. Borrowings under the domestic revolver provided $1.0
million and miscellaneous equity and other transactions provided an additional
$.1 million in cash.
Of the funds generated above, $10.5 million was invested in buildings and
equipment, with $5.9 million for domestic operations and $4.6 million for
foreign locations. The Company also repaid $1.8 million of short-term debt and
$.7 million of other long term debt.
As a result of the above, cash at May 31, 1996 was reduced to a balance of $2.7
million 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 and still maintain an acceptable debt to capital
ratio. Existing credit facilities and bank lines should be sufficient, together
with internally generated cash, to finance the Company's operations.
In June the Company amended two financial covenants contained in its $65 million
multicurrency revolving credit agreement. Under this agreement the interest
expense coverage ratio, as defined, was required to be 3:1 or greater at all
times. As amended, the ratio is now required to be 2.25:1 or greater through
February 28, 1997 and 3:1 or greater at all times thereafter. This ratio was
2.97:1 at May 31, 1996. Additionally the Company's indebtedness to cash flow
ratio, as defined, was required to be 2:1 or less at all times. As amended, the
ratio is required to be 2:1 or less through August 30, 1996, 2.25:1 or less from
August 31, 1996 through February 27, 1997 and 2:1 or less at all times
thereafter. The ratio was 1.7:1 at May 31, 1996.
<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: July 8, 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> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> MAY-31-1996
<CASH> 2,724
<SECURITIES> 0
<RECEIVABLES> 62,446
<ALLOWANCES> 0
<INVENTORY> 56,161
<CURRENT-ASSETS> 128,923
<PP&E> 347,953
<DEPRECIATION> 189,086
<TOTAL-ASSETS> 301,968
<CURRENT-LIABILITIES> 77,228
<BONDS> 44,248
0
0
<COMMON> 12,351
<OTHER-SE> 147,524
<TOTAL-LIABILITY-AND-EQUITY> 301,968
<SALES> 111,701
<TOTAL-REVENUES> 111,701
<CGS> 82,326
<TOTAL-COSTS> 82,326
<OTHER-EXPENSES> 23,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,148
<INCOME-PRETAX> 5,048
<INCOME-TAX> 1,843
<INCOME-CONTINUING> 3,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,205
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
