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, 1997
( ) 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, 1997:
7,684,983 shares of Class A Common
4,762,564 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
August 31, February 28,
1997 1997
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 7,048 $ 6,215
Receivables, net of allowances 53,250 57,118
Inventories (Note 2) 53,741 54,786
Income taxes, net 881 --
Prepaid expenses and other current assets 7,520 6,734
--------- --------
Total Current Assets 122,440 124,853
Land, buildings and equipment, net 156,008 159,267
Investment in affiliates and other assets, net 12,454 11,526
--------- --------
TOTAL ASSETS $ 290,902 $295,646
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 23,437 $ 23,806
Accounts payable 15,998 17,803
Payroll related accruals 11,863 11,833
Other accruals 13,732 13,574
Income taxes, net -- 566
Current maturities of long-term debt 1,782 2,051
--------- --------
Total Current Liabilities 66,812 69,633
Long-term debt 31,613 37,009
Deferred income taxes, net and deferred credits 19,337 20,928
Stockholders' Equity:
Class A common stock 7,685 7,667
Class B common stock 4,763 4,750
Additional paid-in capital 42,065 41,858
Retained earnings 116,821 110,357
Cumulative translation adjustments 1,806 3,444
--------- --------
Total Stockholders' Equity 173,140 168,076
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 290,902 $295,646
========= ========
<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,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 105,776 $ 102,377 $ 220,311 $ 214,078
Cost of products sold 77,775 76,939 159,785 159,265
--------- --------- --------- ---------
Gross profit 28,001 25,438 60,526 54,813
Engineering, distribution and
administrative expenses 24,711 22,706 49,262 46,251
--------- --------- --------- ---------
Earnings from operations 3,290 2,732 11,264 8,562
Other income, net 429 526 527 841
--------- --------- --------- ---------
Earnings before interest and taxes 3,719 3,258 11,791 9,403
Interest expense, net 677 946 1,530 2,043
--------- --------- --------- ---------
Earnings before income taxes 3,042 2,312 10,261 7,360
Income tax provision 1,098 807 3,797 2,650
--------- --------- --------- ---------
Net earnings $ 1,944 $ 1,505 $ 6,464 $ 4,710
========= ========= ========= =========
Earnings per share $ .16 $ .12 $ .52 $ .38
========= ========= ========= =========
Average shares outstanding 12,444,112 12,368,642 12,436,617 12,353,740
========== ========== ========== ==========
<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,
---------------------------
1997 1996
---------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 22,351 $ 21,647
Cash flows from investing activities:
Expenditures for land, building
and equipment (16,498) (23,907)
Proceeds from sales of land, building
and equipment -- 374
Dividend from joint venture affiliate -- 1,050
Other, net (624) 74
--------- ---------
Net cash used by investing activities (17,122) (22,409)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term debt 987 1,894
(Decrease) in domestic revolver and
uncommitted credit facilities (7,000) (2,000)
Proceeds from long-term debt 2,874 --
Principal payments on long-term debt (1,086) (215)
Other equity transactions 238 150
--------- ---------
Net cash used by financing activities (3,987) (171)
--------- ---------
Effect of exchange rate changes on cash flows (409) (35)
--------- ---------
Net (decrease) increase in cash and equivalents 833 (968)
Cash and equivalents, at beginning of year 6,215 4,213
--------- ---------
Cash and equivalents, at end of period $ 7,048 $ 3,245
========= =========
<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, 1997, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and six months ended August 31, 1997 and
1996, 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, 1997, 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, 1997 Annual
Report to Stockholders. The results of operations for the three and six months
ended August 31, 1997 are not necessarily indicative of the operating results
for a full year.
2. INVENTORIES
Inventory values were as follows:
August 31, February 28,
1997 1997
--------- ---------
Finished goods $ 13,518 $ 14,506
Work-in-process 19,181 19,121
Component parts 10,234 10,244
Raw materials 10,808 10,915
--------- --------
$ 53,741 $ 54,786
========= ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Second quarter sales of $105.8 million for fiscal 1998 established a new record
and were 3.3 percent higher than the same quarter of the prior year. Second
quarter sales by domestic operations increased 5.8 percent. The Company's
semiconductor operation recorded a 15.3 percent increase, while sales at other
domestic operations were essentially flat. The significant increase at our
semiconductor operation results primarily from increased demand for computer
market products and continued strong demand for automotive market integrated
circuits. Although current year second quarter sales by our foreign operations
were 17.8 percent higher in local currency, when translated into U.S. dollars
the result was a 1.0 percent decline. Increased penetration of our products
into the European automotive market resulted in the higher sales in local
currency.
Record sales of $220.3 million for the current year six month period were 2.9
percent higher than the comparable period of the prior year. Sales by domestic
operations increased 8.2 percent, while foreign operations decreased 5.6 percent
in U.S. dollars. Foreign sales increased 9.5 percent in local currency.
Consolidated operating profit for the second quarter of the current year
increased to 3.1 percent of sales from 2.7 percent for the comparable period of
the prior year. The increase comes primarily from higher gross margins, with
some offset for higher operating expenses. Higher sales volume at the company's
semiconductor operation and overseas, together with continuous cost reduction
efforts at all locations, have improved gross margins,. Higher engineering
expenses primarily for new product development activities have increased
operating expenses.
The year-to-date consolidated operating margin of 5.1 percent of sales for
fiscal 1998 improved from 4.0 percent in the prior year based upon the strength
of results in both the first and second quarter.
Consolidated interest expense for the current year second quarter declined 28.4
percent primarily as a result of lower debt levels. Six month interest expense
for the current year is also lower for the same reason.
Consolidated other income for the current year second quarter and six months
decreased $97 thousand and $314 thousand, respectively, from the comparable
prior year periods. The decreases resulted primarily from lower customer
tooling and joint venture income.
The consolidated effective income tax rate of 37.0 percent for the current year
six month period is higher than the 36.0 percent rate for the comparable period
of the prior year. The rate increased primarily from higher state income taxes
and lower foreign 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 and
anticipated purchase commitments denominated in foreign currencies (primarily
German Marks). At August 31, 1997, the U.S. dollar equivalent of forward
contracts outstanding approximated $4.5 million.
Liquidity and Capital Resources
The Company's consolidated debt to capital ratio declined slightly to 24.7
percent at August 31, 1997 from 27.2 percent at February 28, 1997. Consolidated
operations generated $22.3 million in cash for the six month period ended August
31, 1997. Additional cash was provided by proceeds from long-term debt of $2.9
million, $1.0 million from an increase in short-term debt and $238 thousand from
miscellaneous equity transactions.
Of the funds generated above, $16.5 million was invested in buildings and
equipment and $624 thousand in other assets. Domestic operations invested $9.2
million in buildings and equipment while foreign locations invested $7.3
million. The Company also repaid $7.0 million under the domestic revolver and
$1.1 million of other long-term debt. The effect of exchange rate changes
reduced cash flow $409 thousand.
As a result of the above, cash increased to $7.0 million at August 31, 1997 from
$6.2 million at February 28, 1997.
Capital expenditures are expected to continue at a level of approximately 8
percent to 10 percent of sales. 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. During the second quarter ended August 31,
1997, one uncommitted, unsecured credit facility was increased from $3 million
to $5 million with the same underlying rate terms. Two other uncommitted,
unsecured credit facilities totaling $20 million expired and were not renewed.
As a result of these changes, there are two uncommitted, unsecured credit
facilities available totaling $23 million. The Company is negotiating a third
uncommitted, unsecured credit facility for $10 million with terms comparable to
existing facilities. This new facility is expected to be completed in October
1997. Existing credit facilities and bank lines should be sufficient, together
with internally generated cash, to finance the Company's operations.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: The statements made above with respect to the Company's cash flow and
liquidity are forward looking (as such term is defined in the rules promulgated
pursuant to the Securities Act of 1933 as amended). Because these forward
looking statements include risks and uncertainties, actual results may differ
materially from those expressed in or implied by such statements. Factors that
could cause actual results to differ materially include, but are not limited to:
lower sales growth estimates and there impact on profits and cash flow from
operations; disruptions to the continuation of existing operations caused by
external factors such as strikes at major customers or suppliers, or natural
disasters; economic recessions in North America or Europe; and other factors
listed in the Company's Form 8-K dated September 15, 1997.
<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, 1997.
(b) Eight directors were elected and received the following Class B
stockholder votes:
For Withheld
--------- ----------
1. Peter B. Cherry 4,458,101 214,327
2. Alfred S. Budnick 4,458,186 214,242
3. Thomas L. Martin, Jr. 4,458,201 214,227
4. Robert B. McDermott 4,458,201 214,227
5. Peter A. Guglielmi 4,457,201 215,227
6. Charles W. Denny 4,457,201 215,227
7. W. Ed Tyler 4,457,101 215,327
8. Henry J. West 4,457,201 215,227
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 7, 1997 By:/s/Dan A. King
-----------------
Dan A. King
V.P. of Finance and Administration,
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-28-1998
<PERIOD-END> AUG-31-1997
<CASH> 7,048
<SECURITIES> 0
<RECEIVABLES> 53,250
<ALLOWANCES> 0
<INVENTORY> 53,741
<CURRENT-ASSETS> 122,440
<PP&E> 360,405
<DEPRECIATION> 204,397
<TOTAL-ASSETS> 290,902
<CURRENT-LIABILITIES> 66,812
<BONDS> 31,613
0
0
<COMMON> 12,448
<OTHER-SE> 160,692
<TOTAL-LIABILITY-AND-EQUITY> 290,902
<SALES> 220,311
<TOTAL-REVENUES> 220,311
<CGS> 159,785
<TOTAL-COSTS> 159,785
<OTHER-EXPENSES> 49,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,694
<INCOME-PRETAX> 10,261
<INCOME-TAX> 3,797
<INCOME-CONTINUING> 6,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,464
<EPS-PRIMARY> .52
<EPS-DILUTED> 0
</TABLE>
