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, 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 November 30, 1996:
7,627,993 shares of Class A Common
4,746,229 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
November 30, February 29,
1996 1996
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 5,560 $ 4,213
Receivables, net of allowances 56,626 58,815
Inventories (Note 2) 58,648 54,734
Income taxes, net -- 2,218
Other current assets 8,066 9,958
--------- --------
Total Current Assets 128,900 129,938
Land, buildings and equipment, net 165,977 159,308
Investment in affiliates and other, net 13,145 14,093
--------- --------
TOTAL ASSETS $ 308,022 $303,339
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 17,580 $ 24,699
Accounts payable 18,593 20,598
Payroll related accruals 13,543 13,435
Income taxes, net 3,314 --
Other accruals 21,226 16,273
Current maturities of long-term debt 3,051 4,199
--------- --------
Total Current Liabilities 77,307 79,204
Long-term debt 41,040 44,237
Deferred income taxes, net and deferred credits 20,689 21,606
Stockholders' Equity:
Class A Common stock 7,628 7,608
Class B Common stock 4,746 4,727
Additional paid-in capital 41,517 41,400
Retained earnings 106,334 94,443
Cumulative translation adjustments 8,761 10,114
--------- --------
Total Stockholders' Equity 168,986 158,292
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 308,022 $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 Nine Months Ended
November 30, November 30,
1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net Sales $ 116,733 $ 107,242 $ 330,811 $ 314,698
Cost of Products Sold 81,636 81,746 240,901 236,480
--------- --------- --------- --------
Gross Margin 35,097 25,496 89,910 78,218
Engineering, Distribution and
Administrative Expenses 23,537 22,035 69,788 66,500
--------- --------- --------- --------
Earnings from Operations 11,560 3,461 20,122 11,718
Other Income, Net 694 291 1,535 2,563
--------- --------- --------- --------
Earnings Before Interest and Taxes 12,254 3,752 21,657 14,281
Interest Expense, Net 880 1,019 2,923 2,767
--------- --------- --------- --------
Earnings before Income Taxes 11,374 2,733 18,734 11,514
Income Tax Provision(Credit) 4,193 (412) 6,843 2,574
--------- --------- --------- --------
Net Earnings $ 7,181 $ 3,145 $ 11,891 $ 8,940
========= ========= ========= ========
Earnings per Share $ .58 $ .26 $ .96 $ .73
========== ========== ========== ==========
Average Shares Outstanding 12,373,501 12,284,836 12,360,279 12,280,923
========== ========== ========== ==========
<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,
------------------------------
1996 1995
---------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 42,199 $ 18,711
Cash Flows from Investing Activities:
Expenditures for Land, Building and Equipment (32,290) (41,007)
Proceeds from Sales of Land, Building
and Equipment 362 2,011
Dividend from joint venture affiliate 1,050 --
Other, net 49 (668)
--------- --------
Net Cash Used by Investing Activities (30,829) (39,664)
--------- --------
Cash Flows From Financing Activities:
(Decrease) increase in Short-term Debt (6,116) 6,252
(Decrease) in Domestic Revolver and
Uncommitted Credit Facilities (3,000) (9,500)
Principal Payments on Long-term Debt (2,848) (3,032)
Proceeds from Long Term Debt Issuance 1,960 25,000
Other Equity Transactions 156 61
--------- ---------
Net Cash Provided by Financing Activities (9,848) 18,781
--------- ---------
Effect of Exchange Rate Changes on Cash Flows (175) (29)
--------- ---------
Net (Decrease) Increase in Cash and Equivalents 1,347 (2,201)
Cash and Equivalents, at Beginning of Year 4,213 5,694
--------- ---------
Cash and Equivalents, at End of Period $ 5,560 $ 3,493
========= =========
<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, 1996, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and nine months ended November 30, 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 November 30, 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 nine months
ended November 30, 1996 are not necessarily indicative of the operating results
for a full year.
2. INVENTORIES
Inventory values were as follows:
November 30, February 29,
1996 1996
--------- ---------
Finished Goods $ 16,914 $ 16,380
Work-in-Process 20,571 18,036
Component Parts 10,363 11,663
Raw Materials 10,800 8,655
--------- --------
$ 58,648 $ 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
The Company achieved record third quarter sales and net earnings. The third
quarter sales of $116.7 million for fiscal 1997 were 9% higher than the same
quarter of the prior year while net earnings of $7.2 million were 128% higher.
Third quarter sales by domestic operations increased 8%, while sales by foreign
operations increased 10% (16% in local currency). Sales to all of our markets
were higher in the current year quarter compared to the prior year. This
resulted primarily from the continued strength of the automotive market and the
Company's penetration thereof, as well as improvements in the semiconductor and
computer markets. Domestically, the labor strikes at General Motors in the
current year third quarter caused some delays in shipments but the overall
effect was minimal.
Sales and net earnings for the nine month period were also new records. Sales
of $330.8 million for the current year nine month period were 5% higher than the
comparable period of the prior year, whereas net earnings of $11.9 million were
33% higher. Domestic operations increased 10%, while foreign operations
decreased 1% (4% higher in local currency).
Consolidated operating profit for the third quarter of the current year
increased to 9.9% of sales from 3.2% for the comparable period of the prior
year. The increase was primarily attributable to improved gross margins since
operating expenses as a percent of sales is only down slightly. The Company's
efforts at productivity improvements and cost reductions coupled with increased
sales volume and mix resulted in the improved profitability.
The year-to-date consolidated operating margin increased to 6.1% of sales from
3.7% in the prior year primarily from the same factors noted above.
Consolidated interest expense for the third quarter was 14 % lower than the
comparable period of the prior year. Current year third quarter interest
expense was lower from a combination of lower borrowing levels as well as lower
interest rates. Nine month interest expense for the current year was 6% higher
than the prior year primarily from higher borrowing levels with some offset for
lower interest rates.
Consolidated other income for the current year nine months decreased $1.0
million from the comparable prior year period. The decrease results primarily
from a nonrecurring $1.3 million gain on the sale of a German facility during
the prior year.
The consolidated effective income tax rate of 36% for the current year nine
month period was higher than the 22% rate for the comparable period of the prior
year. The rate was lower in the prior year primarily from a nonrecurring
benefit in the recognition of pre-merger U.S. loss carryforwards and also from
slightly higher foreign and domestic tax benefits.
The Company anticipates lower sales and earnings in the fourth quarter compared
to the current year third quarter due to customer plant shutdowns over the
holiday season and seasonally lower keyboard sales.
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 November 30, 1996, the U.S. dollar equivalent of forward contracts
outstanding approximated $5 million.
Liquidity and Capital Resources
At November 30, 1996, the consolidated debt to capital ratio declined to 26.7%
from 31.6% at February 29, 1996. Consolidated operations generated $42.2 million
in cash for the nine month period ended November 30, 1996. Additional cash was
provided by a $1.0 million dividend from our joint venture affiliate in Japan,
$2.0 million from long term debt and $.6 million from miscellaneous investing
and financing activities.
Of the funds generated above, $32.3 million was invested in buildings and
equipment, with $15.4 million for domestic operations and $16.9 million for
foreign locations. The Company also repaid $6.1 million of short term
borrowings, $3.0 million on its domestic revolving credit agreement and $2.8
million in principal on other long term debt. The effect of exchange rate
changes reduced cash flow $.2 million.
As a result of the above, cash increased to $5.6 million at November 30, 1996,
from $4.2 million at February 29, 1996.
Capital expenditures in fiscal 1997 are expected to continue at a moderate level
of approximately 8% to 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.
Certain statements contained herein such as those concerning expected sales and
earnings in the upcoming fourth quarter, and other such statements contained
herein regarding matters that are not historical facts are forward looking
statements (as such term is defined in the rules promulgated pursuant to the
Securities Act of 1933, as amended (the `Securities Act'')). Because such
forward looking statements include risks and uncertainties, actual results may
differ materially from those expressed in or implied by such forward looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, a decrease in net sales due to competition,
pricing pressures, seasonality and production inefficiencies.
<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 3, 1997 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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-30-1996
<CASH> 5,560
<SECURITIES> 0
<RECEIVABLES> 56,626
<ALLOWANCES> 0
<INVENTORY> 58,648
<CURRENT-ASSETS> 128,900
<PP&E> 367,347
<DEPRECIATION> 201,370
<TOTAL-ASSETS> 308,022
<CURRENT-LIABILITIES> 77,307
<BONDS> 41,040
0
0
<COMMON> 12,374
<OTHER-SE> 156,612
<TOTAL-LIABILITY-AND-EQUITY> 308,022
<SALES> 330,811
<TOTAL-REVENUES> 330,811
<CGS> 240,901
<TOTAL-COSTS> 240,901
<OTHER-EXPENSES> 69,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,164
<INCOME-PRETAX> 18,734
<INCOME-TAX> 6,843
<INCOME-CONTINUING> 11,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,891
<EPS-PRIMARY> .96
<EPS-DILUTED> 0
</TABLE>
