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, 1998
( ) 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, 1998:
7,734,199 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>
May 31, February 28,
1998 1998
(Unaudited) (Note 1)
----------- ---------
<S> <C> <C>
ASSETS:
Cash and equivalents $10,754 $ 9,659
Receivables, net of allowances 60,732 63,332
Inventories (Note 2) 55,432 52,068
Prepaid expenses and other current assets 10,367 9,547
-------- --------
Total Current Assets 137,285 134,606
Land, buildings and equipment, net 171,338 162,961
Investment in affiliates and other
assets, net 12,159 12,766
-------- --------
TOTAL ASSETS $320,782 $310,333
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $19,498 $20,630
Accounts payable 21,833 22,466
Payroll related accruals 14,466 11,635
Other accruals 14,509 13,452
Income taxes, net 2,993 1,385
Current maturities of long-term debt 1,819 1,780
------- -------
Total Current Liabilities 75,118 71,348
Long-term debt 33,069 33,393
Deferred income taxes, net and
deferred credits 22,834 22,138
Stockholders' Equity:
Class A Common stock 7,734 7,713
Class B Common stock 4,763 4,763
Additional paid-in capital 42,616 42,409
Retained earnings 134,091 127,760
Cumulative translation adjustments 557 809
------- -------
Total Stockholders' Equity 189,761 183,454
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $320,782 $310,333
======== ========
<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)
Three Months Ended
May 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net Sales $122,665 $114,535
Cost of Products Sold 85,934 82,010
-------- --------
Gross Profit 36,731 32,525
Engineering, Distribution and
Administrative Expenses 26,381 24,551
-------- --------
Earnings from Operations 10,350 7,974
Other Income, Net 219 98
-------- --------
Earnings Before Interest and Taxes 10,569 8,072
Interest Expense, Net 676 853
-------- --------
Earnings before Income Taxes 9,893 7,219
Income Tax Provision 3,562 2,699
-------- --------
Net Earnings $ 6,331 $ 4,520
======== ========
Earnings per Share
Basic $ .51 $ .36
======== ========
Diluted $ .50 $ .36
======== ========
Average Shares Outstanding
Basic 12,483,267 12,429,122
========== ==========
Diluted 12,656,548 12,503,757
========== ==========
<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,
--------------------------
1998 1997
----------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 18,686 $ 14,249
Cash Flows from Investing Activities:
Expenditures for Land, Buildings
and Equipment (15,933) (7,287)
Other, net (193) (20)
--------- ---------
Net Cash Used by Investing Activities (16,126) (7,307)
--------- ---------
Cash Flows From Financing Activities:
(Decrease) in Short-term Debt (2,444) (352)
Increase(Decrease) in Domestic Revolver and
Uncommitted Credit Facilities 1,000 (7,000)
Principal Payments on Long-term Debt (450) (608)
Equity and Other Transactions 228 188
--------- ---------
Net Cash (Used) Provided by Financing Activities (1,666) (7,772)
--------- ---------
Effect of Exchange Rate Changes on Cash Flows 201 --
--------- ---------
Net (Decrease) Increase in Cash and Equivalents 1,095 (830)
Cash and Equivalents, at Beginning of Year 9,659 6,215
--------- ---------
Cash and Equivalents, at End of Period $ 10,754 $ 5,385
========= =========
<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)
(Dollars in Thousands)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of May 31, 1998, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three months ended May 31, 1998 and 1997, 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, 1998, 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, 1998 Annual
Report to Stockholders. The results of operations for the three months ended
May 31, 1998 are not necessarily indicative of the operating results for a full
year.
2. INVENTORIES
Inventory values were as follows:
May 31, February 28,
1998 1998
--------- ---------
Raw materials $ 9,527 $ 9,633
Component parts 11,473 10,897
Work-in-process 19,689 18,412
Finished goods 14,743 13,126
--------- ---------
$ 55,432 $ 52,068
========= =========
3. COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Total
comprehensive income, consisting of net earnings and foreign currency
translation adjustments, net of tax, amounted to $6,079 and $4,996 for the three
months ended May 31, 1998 and 1997, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the first quarter of fiscal 1999 were a record $122.7 million, up 7.1
percent from last year's first quarter. The growth was driven by sales to the
automotive market which increased 13.5 percent year over year. Switch
assemblies supplied to foreign auto manufacturers by our European operations
grew by 55.2 percent and were the primary contributor to this growth although
domestic sales to this market also increased. Sales of computer market products
were up 3.2 percent on stronger sales of power management semiconductors, while
sales to the consumer and commercial market were down 1.9 percent on lower
shipments of semiconductors for use in analog cellular phones.
Sales from foreign operations increased 19.6 percent from last year led by
higher sales to the automotive market. Domestic sales were level with last year
with increased automotive sales being offset by lower sales of semiconductors
for use in cellular phones.
Operating profit for the first quarter increased to 8.4 percent of sales from
7.0 percent for the comparable period of the prior year. The increase comes
primarily from improved utilization of manufacturing and operating resources at
the Company's international operations.
Interest expense for the first quarter declined 20.8 percent primarily as a
result of lower debt levels.
Consolidated other income for the current quarter increased primarily due to
higher customer tooling income.
The consolidated effective income tax rate of 36.0 percent for the current year
period is below the 37.4 percent rate of the prior year. The rate decreased
primarily from higher foreign tax credits.
Net earnings for the quarter were a record $6.3 million, up 40 percent from $4.5
million last year. Diluted earnings per share of $.50 increased 39 percent from
$.36 in the prior 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 and
anticipated purchase commitments denominated in foreign currencies (primarily
German Marks). At May 31, 1998, the U.S. dollar equivalent of forward contracts
outstanding approximated $7.6 million.
The Company is being affected by the current strike at General Motors. The
Company estimates that as of July 10, 1998, shipments to General Motors have
been reduced by approximately $2 million and for each business day the strike
continues past that date, that total will increase by approximately $300,000.
Prior to a shutdown which had been planned for early July due to customer model
year changeovers, the Company temporarily laid off approximately 200 employees
at its automotive operations based in Waukegan, Illinois. Should the strike
continue beyond the planned shutdown period which will end July 10, temporary
layoffs will increase to a cumulative total of approximately 500 employees at
the Waukegan facility and at the East Greenwich, Rhode Island semiconductor
facility. These temporary layoffs will likely continue until the end of the
strike. The Company is currently assessing whether additional temporary layoffs
will be needed. Although the financial impact of the strike may be offset
somewhat by increased sales that might come from other automotive
customers as well as increased sales to General Motors which might occur
following a settlement, at this stage it is not possible to predict the ultimate
effect the strike will have on the earnings of the Company.
Liquidity and Capital Resources
The Company's consolidated debt to capital ratio declined to 18.7 percent at May
31, 1998, from 20.1 percent at February 28, 1998. Consolidated operations
generated $18.7 million in cash for the three month period ended May 31, 1998.
From the funds generated from operations, $15.9 million was invested in
buildings and equipment and $1.9 million was used to reduce outstanding
borrowings. Domestic operations invested $12.1 million in buildings and
equipment while foreign locations invested $3.8 million. The effect of exchange
rate changes increased cash flow $200 thousand. Cash increased to $10.8 million
at February 28, 1998 from $9.7 million at February 28, 1998.
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. 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,
liquidity, the impact of the General Motors strike and capital expenditures 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 their 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 10-K for the year ended February 28, 1998.
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 5. Other Information
Stockholders wishing to bring a proposal before the 1999 Annual Meeting
of Stockholders (but not include it in the Company's Proxy Statement)
must cause written notice of the proposal to be received by the Secretary
of the Company at the principal executive offices in Waukegan, Illinois
by no later than April 5, 1999.
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 10, 1998 By: /s/Peter B. Cherry
------------------
Peter B. Cherry
Chairman of the Board
and President
By: /s/Kevin G. Powers
------------------
Kevin G. Powers
Corporate Controller
and Assistant Secretary
<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> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1999 FEB-28-1998
<PERIOD-END> MAY-31-1998 MAY-31-1997<F1>
<CASH> 10,754 5,385
<SECURITIES> 0 0
<RECEIVABLES> 60,732 57,508
<ALLOWANCES> 0 0
<INVENTORY> 55,432 53,920
<CURRENT-ASSETS> 137,285 124,989
<PP&E> 394,644 361,979
<DEPRECIATION> 223,306 203,186
<TOTAL-ASSETS> 320,782 295,740
<CURRENT-LIABILITIES> 75,118 72,097
<BONDS> 33,069 29,528
0 0
0 0
<COMMON> 12,497 12,442
<OTHER-SE> 177,264 160,818
<TOTAL-LIABILITY-AND-EQUITY> 320,782 295,740
<SALES> 122,665 114,535
<TOTAL-REVENUES> 122,665 114,535
<CGS> 85,934 82,010
<TOTAL-COSTS> 85,934 82,010
<OTHER-EXPENSES> 26,381 24,551
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 797 905
<INCOME-PRETAX> 9,893 7,219
<INCOME-TAX> 3,562 2,699
<INCOME-CONTINUING> 6,331 4,520
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,331 4,520
<EPS-PRIMARY> .51 .36
<EPS-DILUTED> .50 .36
<FN>
<F1> Restated.
</FN>
</TABLE>
