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, 2000
[ ] 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, 2000:
10,215,151 shares
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
May 31, February 29,
2000 2000
(Unaudited) (Note 1)
----------- -----------
<S> <C> <C>
ASSETS:
Cash and equivalents $174,069 $ 13,602
Receivables, net of allowances 49,730 48,019
Inventories (Note 2) 39,033 37,317
Prepaid expenses and other current assets 5,586 4,889
Net assets of discontinued operations -- 78,738
-------- --------
Total Current Assets 268,418 182,565
Land, buildings and equipment, net 114,317 116,358
Investment in affiliates and other assets, net 13,621 13,195
-------- --------
TOTAL ASSETS $396,356 $312,118
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 1,921 $ 19,014
Accounts payable 17,519 16,487
Payroll related accruals 13,286 11,085
Other accruals 11,541 12,648
Income taxes, net 74,950 2,870
Current maturities of long-term debt 1,591 60,785
-------- --------
Total Current Liabilities 120,808 122,889
Long-term debt 4,218 4,732
Deferred income taxes, net 5,843 7,589
Deferred credits 2,783 2,757
Stockholders' Equity:
Common stock 12,710 12,575
Additional paid-in capital 45,108 43,546
Retained earnings 247,326 158,867
Accumulated other comprehensive income (3,840) (2,237)
-------- --------
301,304 212,751
Less: cost of common stock in treasury (38,600) (38,600)
-------- --------
Total Stockholders' Equity 262,704 174,151
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $396,356 $312,118
======== ========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
2
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Share Data)
<CAPTION>
Three Months Ended
May 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Net Sales $ 90,472 $ 92,755
Cost of Products Sold 67,117 69,141
--------- ---------
Gross Profit 23,355 23,614
Engineering, Distribution and
Administrative Expenses 20,095 19,448
--------- ---------
Earnings from Operations 3,260 4,166
Other Income, Net 141 485
--------- ---------
Earnings Before Interest and Taxes 3,401 4,651
Interest Income (Expense), Net 1,283 (636)
--------- ---------
Earnings from Continuing Operations Before Income Taxes 4,684 4,015
Income Tax Provision 1,880 1,470
--------- ---------
Earnings from Continuing Operations $ 2,804 $ 2,545
Earnings from Discontinued Operations (less applicable
income taxes of $550 and $456, respectively) 922 1,031
Gain on Disposition of Discontinued Operations (less
applicable income taxes of $66,549) 84,733 --
--------- --------
Net Earnings $ 88,459 $ 3,576
========= =========
Basic Earnings per Share:
Continuing Operations $ .28 $ .25
Discontinued Operations 8.45 .10
---------- ---------
Basic Earnings per Share $ 8.73 $ .35
========== =========
Diluted Earnings per Share:
Continuing Operations $ .27 $ .25
Discontinued Operations 8.32 .10
---------- ---------
Diluted Earnings per Share $ 8.59 $ .35
========== =========
Average Shares Outstanding
Basic 10,138,233 10,177,697
========== ==========
Diluted 10,290,319 10,242,680
========== ==========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
3
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<CAPTION>
Three Months Ended May 31,
2000 1999
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Cash Provided by Continuing Operations $ 5,127 $ 15,965
Net Cash Provided by Discontinued Operations 1,209 4,568
---------- ---------
Net Cash Provided by Operating Activities 6,336 20,533
---------- ---------
Cash Flows from Investing Activities:
Expenditures for Land, Buildings
and Equipment (6,533) (5,871)
Net Proceeds from sale of Discontinued
Operations 236,493 --
Other, net 296 (106)
---------- ---------
Net Cash Provided by (Used in)
Continuing Operations 230,256 (5,977)
Net Cash (Used in) Discontinued Operations (1,576) (3,985)
---------- ---------
Net Cash Provided by (Used in)
Investing Activities 228,680 (9,962)
---------- ---------
Cash Flows From Financing Activities:
(Decrease) in Short-term Debt (16,322) (9,294)
(Decrease) in Domestic Revolver (34,000) (4,000)
Principal Payments on Long-term Debt (25,457) (511)
Equity and Other Transactions 1,697 (48)
---------- ---------
Net Cash (Used) by Financing Activities (74,082) (13,853)
---------- ---------
Effect of Exchange Rate Changes on Cash Flows (467) (600)
---------- ---------
Net (Decrease) Increase in Cash and Equivalents 160,467 (3,882)
Cash and Equivalents, at Beginning of Year 13,602 13,720
---------- ---------
Cash and Equivalents, at End of Period $ 174,069 $ 9,838
========== =========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
4
<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, 2000, and the
related condensed consolidated statements of earnings and cash flows for the
three months ended May 31, 2000 and 1999, 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, 2000, 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, 2000 Annual
Report to Stockholders. The results of operations for the three months ended
May 31, 2000 are not necessarily indicative of the operating results for a full
year.
On March 1, 2000, the Company changed the calculation used to estimate
depreciation for interim periods. Depreciation for new additions begins in the
month the asset is placed in service. This replaces the half-year convention
used in prior years, whereby one-half year depreciation was taken in the year of
addition and one-half year in the year of
retirement.
2. INVENTORIES
<TABLE>
Inventory values were as follows:
<CAPTION>
May 31, February 29,
2000 2000
----------- ----------
<S> <C> <C>
Raw materials $ 6,234 $ 5,352
Component parts 11,949 12,868
Work-in-process 9,368 8,422
Finished goods 11,482 10,675
----------- ----------
$ 39,033 $ 37,317
=========== ==========
</TABLE>
3. COMPREHENSIVE INCOME
In accordance with 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
$86,856 and $1,424 for the three months ended May 31, 2000 and 1999,
respectively.
5
<PAGE>
4. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Automotive
Switches Computer Switches Eliminations
Three Months Ended May 31, 2000 & Modules Keyboards & Controls & Corporate Consolidated
------------------------------- --------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 43,065 $ 21,988 $ 25,419 $ -- $ 90,472
Intersegment sales -- -- -- -- --
Total net sales 43,065 21,988 25,419 -- 90,472
Earnings from operations (312) 3,567 1,239 (1,234) 3,260
Three Months Ended May 31, 1999
-------------------------------
Sales to unaffiliated customers $ 44,024 $ 25,171 $ 23,560 $ -- $ 92,755
Intersegment sales -- -- 300 (300) --
Total net sales 44,024 25,171 23,860 (300) 92,755
Earnings from operations 2,089 3,332 (423) (832) 4,166
</TABLE>
5. EARNINGS PER SHARE (EPS) RECONCILIATION
Following is a reconciliation of the numerators and the denominators of the
basic and diluted EPS computation.
<TABLE>
<CAPTION>
Three months ended May 31 2000 1999
------------------------- ----------- -----------
(In thousands, except share data)
<S> <C> <C>
Numerator:
Net earnings from continuing operations $ 2,804 $ 2,545
Net earnings from discontinued operations (x) 85,655 1,031
-------- --------
Net earnings available to common stockholders $ 88,459 $ 3,576
======== ========
Denominator:
Weighted average shares for basic EPS 10,138,233 10,177,697
Effect of dilutive securities:
Common stock options 152,086 64,983
-------- --------
Adjusted weighted average shares
and assumed conversions for diluted EPS 10,290,319 10,242,680
=========== ===========
Basic EPS -- continuing operations $ .28 $.25
Basic EPS -- discontinued operations 8.45 .10
---- ---
Basic EPS $8.73 $.35
===== ====
Diluted EPS - continuing operations $ .27 $.25
Diluted EPS - discontinued operations 8.32 .10
---- ---
Diluted EPS $8.59 $.35
===== ====
<FN>
(x) Includes gain on disposition of discontinued operations of $84,733 for the
three months ended May 31, 2000.
</TABLE>
6
<PAGE>
6. DISCONTINUED OPERATIONS
On April 3, 2000, the Company completed the sale of its subsidiary, Cherry
Semiconductor Corporation to Semiconductor Components Industries, LLC ( a
subsidiary of SCG Holding Corporation, which does business under the trade name,
ON SemiconductorTM) for approximately $250 million in cash, subject to certain
adjustments. Operating results, net assets and cash flows of Cherry
Semiconductor Corporation have been segregated as discontinued operations in the
condensed consolidated financial statements, including prior periods. The
quarter ended May 31, 2000 includes the net earnings of discontinued operations
from March 1, 2000 to April 3, 2000, the date of the sale, as well as the gain
on the disposition.
Certain information with respect to discontinued operations is summarized as
follows:
<TABLE>
<CAPTION>
Three months ended May 31 2000 1999
------------------------- -------- --------
<S> <C> <C>
Net sales $12,933 $ 31,123
Interest expense 149 552
<FN>
Interest expense charged to discontinued operations represents interest on debt
directly attributable to the discontinued operations.
</TABLE>
<TABLE>
<CAPTION>
Net assets of discontinued operations as of the last day of February 2000 were:
<S> <C>
Assets
Cash $ 214
Receivables 17,167
Inventory 20,340
Refundable Income taxes 2,647
Prepaid expenses and
other current assets 3,257
Property, plant and equipment, net 56,763
Other assets 1,028
-------
Total Assets 101,416
Liabilities
Accounts payable 7,675
Payroll related accruals 2,073
Other accruals 5,111
Deferred taxes 7,819
-------
Total Liabilities 22,678
-------
Net assets of discontinued operations $78,738
=======
</TABLE>
7. SUBSEQUENT EVENTS
On June 5, 2000, the Company announced acceptance of a proposal made by Peter
Cherry and certain of his affiliates to acquire all of the outstanding common
stock of the Company not now owned by Peter Cherry and his affiliates for $26.40
per share. Peter Cherry is the Chairman and President of the Company and he and
his affilates own about 53% of all outstanding common stock. The Board of
Directors of the Company approved an Agreement and Plan of Merger (the
"Agreement") with CABO Acquisition Corp. , a company formed by Peter Cherry and
his affiliates, after an independent director Special Committee determined the
transaction was fair to Company shareholders other than Peter Cherry and his
affiliates. The Special Committee was advised by Wasserstein, Perella & Co.,
Inc and legal counsel, Sidley & Austin.
On June 15, 2000, the tender offer contemplated by the Agreement was commenced
by mailing definitive tender offer materials to the Company stockholders and
related filings with the Securities and Exchange Commission. In the tender
offer CABO Acquisition Corp. is offering to purchase for $26.40 per share in
7
<PAGE>
cash all of the outstanding shares of the Company's common stock other than
shares owned by Mr. Cherry and his affiliates. The tender offer is expected to
remain open until July 13, 2000, unless extended, and will be followed by a
merger under which those shares not tendered will be converted into the right to
receive the same $26.40 per share in cash. The merger and the closing of the
tender offer is subject to the condition that the number of shares tendered when
combined with about 53% already owned by Peter Cherry and certain of his
affiliates will equal more than 67% of the shares of common stock issued and
outstanding.
8. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
On April 3, 2000, the Company completed the sale of its semiconductor
subsidiary, Cherry Semiconductor Corporation, to Semiconductor Components
Industries, LLC (a subsidiary of SCG Holding Corporation which does business
under the trade name ON SemiconductorTM). Results of operations, financial
position and cash flows reflect the semiconductor operation as a discontinued
operation.
For the Company's continuing operations, sales for the first quarter of fiscal
2001 were $90.5 million, down 2.5 percent from last year's first quarter. Sales
for the Switches and Controls segment increased 6.5 percent to $25 million.
Sales for the Automotive Switches and Modules segment decreased 2.2 percent to
$43 million. For the Computer Keyboard segment, sales decreased 12.6% to $22
million. Domestic sales increased 1.7 percent while sales for the European
operations decreased 6.4 percent. Although sales for the European operations
were higher when measured in local currencies, that increase was more than
offset by a weaker Euro.
The consolidated operating profit for the first quarter decreased to 3.6 percent
of sales from 4.5 percent for the comparable period last year. The quarter was
negatively affected by the operational problems with the North American
automotive division that started in the third quarter of fiscal 2000. The North
American switches and controls business experienced higher sales and profits in
connection with the launch of a custom electronic control panel. The quarter
was also positively affected by lower depreciation expense resulting from a
change in the calculation used to estimate depreciation for interim periods.
Consolidated other income for the current quarter increased primarily due to
higher earnings at the Company's Japanese joint venture and the sale of
inventory and fixed assets related to the Plasmalux product line. This increase
was more than offset by a provision to mark to market a deutsche mark
denominated loan.
Interest income for the first quarter was $1.3 million as a result of earnings
on the invested net proceeds from the sale of the semiconductor operation.
The consolidated effective income tax rate of 40.1 percent for the current year
period is above the 36.6 percent rate of the prior year primarily due to reduced
utilization of foreign tax credits due to the sale of the semiconductor
operation.
Net earnings for the quarter were $88.5 million. Included in this amount is the
gain on the sale of the Company's semiconductor operation of $84.7 million as
well as the net earnings of that discontinued operation up through the date of
the sale which were $.9 million.
Net earnings from continuing operations for the quarter were $2.8 million, up
10.2 percent from $2.5 million last year. Diluted earnings per share from
continuing operations of $.27 increased 8 percent from $.25 in the prior year.
Liquidity and Capital Resources
Consolidated continuing operations generated $5.1 million in cash for the three
month period ended May 31, 2000. In addition, net proceeds of $236.5 million in
cash were generated from the sale of the Company's semiconductor subsidiary.
From these funds, $6.5 million was invested in buildings and equipment and $75.8
million was used to reduce outstanding borrowings. Domestic operations invested
$3.3 million in buildings and equipment while foreign locations invested $3.2
million. The effect of exchange rate changes decreased cash flow $467 thousand.
9
<PAGE>
Cash increased to $174.1 million at May 31, 2000 from $13.6 million at February
29, 2000. The taxes due on the sale of the semiconductor subsidiary will be
paid when due over the balance of the fiscal year.
Existing credit facilities and bank lines should be sufficient, together with
internally generated cash, to finance the Company's operations.
Market Conditions and Outlook
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, 2000, the U.S. dollar equivalent of forward contracts
outstanding approximated $7.3 million.
Capital expenditures are expected to be at a level of approximately 10 percent
to 12 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.
As part of the Agreement referenced in footnote "7. Subsequent Events", of this
Form 10-Q report, the Company is required to make a loan to CABO Acquisition
Corp. contemporaneously with the consummation of the tender offer in a maximum
amount equal to the number of shares tendered not owned by Peter Cherry and
his affiliates (on a fully diluted basis) multiplied by $26.40 per share, but
not to exceed $150 million (the "Loan"). The Loan will be due one hundred
twenty days from funding and will bear interest at the greater of the Company's
cost of funding or the prime rate plus 0.25%. As security for the Loan, the
Agreement states that CABO Acquisition Corp. and Peter Cherry and affiliates
will pledge all of their Company shares that they own in addition to shares
acquired in the tender offer. The Loan will have other terms and conditions for
Loans of this nature. CABO Acquistion Corp. will also pay a loan fee equal
to 3/8% of the loaned amount to be delivered by a note upon funding of the
Loan and which shall be payable at the maturity of the Loan.
Certain statements in the foregoing Market Conditions and Outlook section and
elsewhere in this Form 10-Q, including those regarding expected capital
expenditure levels and sufficient cash generation from operations, are "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve risks and uncertainties that could significantly
impact future results. A discussion of these risks and uncertainties is
contained in the Company's Form 10-K for the year ended February 29, 2000, filed
with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk at May 31, 2000 from that
reported in Form 10-K for the year ended February 29, 2000.
10
<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
On April 18, 2000, the Registrant filed a report on Form 8-K report
under Item 2, Acquisition or Disposition of Assets. The filing reported
completion of the sale of its subsidiary, Cherry Semiconductor Corporation on
April 3, 2000.
11
<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 12, 2000 By:/s/Dan A. King
--------------------
Dan A. King
Vice President of Finance
and Administration,
Treasurer and Secretary
(Duly authorized officer and
principal financial officer)
12
<PAGE>
