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, 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 November 30, 1997:
7,691,121 shares of Class A Common
4,762,564 shares of Class B Common
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
November 30, February 28,
1997 1997
(Unaudited) (Note 1)
------------ ------------
ASSETS:
Cash and equivalents $ 13,204 $ 6,215
Receivables, net of allowances 57,510 57,118
Inventories (Note 2) 52,059 54,786
Prepaid expenses and other current assets 9,852 6,734
-------- --------
Total Current Assets 132,625 124,853
Land, buildings and equipment, net 159,728 159,267
Investment in affiliates and other assets, net 12,361 11,526
-------- --------
TOTAL ASSETS $304,714 $295,646
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 22,032 $ 23,806
Accounts payable 19,408 17,803
Payroll related accruals 13,407 11,833
Other accruals 16,050 13,574
Income taxes, net 1,160 566
Current maturities of long-term debt 1,821 2,051
-------- --------
Total Current Liabilities 73,878 69,633
Long-term debt 31,259 37,009
Deferred income taxes, net and deferred credits 20,116 20,928
Stockholders' Equity:
Class A common stock 7,691 7,667
Class B common stock 4,763 4,750
Additional paid-in capital 42,116 41,858
Retained earnings 123,040 110,357
Cumulative translation adjustments 1,851 3,444
-------- --------
Total Stockholders' Equity 179,461 168,076
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $304,714 $295,646
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in Thousands except Share Data)
Three Months Ended Nine Months Ended
November 30, November 30,
--------------------- ------------------
1997 1996 1997 1996
--------- --------- --------- --------
Net sales $ 120,167 $ 116,733 $ 340,478 $ 330,811
Cost of products sold 84,528 81,636 244,313 240,901
--------- --------- --------- ---------
Gross profit 35,639 35,097 96,165 89,910
Engineering, distribution and
administrative expenses 25,350 23,537 74,612 69,788
--------- --------- --------- ---------
Earnings from operations 10,289 11,560 21,553 20,122
Other income, net 296 694 823 1,535
--------- --------- --------- ---------
Earnings before interest and taxes 10,585 12,254 22,376 21,657
Interest expense, net 714 880 2,244 2,923
--------- --------- --------- ---------
Earnings before income taxes 9,871 11,374 20,132 18,734
Income tax provision 3,652 4,193 7,449 6,843
--------- --------- --------- ---------
Net earnings $ 6,219 $ 7,181 $ 12,683 $ 11,891
========= ========= ========= =========
Earnings per share $ .50 $ .58 $ 1.02 $ .96
========= ========= ========= =========
Average shares outstanding 12,451,608 12,373,501 12,441,578 12,360,279
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine Months Ended November 30,
------------------------------
1997 1996
----------- ----------
Net cash provided by operating activities $ 41,027 $ 42,199
Cash flows from investing activities:
Expenditures for land, building
and equipment (26,349) (32,290)
Proceeds from sales of land, building
and equipment -- 362
Dividend from joint venture affiliate -- 1,050
Other, net (1,167) 49
---------- ---------
Net cash used by investing activities (27,516) (30,829)
---------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term debt (842) (6,116)
(Decrease) in domestic revolver and
uncommitted credit facilities (7,000) (3,000)
Proceeds from long-term debt 2,857 1,960
Principal payments on long-term debt (1,543) (2,848)
Other equity transactions 295 156
---------- ---------
Net cash used by financing activities (6,233) (9,848)
---------- ---------
Effect of exchange rate changes on cash flows (289) (175)
---------- ---------
Net (decrease) increase in cash and equivalents 6,989 1,347
Cash and equivalents, at beginning of year 6,215 4,213
---------- ---------
Cash and equivalents, at end of period $ 13,204 $ 5,560
========== =========
<FN>
The accompanying notes are in integral part of the consolidated financial
statements.
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, 1997, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three and nine months ended November 30, 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 November 30, 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 nine months
ended November 30, 1997 are not necessarily indicative of the operating results
for a full year.
2. INVENTORIES
Inventory values were as follows:
November 30, February 28,
1997 1997
----------- -----------
Finished goods $ 13,484 $ 14,506
Work-in-process 19,029 19,121
Component parts 9,473 10,244
Raw materials 10,073 10,915
----------- -----------
$ 52,059 $ 54,786
=========== ===========
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the third quarter of fiscal 1998 were a record $120.2 million, up 2.9
percent from last year's third quarter. The growth was driven by sales to the
automotive market which increased 13 percent year over year. Switch assemblies
supplied to foreign auto manufacturers by our European operations were the
primary contributor to this growth although domestic sales to this market also
increased. Sales to the consumer and commercial market were down 3.4 percent due
to lower unit sales of our semiconductor products. Sales of computer market
products, approximately two-thirds of which are denominated in foreign
currencies, were down 8.8 percent as a result of the stronger U.S. dollar.
Domestic sales for the quarter were 7.2 percent above last year's level largely
on increased sales to automotive customers but strong demand for power
management devices at our semiconductor operation also contributed. Sales from
foreign operations decreased 3.4 percent from last year but much of that can be
attributed to the strengthening of the U.S. dollar year over year. When
measured in local currencies sales from foreign operations increased more than
10 percent over the third quarter of last year primarily from the growth in
automotive products.
Record sales of $340.5 million for the first nine months were 2.9 percent higher
than the comparable period of the prior year. Sales by domestic operations
increased 7.8 percent, while foreign operations decreased 4.8 percent in U.S.
dollars. Foreign sales increased 10.3 percent in local currency.
Operating profit for the third quarter of the current year decreased to 8.6
percent of sales from 9.9 percent for the comparable period of the prior year.
The decrease comes primarily from slightly lower gross margins, coupled with
higher engineering expenses primarily for new product development activities.
The year-to-date consolidated operating profit of 6.3 percent of sales for
fiscal 1998 improved from 6.1 percent in the prior year based upon the strength
of results in both the first and second quarters of this fiscal year.
Interest expense for the third quarter declined 18.9 percent primarily as a
result of lower debt levels. Nine month interest expense for the current year
is also lower for the same reason.
Consolidated other income for the current quarter and nine months decreased $166
thousand and $679 thousand, respectively, from the comparable prior year
periods. The decreases resulted primarily from lower customer tooling income.
The consolidated effective income tax rate of 37.0 percent for the current year
nine month period is higher than the 36.5 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 November 30, 1997, the U.S. dollar equivalent of forward
contracts outstanding approximated $2.3 million.
Liquidity and Capital Resources
The Company's consolidated debt to capital ratio declined to 23.5 percent at
November 30, 1997 from 27.2 percent at February 28, 1997. Consolidated
operations generated $41.0 million in cash for the nine month period ended
November 30, 1997. Additional cash was provided by proceeds from long-term debt
of $2.9 million and $295 thousand from miscellaneous equity transactions.
Of the funds generated above, $26.3 million was invested in buildings and
equipment and $1.2 million in other assets. Domestic operations invested $16.3
million in buildings and equipment while foreign locations invested $10.0
million. The Company also repaid $7.0 million under the domestic revolver and
$2.4 million of other debt. The effect of exchange rate changes reduced cash
flow $300 thousand.
As a result of the above, cash increased to $13.2 million at November 30, 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 third quarter ended November 30,
1997, the Company entered into an uncommitted, unsecured credit facility for $10
million with terms comparable to existing facilities. 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 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 8-K dated September 15, 1997.
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
The Company filed a report on Form 8-K on September 15, 1997 in regards
to "Safe Harbor" Statements under the Private Securities Litigation Reform
Act of 1995.
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 13, 1998 By:/s/Dan A. King
-----------------
Dan A. King
V. P. of Finance and Administration,
Secretary and Treasurer