SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
/X/ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended the Last Day of February, 1994
Commission File Number 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
incorporation or organization) Identification Number)
3600 Sunset Avenue, Waukegan, IL 60087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (708) 662-9200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$1 Par Value
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 reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (paragraph 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to the form 10-K. / /
The aggregate market value of the registrant's Common Stock on May 16, 1994
held by nonaffiliates was approximately $55 million, based on a calculation
that 39% of the shares are owned by nonaffiliates and are valued at the
closing price as reported on the NASDAQ National Market System on May 16,
1994.
As of May 16, 1994, 4,664,098 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated: Part of Form 10-K:
- - ------------------------------------ ------------------
Various parts of the Company's Proxy All of Part III
Statement for its 1994 Annual Meeting
<PAGE>
THE CHERRY CORPORATION
PART I
ITEM 1. BUSINESS.
GENERAL
The Cherry Corporation ("Cherry","Company" or "Corporation") was
incorporated in 1953 in the State of Illinois and reincorporated in the
State of Delaware in 1978. The Company and its subsidiaries design,
develop, manufacture and market over 3,000 types of electromechanical
devices, electronic assemblies and displays, and semiconductor devices for
the automotive, computer, and consumer and commercial markets.
Cherry's executive offices are located at the Cherry Electrical Products
division in Waukegan, Illinois. Its wholly owned subsidiary companies
operate in the following locations: Cherry Semiconductor Corporation, Rhode
Island; Cherry Mikroschalter GmbH, the Federal Republic of Germany;
Plastech GmbH, the Federal Republic of Germany; Cherry Electrical Products
Ltd., United Kingdom; Cherry SARL, France; Cherasia Limited, Hong Kong;
Cherry SRO, Czech Republic; Cherry Australia Pty., Ltd., Australia; and
Cherry Systems Corporation, Texas. Additionally, the Company operates in
Japan and India through 50% owned affiliates, Hirose Cherry Precision
Company Limited and TVS Cherry Private Limited, respectively. The Company
also operates a branch sales and engineering office in Japan under the name
Cherry Automotive-Japan.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS, FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
Refer to the Business Segment and Geographic Area Information contained in
Item 8 of this Annual Report on Form 10-K.
<PAGE>
NARRATIVE DESCRIPTION OF BUSINESS
Cherry has three major business segments:
The Electromechanical Devices Segment designs, manufactures and markets
snap-action, selector and automobile special-use switches, all of which
control or regulate the flow of electrical current. Snap-action switches
are used in appliances, office and business equipment, vending machines,
industrial controls, computer peripherals and other end products. They are
generally manufactured to customer specifications by modifying the
Company's standard products. Selector switches are designed for use in
various computer, commercial and industrial control applications.
Automobile special-use switches are used in power windows, mirrors and
seats; in the engine compartment for various control applications; and in
various safety applications. These products are custom made for major U.S.
and European automobile manufacturers, including Japanese transplants in
North America. The Company's automotive customers generally pay for the
tooling and other special manufacturing requirements.
The Electronic Assemblies and Displays Segment designs, manufactures and
markets keyboards, keyboard switches, gas discharge displays and systems,
and automotive electronic products. Electronic keyboards are used in
personal computers; data entry, point-of-sale and reservation terminals;
word processing systems; and other computer input applications. Gas
discharge displays and systems are used as readouts for business machines,
amusement products, medical equipment and industrial instrumentation.
Automotive electronics include power seat and sunroof applications.
The Semiconductor Devices Segment designs, manufactures and markets linear
and linear to digital integrated circuits and transistor and gate arrays
which are packaged in a variety of configurations. Examples of these
products include integrated circuits for use in automotive ignition
systems, spindle speed control in disk drives, and power supplies for
office equipment and telephones. The Company's semiconductor products are
used primarily in automobiles, computer products and industrial controls.
Generally this segment's customers pay the major portion of the design and
development costs of a custom semiconductor device. Cherry also
manufactures an increasing number of proprietary and semi-custom integrated
circuits that perform standardized functions or can be adapted for a
specific application. To service its two largest markets, the Company has
developed a high speed bipolar process and a low voltage mixed signal
process for the computer market, and a high voltage mixed signal process
for the automotive market.
The Company feels inflation has not been a material factor in any segment.
<PAGE>
MARKET AND DISTRIBUTION
The distribution of the Company's sales by market is as follows:
<TABLE>
PERCENTAGE OF SALES BY MARKET
<CAPTION>
Fiscal Consumer
Year Automotive Computer and Commercial
- - ----- ---------- -------- --------------
<S> <C> <C> <C>
1994 38% 36% 26%
1993 33% 41% 26%
1992 29% 43% 28%
</TABLE>
Each of the Company's Product Segments sell into these three markets. The
percentage of market sales by each product segment for the last three
fiscal years are as follows:
<TABLE>
PERCENTAGE OF SALES BY PRODUCT SEGMENT
<CAPTION>
Consumer
Automotive Computer and Commercial
---------------- ---------------- -----------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electromechanical
Devices 54% 58% 59% 5% 5% 5% 80% 80% 81%
Semiconductor
Devices 36% 35% 36% 12% 9% 8% 9% 7% 8%
Electronic Assem-
blies & Displays 10% 7% 5% 83% 86% 87% 11% 13% 11%
</TABLE>
<TABLE>
Company sales by market for the last five fiscal years follows:
<CAPTION>
(Dollars in thousands) 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Automotive $104,018 $ 86,866 $ 65,468 $ 56,931 $ 46,069
Computer 99,346 110,455 99,351 121,680 98,819
Consumer & Commercial 71,905 68,910 63,812 67,276 63,553
-------- -------- -------- -------- --------
Consolidated sales $275,269 $266,231 $228,631 $245,887 $208,441
======== ======== ======== ======== ========
</TABLE>
A discussion of the markets served by Cherry follows:
<PAGE>
AUTOMOTIVE MARKET
Cherry's growth in fiscal 1994 was fueled by sales to the automotive
industry, which now represents the Company's single largest market. The
Company's products can be found in ignition and sunroof controls, power
seats, power windows, anti-theft systems, air bag and ABS controls, and
other areas of the car.
Switches, used primarily for power options, continue to represent the
largest volume of products sold to this market; however, sales of
semiconductors and electronic controls grew as a percent of total
automotive sales in fiscal 1994.
The fiscal 1994 growth in sales to the automotive market can be attributed
to the expanding available market, increased market penetration and
continued customer outsourcing. Cars and light trucks are using more
electronics and power options per vehicle than ever before. The number of
Cherry products used per vehicle is increasing as well. The Company's
semiconductors are being used in more advanced car applications. In
addition, the Company now provides complete armrest assemblies rather than
solely the power option switches, and produces more electronic control
modules for sunroofs and power seats.
The Company's North American sales currently account for the majority of
the Company's sales to the automotive market; however, European business is
expanding significantly. To improve the Company's penetration in the
Japanese automotive market, it is working closely with Japanese facilities
in North America and Europe, and has established a sales and engineering
office in Japan.
<PAGE>
COMPUTER MARKET
The dynamics of the computer market - severe price erosion, huge shifts in
demand and realignment of the worldwide personal computer manufacturers -
have been a continual challenge over the last several years. Cherry has
worked hard to anticipate and respond to these global market changes, and
continues to profitably supply keyboards and keyboard components to this
market, as well as semiconductors and switches.
In response to this changing industry, the Company has implemented new
distribution channels for its European keyboard business. In Europe, the
Company continues to hold the No. 1 position for non-captive keyboard
production, and the Cherry keyboard has achieved name recognition among
European consumers.
The Company has also expanded its line of standard value-added keyboards to
better serve specialty markets that require integrated magnetic card
readers, bar code readers or smart card readers. In addition,
manufacturing cost reductions have kept pace with price reductions.
The Company sells semiconductors to this marketplace for use in hard disk
drives, tape backup and power supplies. The Company has secured
significant market position in the semiconductor niches served. Future
sales of the Company to this marketplace will depend on new market
technology requirements. The Company intends to continue to serve this
market with creative semiconductor solutions.
The switch sales to this marketplace are a small and mature part of the
market. Any growth will come from increased requirements for computer
interfacing, networking and expanded uses of peripheral products.
<PAGE>
CONSUMER AND COMMERCIAL MARKET
The consumer and commercial market is the most stable market served by
Cherry, with sales increasing 4% in fiscal 1994. Cherry products sold to
this market are primarily used in home appliances and office equipment.
The majority of the Company's business in this market is in manufacturing
traditional standard switches with some customization. The Company has
established its leadership in switches domestically and in Europe by
providing advanced engineering and customization capabilities.
The Company believes future switch growth opportunities exist
internationally. In recent years, the Company has increased selling
efforts in Eastern Europe, Central and South America and Australia. In
1994, the Company established a joint venture in India to engineer,
manufacture and market switches for India's growing appliance and office
equipment markets.
Although electronic controls currently represent a relatively small portion
of the Company's sales to this market, the Company believes the
opportunities for growth are considerable. Many of the Company's customers
are looking to outside vendors to supply increasingly sophisticated
electronic controls for their products. Plasma displays, for example, are
now used in a variety of new applications, such as medical, fitness and
test equipment, in addition to their long-time gaming applications.
Semiconductors are another currently small but growing part of the
Company's sales to this market. In the current year, semiconductor sales
to this market increased 34%. By using the Company's expertise in power
conversion technology, the potential for future growth of semiconductor
sales to this marketplace is significant.
<PAGE>
MAJOR CUSTOMERS AND SEASONALITY
Virtually all of the Company's sales are made to original equipment
manufacturers and independent distributors. In fiscal 1994, the Company's
five largest customers accounted for approximately 30% of sales, including
amounts subcontracted from other customers. No single customer accounts
for more than 10% of sales.
The Company's Semiconductor Devices Segment has two major customers which
combined accounted for 33% of its total sales in fiscal 1994. The four
major customers of the Company's Electromechanical Devices Segment
accounted for 30% of the segment's sales in fiscal 1994. The Company's
Electronic Assemblies and Displays Segment had three major customers which
together accounted for 27% of the segment's sales in fiscal 1994.
The Company normally experiences a slowdown in sales during the summer
months from model changeovers and factory vacation shutdowns.
DISTRIBUTION
The Company's domestic sales are handled by Cherry sales representatives or
through independent sales representatives and distributors. All are
supported by Company customer service personnel. The independent sales
organizations also sell products for other companies, although generally
not those which compete with Cherry products.
Cherry Mikroschalter GmbH sells through sales representatives and
independent distributors located throughout Europe and the Far East.
Cherry Electrical Products Ltd., United Kingdom, under the direction of
Cherry Mikroschalter GmbH, is responsible for sales efforts in Great
Britain and Ireland through sales representatives and independent
distributors. In Japan, the Company's joint venture sales are directed by
Hirose Cherry Precision Co., Ltd. through distributors. In India, sales
will be directed by Cherry's new joint venture, TVS Cherry Private Limited.
Cherry SARL sells products in France which are purchased primarily from
Cherry Mikroschalter GmbH. Cherasia Limited sells Cherry products
throughout the Far East. In Australia, Cherry products are sold through
Cherry Australia Pty. Ltd. The Company's automotive sales and engineering
center in Japan coordinates selling activities with Japanese automotive
manufacturers.
<PAGE>
COMPETITION
The various businesses in which the Company engages are highly competitive.
In the Electromechanical Devices Segment, the Company considers itself the
second largest producer of the various switching devices it manufactures.
Cherry's largest competitor in this segment is a division of a corporation
with substantially larger resources. Cherry is an emerging player in the
products marketed by its Electronic Assemblies and Displays Segment in
large part because of its German subsidiary's strength in the keyboard and
keyswitch markets and The Company's recent successes with electronic
controls. The Company's competitors in this segment range from companies
smaller than Cherry, to divisions of corporations and corporations with
larger resources than the Company.
The Semiconductor Devices Segment of the Company's business has
competitors, including large manufacturers of standard semiconductor
devices, that have been established longer and have substantially greater
manufacturing, sales, research and financial resources than Cherry. Few of
these manufacturers, however, have concentrated on custom designed linear
bipolar semiconductor products as has the Company. A limited number of
Cherry's semiconductor customers have the technological expertise and the
financial resources to manufacture these devices themselves.
To compete sucessfully, the Company believes that meeting customer delivery
requirements, maintaining product reliability and offering custom design of
its products to customer specifications are as important as pricing
products competitively.
RAW MATERIALS AND ENERGY
In general, raw materials used by the Company are available from several
sources. The Company has not experienced significant shortages of raw
materials and, to date, sales have not been adversely affected by either
materials or energy shortages.
BACKLOG
Current backlog figures are considered to be firm, but, because the Company
does not manufacture pursuant to long-term contracts, purchase orders are
generally cancellable - subject to payment by the customer for charges
incurred up to the date of cancellation. The following figures, therefore,
should not be considered indicative of sales for an ensuing period.
<TABLE>
Backlog as of
The Last Day of February
(000's omitted)
------------------------
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Electromechanical Devices Segment $25,003 $23,316
Electronic Assemblies and Displays Segment 33,751 32,408
Semiconductor Devices Segment 22,923 15,414
------- -------
$81,677 $71,138
======== =======
</TABLE>
<PAGE>
PATENTS
The Company has numerous United States and foreign patents and
patent applications. As the Company develops products for new markets and
uses, it normally seeks patent protection. Many of the Company's products
embody some patent protection. Patents are important but the Company is
not dependent on any single patent or group of related patents. The
Company also owns various trademarks, trade names and proprietary
information, some of which are considered valuable assets.
PRODUCT DEVELOPMENT
During the fiscal year ended the last day of February 1994, the Company
spent approximately $10,424,000 on product development. The Company spent
approximately $9,102,000 and $8,083,000 on product development in fiscal
1993 and 1992, respectively. The percentage of development expenses
reimbursed by customers was not significant in any of the periods
discussed.
EMPLOYEES
As of February 28, 1994, the Company employed approximately 3,248 persons.
ENVIRONMENTAL PROTECTION
The Company is confident that its manufacturing operations and properties
are in compliance with existing federal, state and local provisions enacted
or adopted to regulate the discharge of materials into the environment, or
otherwise protect the environment. Compliance has been achieved without
material effect on Cherry's earnings or competitive position.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages,
business experience, and position and offices as of February 28, 1994.
Term as Business Experience During
Name Age Officer the Past Five Years
Peter B. Cherry 46 20 Chairman of the Board,(1992),
and President, 1982; and Chief
Executive Officer, 1986; and
(prior to 1986) Chief Operating
Officer.
Alfred S. Budnick 56 17 Vice President of the Company
and President of Cherry
Semiconductor Corporation since
1977.
Grant T. Hollett, Jr. 51 2 Vice President since June 1992;
President of Cherry Electrical
Products Division since 1990;
Executive Vice President prior
to 1990.
Klaus D. Lauterbach 51 2 Vice President since June 1992;
General Manager of Cherry Mikro-
schalter GmbH since 1990;
Assistant General Manager prior
to 1990.
Dan A. King 44 6 Secretary (in 1993); Treasurer
and Corporate Controller since
1990; and prior to 1990,
Corporate Controller since 1984.
<PAGE>
ITEM 2. PROPERTIES.
The following is a summary description of the principal land and buildings
owned or leased by the Company and its subsidiaries, setting forth the
location, square footage of building area and acreage of land owned. All
buildings are in generally good condition and provide adequate and suitable
space for the operations at each location.
Building Site
Location Acreage (sq. ft.) Leased or Owned
- - -------------------------- ------ -------- -------
Electromechanical Devices and Electronic Assemblies and Displays Segments:
1. Waukegan, Illinois 26.6 324,000 Owned
2. Bayreuth, Federal Republic 1.9 18,000 Owned
of Germany .5 13,000 Leased,
expiring Dec.1997
3. Auerbach, Federal 22.1 352,000 Owned
Republic of Germany 5,000 Leased,
expiring Dec.2000
4. Ostrov, Czech Republic - 20,000 Leased,
expiring Dec.1995
5. Paris, France - 13,600 Leased,
expiring Feb.1996
6. Harpenden, England 1.0 28,000 Owned
7. North Point, Hong Kong - 5,000 Leased,
expiring Apr.1996
Semiconductor Devices Segment - (Exclusively):
8. East Greenwich,
Rhode Island 20.6 101,000 Owned
Other
9. El Paso, Texas 4.8 62,000 Capital lease
payable
through Dec.1995
Properties 1, 2, 3, 6 and 8 are used for a combination of administration,
production and warehousing. Properties 5 and 7 are used for sales and
warehousing activities. Property 4 is used for assembly operations.
Refer to Item 8 of this Annual Report on Form 10-K for information
regarding notes payable secured by real estate.
Property 9, in El Paso, Texas is an idle building which the Company is
seeking to sell or lease.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is named in various suits and claims which arise in the normal
course of business. Where appropriate, the Company engages legal counsel
and disputes these claims. The Company believes that it has meritorious
defenses and that the final disposition of these matters will not
materially affect the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Cherry Corporation's common stock is traded on the NASDAQ National
Market System under NASDAQ symbol CHER. As of May 16, 1994, there were
approximately 2,100 holders of record of the Company's common stock. The
high and low sales prices reported on NASDAQ and the dividends paid per
common share for each quarter in the last two fiscal years are shown below:
<TABLE>
Sales Price
<CAPTION>
Fiscal 1994 High Low Dividend
Quarters:
<S> <C> <C> <C>
Fourth $26-1/2 $20-1/4 $ --
Third 22-1/4 13-5/8 --
Second 21-3/4 14-1/2 --
First 34 18-1/4 --
- - ---------------------------------------------------------------------------
<CAPTION>
Fiscal 1993
Quarters:
<S> <C> <C> <C>
Fourth $ 31-1/8 $24-1/2 $ --
Third 25-1/2 14 --
Second 18 14 --
First 16 9 --
- - ---------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following summary should be read in conjunction with the consolidated
financial statements and related notes contained in Item 8 of this Annual
Report on Form 10-K:
<TABLE>
(Dollars in thousands except share and employee data)
<CAPTION>
Year Ended the Last
Day of February 1994 1993 1992 1991(1) 1990
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 275,269 266,231 228,631 245,887 208,441
Gross margin $ 80,179 76,521 60,650 68,014 53,118
Operating expenses $ 62,419 59,840 54,002 65,986 53,153
Earnings (loss) from
operations $ 17,760 16,681 6,648 2,028 (35)
Interest expense $ (3,919) (5,383) (5,919) (6,007) (3,759)
Other income, net $ 1,342 636 2,226 1,300 732
Earnings (loss) before
income taxes, extra-
ordinary tax credit and
cumulative effect of
change in accounting
principle $ 15,183 11,934 2,955 (2,679) (3,062)
Income tax provision
(benefit) $ 5,692 4,216 (819) 3,039 (277)
Earnings (loss) before
extraordinary tax
credit and cumulative
effect of change in
accounting principle $ 9,491 7,718 3,774 (5,718) (2,785)
Extraordinary tax
credit $ -- 2,539 891 -- --
Cumulative effect of
change in accounting
principle $ 1,542 -- -- -- --
Net earnings (loss) $ 11,033 10,257 4,665 (5,718) (2,785)
- - ---------------------------------------------------------------------------
OTHER STATISTICS
Net earnings (loss) as
a percent of sales 4.0% 3.9% 2.0% (2.3)% (1.3)%
Average shares
outstanding 4,649,924 4,592,114 4,556,745 4,553,221 4,549,712
Earnings (loss) per share:
Earnings (loss) before
extraordinary tax
credit and cumulative
effect of change in
accounting principle $ 2.04 1.68 .83 (1.26) (.61)
Extraordinary tax
credit $ -- .55 .19 -- --
Cumulative effect of
change in accounting
principle $ .33 -- -- -- --
Net earnings (loss)
per share $ 2.37 2.23 1.02 (1.26) (.61)
Return on average
stockholders'
investment 12.6% 13.4% 6.7% (8.2)% (3.9)%
Dividends per share $ -- -- -- .06 .12
Capital expenditures,
net $ 23,357 19,023 8,247 17,057 28,229
Depreciation and
amortization $ 16,720 18,023 16,729 17,325 15,892
- - ---------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 39,395 43,791 33,893 28,027 21,220
Current ratio 1.9 2.2 1.7 1.5 1.4
Total assets $ 193,548 183,219 181,580 193,130 181,850
Long-term debt $ 42,970 50,817 49,808 60,857 48,006
Total debt $ 53,632 58,248 70,180 81,508 74,281
Stockholders'
investment $ 93,476 82,014 71,049 68,190 70,593
Stockholders'
investment per share $ 20.05 17.66 15.56 14.97 15.51
Debt to capital ratio 36.5% 41.5% 49.7% 54.4% 51.3%
Net cash provided by
operating activities $ 28,347 26,871 17,940 17,113 4,870
- - ---------------------------------------------------------------------------
PER EMPLOYEE DATA
Average number of
employees 3,048 2,765 2,846 3,073 3,201
Net sales $ 90,311 96,286 80,334 80,015 65,117
Average assets
employed $ 61,806 65,967 65,831 61,012 53,563
- - ---------------------------------------------------------------------------
<FN>
(1)Operating expenses include a $5,600 provision for restructuring costs.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
FISCAL 1994 VS. FISCAL 1993
In fiscal 1994, the Company established new sales and earnings records
of $275.3 million and $11 million, respectively. Earnings before
extraordinary tax credit and the cumulative effect of change in accounting
principle were also a new record of $9.5 million. This is the Company's
second consecutive year of record sales and earnings.
Consolidated current year net sales of $275.3 million increased 3.4%
from the prior year. Current year domestic sales increased 18% from the
prior year, while international sales decreased 11%. The current year
domestic sales growth is attributable to a stronger overall domestic
market, especially in automotive, and the Company's increased penetration
into the domestic automotive market. On the international front,
approximately half of the 11% current year sales decrease is attributable
to foreign currency translation. The remaining foreign sales decline is
attributable to a slow European economy and price pressures in the computer
marketplace.
Fiscal 1994 sales performance from a business segment perspective is
mixed. Current year sales of the Semiconductor Devices Segment increased
24% from the prior year, also fueled by the Company's increased penetration
into a stronger domestic automotive market. Electromechanical Segment
current year sales increased 6% from the prior year. A 43% sales increase
of electromechanical products to the automotive market in 1994 was offset
by a 14% sales decline of electromechanical products to the non-automotive
markets served. This non-automotive market decline is related to
international operations: 18% related to foreign currency translation and
82% related to a slow European economy. Current year sales of the
Electronic Assemblies and Displays Segment declined 8% from the prior year.
Approximately half of this decline is related to foreign currency
translation since the majority of these products are manufactured and sold
in Europe. The other half of this segment's decline is related to the slow
European economy and the price pressures in the computer market as
previously mentioned.
From a profit perspective, current year operating profit margins
remained virtually unchanged at 6.5% of sales. The current year $1.1
million increase in operating profit is therefore the result of increased
sales.
By examining the components making up operating profit (gross margin
and operating expenses), it is apparent that both components as a percent
of sales are virtually unchanged from the prior year. This steadiness is
evident in both domestic and international operations. On the
international front, gross margin and operating expenses as a percent of
sales remained virtually unchanged despite slow sales and price pressures.
On the domestic front, the gross margin and operating expenses as a percent
of sales were maintained despite start-up costs associated with increased
production levels, higher engineering demands, and changes in the market
and product mix, as the Company moves more into the automotive market.
<PAGE>
Operating profit margins from a business segment perspective were also
virtually unchanged. Operating profit margins in the Electronic Assemblies
and Displays Segment declined to 2.2% versus 2.7% in the prior year. This
decline is the result of an 8% current year sales decline and severe price
pressures.
The Semiconductor Devices Segment continues to be the Corporation's
leader in sales growth, operating profit margins and return on investment.
In the current year, operating profit margins reached 12.6% of sales,
compared to last year's record 12.1% of sales. High factory utilization
and productivity improvements are largely responsible for these strong
results. This segment continues to produce at close to capacity and is
currently expanding its capacity to meet future demands.
The 7.2% current year operating profit margins for the
Electromechanical Segment are virtually unchanged from the prior year.
This was accomplished in the face of dramatic changes in the markets this
business segment serves and in geographic sales. As previously mentioned
, this segment's current year sales to the automotive market increased 43%,
while the non-automotive market sales declined 14%.
Other income of $1.3 million in the current year increased $.7 million
from the prior year. This increase is primarily attributable to foreign
currency transaction gains. The Corporation has significant activity in
different currencies. Although the Corporation manages the currency risk
associated with this activity, some foreign currency transaction gains and
losses can be expected.
Current year interest expense of $3.9 million is down $1.5 million
from last year. This is attributable to lower domestic and foreign
borrowing rates and reduced overall borrowing. Borrowing rates are lower
because of the overall environment and the Corporation's continually
improving performance.
The ordinary effective tax rate for fiscal 1994 is 37.5%, versus 35.3%
for fiscal 1993. The change in rate is primarily due to higher domestic
state income taxes.
In the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income
Taxes." In accordance with the provisions of SFAS 109, the Company
recognized tax assets principally related to the expected benefit of future
tax deductions for expenses previously recorded for financial reporting
purposes. The resulting $1.5 million benefit was recorded in the income
statement and is reported as a cumulative effect of a change in accounting
principle.
The extraordinary tax credit for fiscal 1993 and 1992 resulted from
the utilization of net operating loss carryforwards, primarily from
domestic operations, in accordance with the provisions of Accounting
Principles Board Opinion No. 11.
<PAGE>
FISCAL 1993 VS. FISCAL 1992
Consolidated fiscal 1993 net sales increased approximately 16% and set
a new record of $266.2 million for the Corporation. The sales increase by
segment was 25% for the Semiconductor Devices Segment, 16% for the
Electromechanical Segment and 14% for the Electronic Assemblies and
Displays Segment. By geographic areas the Corporation experienced a 25%
increase domestically and a 9% increase internationally. The significant
domestic increase is primarily attributable to the automotive market,
although all domestic markets showed improvement over the prior year. The
automotive market increase is the result of increased market penetration
and greater content per vehicle. The other market increases are due to
improved markets and increased market share. Foreign currency translation
effects also contributed to approximately 60% of the 9% increase in
international sales. International sales continue to suffer from the
recession in Europe. This is especially true in the appliance and
automotive markets. The computer market, however, has shown improvement
even in the face of this recession.
Consolidated gross margins improved from the prior year by 2%. This
can be attributed to increased volume, continued cost control and improved
manufacturing execution. This margin improvement occurred in the face of
price pressure, especially on the computer keyboard front.
Consolidated operating expenses increased 11% while sales improved
16%. The lower percentage increase in operating expenses is attributable
to economies of scale and continued efforts at more efficient means of
administration. This is evidenced by the fact that the administrative
expense increase was only 7%, while the engineering expense increase was
14% and the sales expense increase was 13%. With the new business the
Corporation has been awarded in fiscal 1993, increases to sales and
engineering were needed to meet customers' expectations and to maintain our
momentum of new product introductions. If the effects of changes from
currency translation were eliminated, the consolidated operating expense
increase would have been 8% not 11%.
As a result of these factors, operating profit increased to 6.3% of
sales from the prior year's 2.9%. From a business segment standpoint,
operating profit improved in both amount and percent of sales. The
Semiconductor Devices Segment achieved an operating profit of 12.1% of
sales for fiscal 1993, compared to 8.3% for the prior year. The Electronic
Assemblies and Displays Segment achieved an operating profit of 2.7% of
sales from a loss of 3.4%. The Electromechanical Devices Segment achieved
an operating profit of 7.4% which approximated the prior year's 7.3%. The
significant improvement in the Semiconductor Devices Segment operating
profit is attributable to volume and improved production efficiencies. The
improvement in the Electronic Assemblies and Displays Segment profitability
is due to volume, cost control and improved designs.
On a geographic basis, operating profit increased both domestically
and internationally in amount and as a percent of sales. On the domestic
front, the Corporation achieved an operating profit of $11.7 million or 9%
of sales. This represents a 110% increase from the prior year. This is
primarily attributable to the significant domestic sales increase and
continued emphasis on cost control and improved efficiencies.
<PAGE>
The international operating profit was $6.8 million or 5% of sales and
represents a 275% increase from the prior year. This improvement was
accomplished on only a modest increase in sales and results from the
continued emphasis on cost reduction and cost control programs.
Consolidated other income, net of expense, decreased $1.6 million in
fiscal 1993. This results from discontinuance of the investment grant tax
law in Germany, the decrease in income from customer tooling, and the
increase in currency exchange losses.
Consolidated interest expense decreased 9% in fiscal 1993 as a result
of declining international debt and reduced domestic interest rates.
The ordinary effective income tax rate for fiscal 1993 was 35.3%,
versus an ordinary tax benefit of 27.7% in fiscal 1992. In fiscal 1992,
the Corporation recognized a tax benefit when declaring a dividend from its
German subsidiary as a result of a reduction in the dividend withholding
rates.
The extraordinary income tax benefit in fiscal 1993 and 1992 is
primarily the result of domestic net operating loss carryforward usage.
The fiscal 1993 income tax benefit increase is the result of an improvement
in domestic profitability.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1994, the Company continued to reduce its debt to capital
ratio from 41.5% to 36.5%. This was accomplished by a $3.3 million
repayment of consolidated debt and an $11 million increase in stockholders'
investment from current year earnings. The debt reduction resulted from
improved profitability and working capital management. From a geographic
perspective, $1.3 million of the net debt reduction for fiscal 1994
occurred domestically and $2 million internationally.
Domestic operating activities were able to generate sufficient cash to
fund the higher capital needs created by the 18% domestic sales increase in
fiscal 1994. Despite difficult operating conditions, the foreign
facilities also continued to generate sufficient cash from operations to
finance their capital needs.
The Company's capital needs for the immediate future will be working
capital and equipment to support growth, cost reductions and new products.
In addition, more facility space is needed domestically; construction will
begin in the first quarter of fiscal 1995 at both U.S. facilities.
Domestically, the Company amended its revolving credit agreement with
its banks subsequent to year end. The amendments were made to increase
borrowing capacity, improve interest rates and reduce collateral. The
domestic credit facility was increased from $35 million to $45 million.
Interest is at the prime rate or, depending upon the Company's financial
performance, LIBOR plus .75% to 1.25%. The Company also implemented four
separate interest rate cap agreements that protect the Company from
interest rate increases above 5.5% LIBOR on $15 million of floating rate
debt through November 1997 and above 6% LIBOR on $10 million of floating
rate debt through March 1998. The Company also entered into three
uncommitted, unsecured credit facilities totaling $35 million, which are
used when rates available under them are below those available under the
committed facility. With these bank lines of credit and internally
generated cash, the Company should have sufficient funds to finance its
domestic operations for the next several years.
Internationally, the Company's debt is primarily long-term, asset-
based financing at favorable interest rates. In the next few years,
significant amounts of this debt will be coming due. The Company will be
evaluating the merits of refinancing some of these principal repayments on
a long-term basis. At present, the $25 million of short-term, uncommitted
banks lines are sufficient, together with internally generated cash, to
meet these principal repayments and finance the cash needs of the
international operations.
An equity offering is presently under consideration as a means to
increase the Company's financial flexibility. Any decision regarding an
equity offering is subject to further analysis and stock market conditions.
<PAGE>
FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits," when adopted is not expected to be
material.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Cherry Corporation:
We have audited the accompanying consolidated balance sheets of The Cherry
Corporation (a Delaware corporation) and subsidiaries as of the last day of
February, 1994 and 1993, and the related consolidated statements of
earnings, cash flows and stockholders' investment for each of the three
years ended the last day of February 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the acccounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Cherry Corporation
and subsidiaries as of the last day of February, 1994 and 1993, and the
results of their operations and cash flows for each of the three years
ended the last day of February, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note B to the consolidated financial statements, effective
March 1, 1993, the Company changed its method of accounting for income
taxes.
Our audit was made for purposes of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed
in Item 14(a) 2 are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen & Co.
---------------------
Arthur Andersen & Co.
Chicago, Illinois
May 3, 1994
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Year Ended the Last Day of February
(Dollars in thousands except share data) 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
SALES AND COSTS
Net sales $ 275,269 $ 266,231 $ 228,631
Cost of products sold 195,090 189,710 167,981
---------- ---------- ---------
Gross margin 80,179 76,521 60,650
---------- ---------- ---------
EXPENSES
Research and engineering 15,230 14,162 12,380
Distribution 22,843 21,664 19,145
Administration 24,346 24,014 22,477
----------- --------- ---------
Operating expenses 62,419 59,840 54,002
----------- --------- ---------
EARNINGS
Earnings from operations 17,760 16,681 6,648
Interest expense (3,919) (5,383) (5,919)
Other income, net 1,342 636 2,226
----------- --------- ---------
Earnings before income
taxes,extraordinary tax credit and
cumulative effect of change in
accounting principle 15,183 11,934 2,955
Income tax provision (benefit) -
Note B 5,692 4,216 (819)
----------- --------- ---------
Earnings before extraordinary
tax credit and cumulative
effect of change in accounting
principle 9,491 7,718 3,774
Extraordinary tax credit - Note B -- 2,539 891
Cumulative effect of change in
method of accounting for income
taxes - Note B 1,542 -- --
---------- ---------- ---------
Net earnings $ 11,033 $ 10,257 $ 4,665
========== ========== =========
Earnings per share:
Before extraordinary tax credit
and cumulative effect of change in
accounting principle $ 2.04 $ 1.68 $ .83
Extraordinary tax credit -- .55 .19
Cumulative effect of change in
accounting principle .33 -- --
---------- ---------- ---------
Net earnings $ 2.37 $ 2.23 $ 1.02
========== ========== =========
Average shares outstanding 4,649,924 4,592,114 4,556,745
========== ========== =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
The Last Day of February
(Dollars in thousands) 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 2,697 $ 1,331
Receivables, less allowances of $2,330 and
$2,339, respectively 45,016 42,821
Inventories - Note D 34,481 32,091
Income taxes, net 1,154 1,800
Prepaid expenses 931 2,509
---------- ----------
Total Current Assets 84,279 80,552
Land, Buildings & Equipment at Cost:
Land 1,639 1,647
Buildings and improvements 71,770 71,603
Machinery and equipment 154,564 141,980
Construction in progress 7,974 3,498
---------- ----------
235,947 218,728
Less: accumulated depreciation 138,271 125,363
---------- ----------
Total Land, Buildings & Equipment, net 97,676 93,365
Other Assets:
Investment in affiliate and other, net - Note A 11,593 9,302
---------- ----------
Total Assets $ 193,548 $ 183,219
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt - Note E $ 5,736 $ 1,479
Accounts payable 14,243 13,644
Payroll related accruals 8,452 7,904
Other accruals 11,527 7,782
Current maturities of long-term debt - Note E 4,926 5,952
---------- ----------
Total Current Liabilities 44,884 36,761
Long-term debt - Note E 42,970 50,817
Deferred income taxes,net and deferred credits 12,218 13,627
Stockholders' Investment:
Common stock ($1 par value)
Authorized 10,000,000 shares; issued and
outstanding 4,661,099 in 1994 and
4,644,452 in 1993 4,661 4,644
Additional paid-in capital 10,200 9,979
Retained earnings 73,042 62,009
Cumulative translation adjustments 5,573 5,382
---------- ----------
Total Stockholders' Investment 93,476 82,014
---------- ----------
Total Liabilities and Stockholders' Investment $ 193,548 $ 183,219
========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended the Last Day of February
(Dollars in thousands) 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 11,033 $ 10,257 $ 4,665
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 16,720 18,023 16,729
Cumulative effect of change in
accounting principle (1,542) -- --
Charges for restructuring costs (855) (1,611) (2,231)
Loss on sale of land, buildings
and equipment 4 1,572 698
Income from unconsolidated
affiliate (643) (510) (532)
Changes in assets and liabilities:
(Increase) decrease in receivables (2,880) (9,821) 4,167
(Increase) in inventories (2,134) (956) (72)
(Decrease) increase in
accounts payable 784 4,532 (1,691)
(Increase) decrease in
income taxes, net 654 5,687 (8,416)
Increase in
deferred income taxes 1,335 654 3,942
(Increase) decrease in other
working capital, excluding
cash and short-term borrowings 5,871 (956) 681
---------- ---------- ----------
Total adjustments 17,314 16,614 13,275
---------- ---------- ----------
Net cash provided by
operating activities 28,347 26,871 17,940
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of land,
buildings and equipment 28 239 471
Expenditures for land, buildings
and equipment (23,390) (19,456) (9,429)
Other (445) 656 (415)
---------- ---------- ----------
Net cash used by investing
activities (23,807) (18,561) (9,373)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term
borrowings 4,447 (10,537) (210)
Increase in domestic revolver
and uncommitted credit facilities 3,651 3,149 807
Principal payments on long-term
debt (11,383) (10,269) (7,819)
Proceeds from long-term debt -- 5,485 --
Equity and other transactions 238 605 10
---------- ---------- ----------
Net cash used by
financing activities (3,047) (11,567) (7,212)
---------- ---------- ----------
Effect of exchange rate changes on
cash flows (127) 42 (94)
---------- ---------- ----------
Net increase (decrease) in cash and
equivalents 1,366 (3,215) 1,261
Cash and equivalents, at beginning
of year 1,331 4,546 3,285
---------- ---------- ----------
Cash and equivalents, at end of year $ 2,697 $ 1,331 $ 4,546
========== ========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest (net of amount
capitalized) $ 4,041 $ 5,288 $ 6,027
Income taxes (net of refunds) $ 3,703 $ (4,663) $ 2,775
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<CAPTION>
Year Ended the Last Day of February
(Dollars in thousands) 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK ($1 PAR VALUE)
Outstanding at beginning of year $ 4,644 $ 4,567 $ 4,555
Sale of common stock 17 77 12
---------- ---------- ----------
Outstanding at end of year $ 4,661 $ 4,644 $ 4,567
---------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL
Balance of beginning of year $ 9,979 $ 9,452 $ 9,399
Sale of common stock 221 527 53
---------- ---------- ----------
Balance at end of year $ 10,200 $ 9,979 $ 9,452
---------- ---------- ----------
RETAINED EARNINGS
Balance at beginning of year $ 62,009 $ 51,752 $ 47,087
Net earnings 11,033 10,257 4,665
---------- ---------- ----------
Balance at end of year $ 73,042 $ 62,009 $ 51,752
---------- ---------- ----------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance at beginning of year $ 5,382 $ 5,278 $ 7,149
Translation adjustments during year 191 104 (1,871)
---------- ---------- ----------
Balance at end of year $ 5,573 $ 5,382 $ 5,278
---------- ---------- ----------
TOTAL STOCKHOLDERS' INVESTMENT $ 93,476 $ 82,014 $ 71,049
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data and as otherwise stated)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Investments in 50% owned affiliates are
accounted for on the equity method. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Investment in Affiliates
The investment in a 50% owned affiliate in Japan is accounted for on the
equity method. Retained earnings at February 28, 1994, includes $ 6,221
which represents the Company's share of the undistributed earnings of this
unconsolidated affiliate. On February 15, 1994, the Company announced the
formation of a 50-50 joint venture in India. The investment, to be made in
fiscal 1995, will be accounted for on the equity method.
Cash and Equivalents
Cash and equivalents consist of cash and highly liquid securities with
maturities of three months or less. The carrying amount approximates fair
value.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 37% and 34% of
the Company's inventories as of the last day of February 1994 and 1993,
respectively. For the remaining inventories, cost is determined by the
first-in, first-out (FIFO) method. Inventory costs include material, labor
and manufacturing overhead.
Land, Buildings & Equipment
Land, buildings and equipment are carried at cost or, in the case of
capitalized leases, at the lower of the present value of minimum lease
payments or the fair value of the leased property. For financial reporting
purposes, depreciation expense is provided on a straight-line basis, using
estimated useful lives of 5 to 50 years for buildings and improvements, and
3 to 12 years for machinery and equipment. Accelerated methods have been
used for tax purposes when appropriate.
Expenditures for maintenance, repairs and renewals of minor items are
charged to expense as incurred. Major renewals and improvements are
capitalized. Upon disposition, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss
is reflected in earnings for the period.
<PAGE>
Income Taxes
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." Provision is
made for the income tax effects of all transactions in the consolidated
statements of earnings to the extent required.
The provision for income taxes includes federal, foreign, state and
local income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax bases of
assets and liabilities.
The undistributed earnings of the United Kingdom subsidiary and Japanese
affiliate will continue to be invested indefinitely. Federal income taxes
on distribution of these earnings, if any, would not be significant.
Currency Translation
Foreign entity financial statements are translated to U.S. dollars in
accordance with SFAS No. 52 "Foreign Currency Translation." Assets and
liabilities of foreign operations are translated into U.S. dollars at year-
end rates of exchange. Profit and loss items are translated at the average
exchange rates prevailing during the year. Resulting translation
adjustments are reported separately in Stockholders' Investment, net of
interperiod tax allocations.
The Company selectively enters into forward contracts in its management
of foreign currency transaction exposures. Gains or losses on forward
contracts designated to hedge a foreign currency transaction are included
in the measurement of income. At February 28, 1994, the Company had no
forward contracts outstanding.
Earnings Per Share
Earnings per share is computed based on the average number of shares of
common stock outstanding during each year. Stock options are not dilutive
and therefore were excluded from the computation of earnings per share.
Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation.
<PAGE>
NOTE B: INCOME TAXES
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which
requires the use of the liability method of accounting for deferred income
taxes. As of March 1, 1993, the cumulative effect of the change was a
deferred tax benefit of $1,542, or $.33 per share, related primarily to
recognition of the benefit of net operating loss carryforwards. The
results presented for 1993 and 1992 are prepared under Accounting
Principles Board Opinion No. 11, using the deferred method.
<TABLE>
<CAPTION>
Year ended the last day of February 1994 1993 1992
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes, extraordinary
tax credit and cumulative
effect of accounting change:
United States $ 10,683 $ 7,613 $ 2,309
Foreign 4,500 4,321 646
- - --------------------------------------------------------------------------
</TABLE>
<TABLE>
Provisions for Income Taxes: Liability Deferred Deferred
method method method
- - --------------------------------------------------------------------------
<CAPTION>
Year ended the last day of February: 1994 1993 1992
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal and state $3,648 $1,151 $ 298
Foreign 1,219 851 (5,866)
--------- --------- ---------
Current provision (benefit) 4,867 2,002 (5,568)
--------- --------- ---------
Deferred:Federal and state 536 (794) --
Foreign 289 469 3,858
--------- --------- ---------
Deferred provision (benefit) 825 (325) 3,858
--------- --------- ---------
Utilization of operating loss
carryforwards -- 2,539 891
--------- --------- ---------
Total income tax provision (benefit) $5,692 $4,216 $ (819)
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
Provisions for Deferred Income Taxes:
Liability Deferred Deferred
method method method
- - --------------------------------------------------------------------------
<CAPTION>
Year ended the last day of February: 1994 1993 1992
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Tax over book depreciation $ 599 $ 149 $ 282
Product line consolidation (240) (253) 433
Reversal of previously recorded
benefit on undistributed earnings -- -- 3,211
Foreign tax on undistributed earnings (35) (18) 131
Inventory reserves (147) (157) (87)
Utilization of tax credits 1,051 340 269
Intercompany profit in inventory 109 (110) 332
Reinstatement of deferred taxes -- 341 6
Warranty reserves (14) (16) (222)
Valuation reserves (301) -- --
Other items, net (197) (601) (497)
--------- --------- ---------
Deferred provision (benefit) $ 825 $ (325) $3,858
- - --------------------------------------------------------------------------
</TABLE>
Reconciliations of the differences between income taxes computed at federal
statutory tax rates and the consolidated provisions for income taxes are as
follows:
<TABLE>
<CAPTION>
Year ended the last day of February 1994 1993 1992
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at federal
statutory tax rates $5,162 $4,058 $1,005
Equity in earnings of
unconsolidated affiliate (217) (173) (181)
Foreign tax differentials 194 296 (187)
Withholding tax rate reduction coincident
with repatriation of foreign earnings -- -- (1,799)
Current taxation of unremitted foreign
earnings, net of foreign tax credit (170) (340) --
State tax provisions, net of
federal benefits 663 381 127
Other, net 60 (6) 216
--------- --------- ---------
Consolidated provision (benefit) $5,692 $4,216 $ (819)
- - --------------------------------------------------------------------------
</TABLE>
The income tax provision (benefit) for the years ended the last day of
February 1993 and 1992 represent the charge (benefit) for income taxes that
would have been required had the Company not been able to utilize operating
loss carryforwards. The tax benefits of $2,539 and $891 for 1993 and 1992,
respectively, resulting from utilizing loss carryforwards, are presented as
extraordinary items.
<PAGE>
At February 28, 1994, the Company has pre-merger U.S. NOL carryforwards
of $2,142 which expire in 1999 and 2000. The Company also has foreign tax
credit carryforwards of $1,250 which expire in the years 1995 to 1998, and
are available to reduce future taxes.
In fiscal 1993, the Company's German subsidiary declared a stock
dividend of $19,760 which resulted in a tax benefit from refundable taxes
of $6,372 from the German government partially offset by withholding taxes
of $1,087. In fiscal 1992, the Company realized a book benefit of $1,976
as a result of the reduction in the Treaty withholding tax rate. Also in
1992, the Company realized a German tax benefit of $1,208 from net
operating loss carrybacks to 1991.
The net current and noncurrent components of deferred income taxes
recognized in the balance sheet at February 28, 1994 follows:
<TABLE>
<CAPTION>
1994
- - --------------------------------------------------------------------------
<S> <C>
Net noncurrent liabilities $12,591
Net current assets 5,477
---------
Net liability $ 7,114
---------
</TABLE>
The amounts above include a valuation allowance of $2,253 relating
primarily to noncurrent tax assets for net operating loss and foreign tax
credit carryforwards due to the uncertainty of realizing the benefit of the
carryforwards. The net change in the valuation allowance for deferred tax
assets was a decrease of $324 which relates primarily to benefits arising
from the use of foreign tax credit carryforwards.
The tax effects of the significant temporary differences which comprise
the deferred tax liabilities and assets at February 28, 1994, follows:
<TABLE>
<CAPTION>
1994
- - --------------------------------------------------------------------------
<S> <C>
Liabilities:
Depreciation $ 7,272
Foreign currency translation 2,942
Other 2,377
---------
Gross deferred tax liabilities 12,591
---------
Assets:
Reserves 1,936
Undistributed earnings of foreign subsidiaries 1,349
Nondeductible accruals 785
Pre-merger U.S. NOL carryforward 728
Foreign tax credit carryforward 1,250
Other 1,682
Valuation allowance for deferred tax assets (2,253)
---------
Net deferred tax assets 5,477
---------
Net deferred tax liability $ 7,114
==========================================================================
</TABLE>
<PAGE>
NOTE C: SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year Ended the Last Day
of February 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Costs and Expenses
Depreciation and amortization $ 16,720 $ 18,023 $ 16,729
Research and development 10,424 9,102 8,083
Advertising 3,075 2,966 2,537
Maintenance and repairs 2,937 2,791 2,422
Rentals 1,782 2,087 3,400
Taxes other than payroll
and income taxes 834 902 949
===========================================================================
Other Income (Expense)
Earnings of affiliate $ 643 $ 510 $ 532
Interest income and net royalties 99 160 164
Foreign exchange 46 (457) 243
Other, net 554 423 1,287
- - ---------------------------------------------------------------------------
Total other income, net $ 1,342 $ 636 $ 2,226
===========================================================================
</TABLE>
- - ---------------------------------------------------------------------------
NOTE D: INVENTORIES
<TABLE>
<CAPTION>
The Last Day of February 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Inventories
Raw materials $ 3,270 $ 3,036
Component parts 7,627 7,251
Work-in-process 12,114 10,570
Finished goods 11,470 11,234
- - ---------------------------------------------------------------------------
Total inventories $ 34,481 $ 32,091
- - ---------------------------------------------------------------------------
Excess of replacement cost over the
stated value of LIFO inventories $ 4,270 $ 4,568
- - ---------------------------------------------------------------------------
</TABLE>
<PAGE>
- - ---------------------------------------------------------------------------
NOTE E: DEBT
<TABLE>
<CAPTION>
The Last Day of February 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Short-term Debt:
(With foreign banks)
Bank loans outstanding $ 5,736 $ 1,479
Weighted average interest rate 6.6% 11%
- - ---------------------------------------------------------------------------
During the Year
Maximum month-end borrowings $ 6,566 $ 11,847
Average month-end borrowings $ 4,546 7,445
Weighted average interest rate 7.6% 11.2%
===========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Last Day of February 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Long-term Debt
Foreign obligations:
Construction, mortgage and equipment loans
(at 4% to 9.05%, secured by real estate
in the amount of $ 30,262
in the Federal Republic of Germany) due
in periodic installments through 2012 $ 22,403 $ 28,895
Capital lease obligations payable in
installments through fiscal 1997
with a weighted average interest
rate of 12% 2,641 3,772
Domestic obligations:
Notes payable (at an interest rate of 10%)
secured by domestic accounts receivable,
inventory, equipment and real estate
(paid off on March 16, 1993) -- 4,500
Borrowings under revolving credit agreement
with interest at LIBOR plus 1.50% or prime
rate, secured by domestic accounts
receivable, inventory, equipment and
real estate (with interest at 5.75% at
February 28, 1994) 1,800 18,149
Borrowings under uncommitted, unsecured
credit facilities with interest at LIBOR
plus .75% (weighted average interest of
4.06% at February 28, 1994) 20,000 --
Capital lease obligations payable in
installments through 1996 with a weighted
average interest rate of 7.1% at
February 28, 1994 1,052 1,453
- - ---------------------------------------------------------------------------
47,896 56,769
Less current maturities 4,926 5,952
- - ---------------------------------------------------------------------------
Long-term debt $ 42,970 $ 50,817
- - ---------------------------------------------------------------------------
</TABLE>
The following payments, exclusive of capitalized lease payments, are
required during the next five fiscal years: 1995 - $ 3,694; 1996 - $
11,151; 1997 - $ 24,387; 1998 - $ 1,424; 1999 - $ 1,424.
Terms of the German long-term debt agreements contain certain provisions
restricting payment of dividends to the parent. Included in retained
earnings are $29,022 of undistributed earnings of the German subsidiaries.
<PAGE>
Subsequent to year end, the Company amended its domestic credit facility
and increased the borrowing limit from $35 million to $45 million. The
facility is secured by domestic accounts receivable and inventory; however,
borrowings are not dependent upon the level of collateral. The interest
rate on this amended agreement is the prime rate or, depending upon the
Company's financial performance, LIBOR plus .75% to 1.25%. The commitment
fee is also dependent upon the Company's financial performance and ranges
from 1/5 of 1% to 3/10 of 1% on the unused portion. The facility has an
initial maturity of March 31, 1997, but may be extended for an additional
year on both the first and second anniversary dates upon mutual agreement
of the Company and the banks.
The covenants for this amended credit facility pertain to consolidated
and domestic net worth levels, consolidated and domestic debt to capital
ratios, domestic cash flow coverage and domestic cash flow to debt levels,
among others. Additionally, this facility limits the Company's domestic
borrowings to $45 million. The Company was in compliance with all
covenants under all credit agreements at February 28, 1994.
During the current fiscal year, the Company entered into three
uncommitted, unsecured credit facilities totaling $35 million. These
facilities are utilized when the borrowing rates available under them are
below those available under the committed facility. Borrowings under these
facilities, which by their terms are due within one year, have been
classified as long-term. These obligations are supported by unused
commitments under the domestic credit facility, and it is the Company's
intent to maintain them as long-term.
The Company is party to four separate interest rate cap agreements.
Under two agreements, the Company is protected against interest rate
increases above 5.5% LIBOR on $15 million of floating rate debt through
November 1997. Under the other agreement, the Company is protected against
interest rate increases above 6.0% LIBOR on $10 million of floating rate
debt through March 1998. The aggregate cost of these four agreements was
$600.
As of February 28, 1994, the Company had unused lines of credit available
for working capital of approximately $13.2 million for U.S. operations and
$19.2 million for foreign operations.
The fair value of the Company's long-term debt, excluding capital leases,
at February 28, 1994, was estimated to be $43.8 million. This estimate is
based on the current rates available to the Company for debt of the same
remaining maturities, using the discounted cash flow method.
- - --------------------------------------------------------------------------
<PAGE>
NOTE F: LEASES
The Company leases land, automobiles, machinery and equipment under non-
cancellable operating leases which expire over the next twenty-six years.
Renewal and escalation clauses are not significant.
During fiscal 1993, the Company's German subsidiary entered into a capital
lease agreement for substantially all of its computer equipment valued at
$5,337.
Land, buildings and equipment include capitalized leases of $7,419 and
$7,662 less accumulated amortization of $3,244 and $2,289 as of the last
day of February 1994 and 1993, respectively.
Future minimum lease payments under capitalized and long-term non-
cancellable operating leases are as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
Capitalized Operating
Leases Leases
- - ---------------------------------------------------------------------------
<S> <C> <C>
1995 $1,560 $1,448
1996 1,784 1,156
1997 920 500
1998 -- 303
1999 -- 161
Thereafter -- 436
- - ---------------------------------------------------------------------------
Total minimum lease payments $4,264 $4,004
Less amount representing interest 571 ======
- - ---------------------------------------------------------
Total obligations under capitalized leases $3,693
- - ---------------------------------------------------------------------------
</TABLE>
- - ---------------------------------------------------------------------------
NOTE G: CONTINGENCIES
The Company is named in various suits and claims which arise in the normal
course of business. Where appropriate, the Company engages legal counsel
and disputes these claims. The Company believes that it has meritorious
defenses, and, although the ultimate outcomes cannot be determined at the
present time, it believes the final disposition of these matters will not
materially affect the Company's financial position or results of
operations. The Company has no material off-balance-sheet financial risks.
- - ---------------------------------------------------------------------------
<PAGE>
NOTE H: EMPLOYEE BENEFIT PLANS
Stock Option Plan
The Company's existing incentive stock option plan was established in June
1982 by stockholder approval and reserved 225,000 shares for distribution.
Under United States tax law, this plan's capability to grant new incentive
stock options has expired. As a result, this plan may grant only non-
qualified stock options after June 1992. Prior to the expiration of the
incentive option granting capability, 28,700 options were granted at $15.00
in fiscal 1993. As of February 28, 1994, 65,613 shares are available for
grant.
The following table summarizes the transactions pursuant to the Company's
stock option plan for the three-year period ended February 28, 1994:
<TABLE>
<CAPTION>
Number
of Shares Option Prices
--------- ---------------
<S> <C> <C>
Options outstanding at February 28, 1991 141,000 $8.25 to $18.25
Granted 63,000 7.50
Cancelled (2,000) 8.75
Expired (72,575) 12.375
-------
Options outstanding at February 29, 1992 129,425 7.50 to 18.25
Granted 28,700 15.00
Cancelled (3,000) 8.25 to 18.25
Expired (4,775) 14.75
Exercised (58,823) 7.50 to 18.25
-------
Options outstanding at February 28, 1993 91,527 7.50 to 18.25
Cancelled (4,367) 7.50 to 8.75
Expired (250) 18.25
Exercised (8,967) 7.50 to 15.00
-------
Options outstanding at February 28, 1994 77,943 7.50 to 15.00
=======
Exercisable at February 28, 1994 43,978 7.50 to 15.00
</TABLE>
Employee Stock Purchase Plan
Full-time domestic employees as of December 1 of the preceding calendar
year are eligible to contribute 10% of their calendar year base pay up to a
maximum of five thousand dollars towards the purchase of the Company's
common stock. The purchase price is equal to the lower of 95% of the
beginning or end-of-calendar-year quoted NASDAQ price. Under the plan,
7,680, 18,718 and 12,027 shares were issued at $19.95, $5.46 and $5.46 per
share during fiscal 1994, 1993 and 1992, respectively. At February 28,
1994, 124,630 shares are available for issuance under the plan.
<PAGE>
Bonus, Profit Sharing and Retirement Plans
The Company and its operating entities have various bonus, profit sharing
and retirement plans. The Company's bonus plans cover qualified management
employees. The payouts of these bonus plans are based on attainment of
operating results and other key performance goals. The established Company
profit sharing plans cover substantially all employees for an operating
entity. Domestically, the profit sharing plan is qualified under Section
401(k) of the Internal Revenue Code. It allows for employee contributions
and employer contributions. For foreign operations, the profit sharing
plans provide for the payment of a defined percent of wages. Certain key
foreign employees are eligible for a one-time lump sum payment on
retirement or involuntary termination, the amounts of which are accrued
over the employee's estimated service. During fiscal 1994, 1993 and 1992,
the expenses for these plans were $3,654, $2,717 and $1,712, respectively.
Future Accounting Changes
Statement of Financial Accounting Standards (SFAS) No. 112 "Employers'
Accounting for Postemployment Benefits," when adopted is not expected to be
material.
- - ---------------------------------------------------------------------------
<PAGE>
NOTE I: SEGMENT INFORMATION
Business Segment Information
The Company manufactures and distributes a wide range of industrial
component parts.
Identifiable assets report only the assets used in the operation of that
business segment. All other assets are shown separately as corporate
assets. Corporate assets include cash, other current and noncurrent assets
and the Company's investment in the unconsolidated affiliate.
The principal segments are:
Electromechanical Devices:
Snap-action, selector and automobile special use switches principally
for use in automobiles, home appliances, office and industrial
equipment, and vending machines.
Electronic Assemblies and Displays:
Keyboards, keyboard switches, gas discharge displays, and
automotive electronics for use in a variety of products, including
data entry terminals, automobiles, industrial and commercial control
devices, business machines and amusement products.
Semiconductor Devices:
Principally linear integrated circuits for use in automotive, computer
and industrial control equipment.
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
Electro- Electronic Semi-
Mechanical Assemblies conductor Corporate Consol-
Fiscal Year Devices & Displays Devices and Other idated
- - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Net sales $118,057 $101,461 $ 55,751 $275,269
Earnings from
operations 8,550 2,190 7,020 17,760
Identifiable assets 71,527 68,537 36,661 $ 16,823 193,548
Depreciation and
amortization 7,065 6,595 2,997 63 16,720
Additions to land,
buildings and
equipment, net 11,243 5,087 7,026 23,356
- - ---------------------------------------------------------------------------
1993
Net sales $111,130 $110,178 $ 44,923 $266,231
Earnings from
operations 8,279 2,951 5,451 16,681
Identifiable assets 70,433 69,514 29,474 $ 13,798 183,219
Depreciation and
amortization 7,488 7,731 2,741 63 18,023
Additions to land,
buildings and
equipment, net 7,583 7,545 4,149 (254) 19,023
- - ---------------------------------------------------------------------------
1992
Net sales $ 96,108 $ 96,502 $ 36,021 $228,631
Earnings(loss) from
operations 6,971 (3,307) 2,984 6,648
Identifiable assets 61,599 71,825 25,765 $ 22,391 181,580
Depreciation and
amortization 6,815 7,071 2,843 16,729
Additions to land,
buildings and
equipment, net 3,858 3,628 761 8,247
- - ---------------------------------------------------------------------------
</TABLE>
<PAGE>
Geographic Area Information
Intercompany sales between geographic areas are made at prices
approximating market and are eliminated from total net sales. No single
customer accounts for more than 10% of net sales. The Company's
international operations are conducted principally in Western Europe
through wholly owned subsidiaries and in Hong Kong and Australia through
sales offices.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
United Eliminations
Fiscal Year States International & Corporate Consolidated
- - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net sales $ 155,647 $ 119,622 $ 275,269
Transfers between areas 1,714 17,534 $ (19,248)
Total net sales 157,361 137,156 (19,248) 275,269
Earnings (loss) from
operations 15,130 4,571 (1,941) 17,760
Identifiable assets 84,388 92,337 16,823 193,548
- - ---------------------------------------------------------------------------
1993
Net sales $ 131,477 $ 134,754 $ 266,231
Transfers between areas 1,803 17,215 $ (19,018)
Total net sales 133,280 151,969 (19,018) 266,231
Earnings (loss) from
operations 11,725 6,800 (1,844) 16,681
Identifiable assets 70,320 99,101 13,798 183,219
- - -------------------------------------------------------------------------
1992
Net sales $ 105,380 $ 123,251 $ 228,631
Transfers between areas 2,120 13,634 $ (15,754)
Total net sales 107,500 136,885 (15,754) 228,631
Earnings (loss) from
operations 5,581 1,812 (745) 6,648
Identifiable assets 56,727 102,462 22,391 181,580
- - ---------------------------------------------------------------------------
<FN>
Net assets, including intercompany balances, of foreign subsidiaries and
affiliate at year-end were $56,007 (1994), $54,081 (1993), and $52,479
(1992).
</TABLE>
<PAGE>
<TABLE>
- - ---------------------------------------------------------------------------
Quarterly Data (Unaudited)
- - --------------------------------------------------------------------------
<CAPTION>
Net Gross Net Earnings
Fiscal Year Sales Margin Earnings Per Share
- - --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $275,269 $80,179 $11,033 $2.37
- - --------------------------------------------------------------------------
Quarters:
Fourth 70,879 22,589 3,738 .80
Third 72,954 21,321 3,057 .66
Second 61,805 16,166 461 .10
First 69,631 20,103 3,777 .81
- - --------------------------------------------------------------------------
1993 $266,231 $76,521 $10,257 $2.23
- - --------------------------------------------------------------------------
Quarters:
Fourth 66,203 18,403 2,128 .45
Third 69,206 19,523 2,684 .59
Second 63,288 18,523 2,285 .50
First 67,534 20,072 3,160 .69
- - --------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification and information as to Directors is incorporated by reference
to the information under the caption "Election of Directors" in the
Company's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Information concerning the executive officers is set forth at the end of
Item 1 in Part I hereof under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation under the caption
"Compensation" in the Company's Proxy Statement for its 1994 Annual Meeting
of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management is set forth under the caption "Stock Ownership" in the
Company's Proxy Statement for its 1994 Annual Meeting of Stockholders and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Peter B. Cherry, the Chairman of the Board and President, is the son of Mr.
and Mrs. Walter L. Cherry. There are no other family relationships.
The information set forth under the captions "Employment Contracts and
Change of Control Agreements" and "Compensation Committee Interlocks and
Insider Participation" in the Company's Proxy Statement for its 1994 Annual
Meeting of Stockholders is incorporated herein by reference.
<PAGE>
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Page
(a) 1. FINANCIAL STATEMENTS See Part II
(a) 2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants See Part II
V. Land, Buildings and Equipment S-2
VI. Accumulated Depreciation and Amortization
of Buildings and Equipment S-3
VIII. Valuation and Qualifying Accounts S-4
IX. Short-term Bank Borrowings S-5
All other schedules are omitted because they are not applicable,
not required under the instructions, or the information is
included in the financial statements or notes thereto.
Separate financial statements for the Registrant's
unconsolidated fifty percent owned affiliate, accounted
for by the equity method, have been omitted because
the affiliate does not constitute a significant subsidiary.
(a) 3. EXHIBITS See Index to Exhibits
(b). REPORTS ON FORM 8-K
There were no reports on Form 8-K filed in the
last quarter of the Registrant's fiscal year
ended the last day of February 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE CHERRY CORPORATION
By Peter B. Cherry By Dan A. King
------------------------------- -------------------------------
Peter B. Cherry Dan A. King
Chairman of the Board, President Treasurer, Secretary and
and Director Corporate Controller
By Walter L. Cherry By Thomas L. Martin, Jr.
------------------------------- -------------------------------
Walter L. Cherry Dr. Thomas L. Martin, Jr.
Director Director
By Alfred S Budnick By Robert B. McDermott
-------------------------------- -------------------------------
Alfred S. Budnick Robert B. McDermott
Vice President, President Director
Cherry Semiconductor Corporation
and Director
By Peter A. Guglielmi By Charles W. Denny
-------------------------------- -------------------------------
Peter A. Guglielmi Charles W. Denny
Director Director
Dated May 20, 1994
-------------------------
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE V - LAND, BUILDINGS AND EQUIPMENT
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993, and 1992
(Dollars in Thousands)
<CAPTION>
Balance Other Balance
Beginning Additions Debits Close
Classification of Period at Cost Retirements (Credits) of Period
<S> <C> <C> <C> <C> <C>
1994
Land $ 1,647 $ -- $ -- $ (8) $ 1,639
Buildings and
Improvements 71,603 2,120 -- (1,953) 71,770
Machinery and
Equipment 141,980 16,720 (830) (3,306) 154,564
Construction
in Progress 3,498 4,550 -- (74) 7,974
-------- ------- -------- -------- --------
$218,728 $23,390 $ (830) $ (5,341) $235,947
======== ======= ======== ======== ========
1993
Land $ 1,718 $ -- $ (4) $ (67) $ 1,647
Buildings and
Improvements 71,589 470 (106) (350) 71,603
Machinery and
Equipment 131,949 17,210 (6,019) (1,160) 141,980
Construction
in Progress 1,727 1,776 -- (5) 3,498
-------- ------- -------- -------- --------
$206,983 $19,456 $(6,129) $(1,582) $218,728
======== ======= ======== ======== ========
1992
Land $ 1,771 $ 15 $ -- $ (68) $ 1,718
Buildings and
Improvements 75,334 214 (35) (3,924) 71,589
Machinery and
Equipment 130,256 11,133 (4,402) (5,038) 131,949
Construction
in Progress 4,056 (1,933) (132) (264) 1,727
-------- ------- ------- ------- --------
$211,417 $ 9,429 $(4,569) $(9,294) $206,983
======== ======= ======== ======== ========
<FN>
NOTE: Other Debits (Credits) include the translation effects resulting
from applying S.F.A.S. 52 to our financial statements for all three years
in this schedule.
</TABLE>
S-1
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
BUILDINGS AND EQUIPMENT
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 and 1992
(Dollars in Thousands)
<CAPTION>
Balance Charges Other Balance
Beginning to (Debits) Close
Classification of Period Expense Retirements Credits of Period
<S> <C> <C> <C> <C> <C>
1994
Buildings and
Improvements $ 20,908 $ 2,502 $ -- $ (454) $ 22,956
Machinery and
Equipment 104,455 14,209 (797) (2,552) 115,315
-------- -------- -------- -------- --------
$125,363 $ 16,711 $ (797) $ (3,006) $138,271
======== ======== ======== ======== ========
1993
Buildings and
Improvements $ 18,570 $ 2,504 $ (106) $ (60) $ 20,908
Machinery and
Equipment 95,474 15,435 (4,214) (2,240) 104,455
-------- -------- -------- -------- --------
$114,044 $ 17,939 $ (4,320) $(2,300) $125,363
======== ======== ======== ======== ========
1992
Buildings and
Improvements $ 16,728 $ 2,421 $ (34) $ (545) $ 18,570
Machinery and
Equipment 88,648 14,137 (3,353) ( 3,958) 95,474
-------- ------- -------- -------- --------
$105,376 $16,558 $ (3,387) $ (4,503) $114,044
======== ======= ========= ========= ========
<FN>
NOTE: Other (Debits) Credits include the translation effects resulting
from applying S.F.A.S. 52 to our financial statements for all three years
in this schedule. Fiscal 1992 includes an additional provision of $400 to
write-down certain equipment to current estimated market values and charges
(debits) to net realizable value reserves of $1,022 for related assets
retired during 1992. Fiscal 1993 includes charges (debits) to the net
realizable value reserves of $1,374 for related assets retired during the
year.
</TABLE>
S-2
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 and 1992
(Dollars in Thousands)
<CAPTION>
Balance Balance
Beginning Charged to Additions Close of
of Period Expense (Deductions) Period
---------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
1994 $ 2,339 $ 255 $ (264) $ 2,330
======= ======= ======== =======
1993 $ 1,938 $ 736 $ (335) $ 2,339
======= ======= ======== =======
1992 $ 1,709 $ 569 $ (340) $ 1,938
======= ======= ======== =======
</TABLE>
S-3
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE IX - SHORT-TERM BANK BORROWINGS
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 1994, 1993 and 1992
(Dollars in Thousands)
<CAPTION>
Loans Weighted Average
Last day of February Outstanding Interest Rate
<S> <C> <C>
1994 $ 5,736 6.6%
======= =====
1993 $ 1,479 11.0%
======= =====
1992 $11,639 10.5%
======= =====
<CAPTION>
Maximum Average Weighted Average
Month-end Month-end Interest
Borrowings Borrowings Rates
Year ended last day of
February
<S> <C> <C> <C>
1994 $ 6,566 $ 4,546 7.6%
======= ======= =====
1993 $11,847 $ 7,445 11.2%
======= ======= =====
1992 $19,612 $13,270 10.0%
======= ======= =====
<FN>
The Company's short-term borrowings are denominated in Deutsche Marks.
</TABLE>
S-4
<PAGE>
THE CHERRY CORPORATION
INDEX TO EXHIBITS
3. a. Certificate of Incorporation as amended and restated (1).
b. By-laws (1).
4. a. Second Amended and Restated Credit Agreement as of May 9, 1994
among The Cherry Corporation, Continental Bank N.A., Harris Trust
and Savings Bank and Harris Trust and Savings Bank as agent,
filed as Exhibit 4.a. to Form 8-K dated May 18, 1994 and is
incorporated herein by reference.
b. Other instruments defining the rights of holders of other long-
term term debt of the Registrant are not filed as exhibits
because the debt authorized under any such instrument does not
exceed 10% of consolidated total assets as of the last day of
February, 1994. Copies of debt instruments for which the related
debt is less than 10% of consolidated total assets will be
furnished to the Commission upon request.
10. a. Employee Stock Purchase Plan, filed as Exhibit A to the
Registrant's Proxy Statement for 1980 Annual Meeting of
Stockholders is incorporated herein by reference. (2)
b. 1982 Stock Option Plan, filed as Exhibit A to the Registrant's
Proxy Statement for 1982 Annual Meeting of Stockholders is
incorporated herein by reference. (2)
c. Release and final settlement agreement dated May 4, 1992 on
agreement for purchase and sale of assets dated May 31, 1991
filed as Exhibit 10.c. to 1992 Form 10-K is incorporated herein
by reference. (2)
d. Executive agreement dated May 26, 1992, between
Cherry Semiconductor Corporation and Alfred S. Budnick.
filed at Exhibit 4d to 1993 Form 10-K is incorporated
herein by reference. (2)
11. Statement of Computation of earnings per share. (3)
21. Table of Subsidiaries of the Registrant. (3)
23. Consent of independent public accountants. (3)
(1) Included respectively as exhibits 3(b) and 3(c) to Form S-1 (Second
Amendment File No. 2-62065) filed in August, 1978 and is incorporated
herein by reference.
(2) Each exhibit marked constitutes a management contract or compensatory
plan contract or arrangement filed pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
(3) Filed herewith.
<PAGE>
<TABLE>
THE CHERRY CORPORATION Exhibit 11
COMPUTATION OF EARNINGS PER SHARE Page 1 of 2
(In thousands, except Per Share Information)
<CAPTION>
Year Ended Last Day of February
PRIMARY EARNINGS PER SHARE 1994 1993 1992
<S> <C> <C> <C>
Earnings before extraordinary tax credit
and cumulative effect of change in
accounting principle $ 9,491 $ 7,718 $ 3,774
Extraordinary tax credit -- 2,539 891
Cumulative effect of change in
accounting for income taxes 1,542 -- --
------- ------- -----
Net earnings $11,033 $10,257 $ 4,665
======= ======= =======
Weighted average number of
shares outstanding 4,649,924 4,592,114 4,556,745
Primary Earnings per Share:
Before extraordinary tax credit
and cumulative effect of change
in accounting principle $2.04 $1.68 $ .83
Extraordinary tax credit -- .55 .19
Cumulative effect of change in
accounting principle .33 -- --
----- ----- -----
Net earnings $2.37 $2.23 $1.02
===== ===== =====
Additional Primary Computation:
Weighted average shares outstanding
per primary computation above 4,649,924 4,592,114
Add dilutive effect of stock
options determined by
the treasury stock method 44,901 55,975
--------- ---------
Weighted average shares oustanding
as adjusted 4,694,825 4,648,089
========= =========
Primary earnings per share, as adjusted:
Before extraordinary tax credit
and cumulative effect of change
in accounting principle $2.02 $1.66
Extraordinary tax credit -- .55
Cumulative effect of change in
accounting principle .33 --
----- -----
Net earnings (a) $2.35 $2.21
===== =====
<FN>
(a) This calculation is submitted in accordance with Regulation S-K,
item 601 (b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION Exhibit 11
COMPUTATION OF EARNINGS PER SHARE Page 2 of 2
(In thousands, except Per Share Information)
<CAPTION>
Year Ended Last Day of February
FULLY DILUTED EARNINGS PER SHARE 1994 1993 1992
<S> <C> <C> <C>
Earnings before extraordinary tax credit
and cumulative effect of change in
accounting principle $ 9,491 $ 7,718 $ 3,774
Extraordinary tax credit -- 2,539 891
Cumulative effect of change in
accounting for income taxes 1,542 -- --
------- ------- -----
Net earnings $11,033 $10,257 $ 4,665
======= ======= =======
Weighted average number of
shares outstanding 4,649,924 4,592,114 4,556,745
Fully Diluted Earnings per Share:
Before extraordinary tax credit
and cumulative effect of change
in accounting principle $2.04 $1.68 $ .83
Extraordinary tax credit -- .55 .19
Cumulative effect of change in
accounting principle .33 -- --
----- ----- -----
Net earnings $2.37 $2.23 $1.02
===== ===== =====
Additional Fully Diluted Computation:
Weighted average shares outstanding
per fully diluted computation above 4,649,924 4,592,114
Add dilutive effect of stock
options determined by
the treasury stock method 45,951 62,897
--------- ---------
Weighted average shares oustanding
as adjusted 4,695,875 4,655,011
========= =========
Primary earnings per share, as adjusted:
Before extraordinary tax credit
and cumulative effect of change
in accounting principle $2.02 $1.66
Extraordinary tax credit -- .54
Cumulative effect of change in
accounting principle .33 --
----- -----
Net earnings (a) $2.35 $2.20
===== =====
<FN>
(a) This calculation is submitted in accordance with Regulation S-K,
item 601 (b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
<PAGE>
THE CHERRY CORPORATION Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
STATE OR COUNTRY
NAME OF SUBSIDIARY/DIVISION(1) OF ORGANIZATION
- - --------------------------------- ----------------------
Cherry Electrical Products
Waukegan, Illinois State of Delaware
Cherry Semiconductor Corporation
East Greenwich, Rhode Island State of Rhode Island
Cherry Mikroschalter GmbH
Auerbach, Germany Federal Republic of Germany
Cherry Electrical Products Limited
Harpenden, England United Kingdom
Plastech GmbH
Bayreuth, Germany Federal Republic of Germany
Cherry SARL
Paris, France France
Cherry SRO
Ostrov, Czech Republic Czech Republic
Cherasia Limited
North Point, Hong Kong Hong Kong
Cherry Australia Pty., Ltd.
Victoria, Australia Australia
Cherry Systems Corporation
Waukegan, Illinois State of Texas
(1) Cherry Electrical Products is the only division of The Cherry
Corporation. The remaining company's listed above are subsidiaries. All
entities conduct business in the name indicated.
<PAGE>
Consent of Independent Public Accountants Exhibit 23
As independent public accountants, we hereby consent to the incorporation
of our report, included in this Form 10-K, into The Cherry Corporation's
previously filed Registration Statement, File Nos. 2-93004 and 2-68204.
Arthur Andersen & Co.
---------------------
Arthur Andersen & Co.
Chicago, Illinois
May 20, 1994
