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 this fiscal year ended the Last Day of February, 1996
Commission File Number 0-8955
THE CHERRY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2977756
(State of 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: (847) 662-9200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
(Title of Class)
Class B Common Stock
(Title of Class)
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. (X)
The aggregate market value of the registrant's Class A and Class B Common Stock
on April 26, 1996 held by nonaffiliates was approximately $65 million, based on
a calculation that 54% of the shares are owned by nonaffiliates and are valued
at the closing prices as reported on the Nasdaq National Market tier of The
Nasdaq Stock Market on April 26, 1996.
Number of common shares outstanding as of April 30, 1996:
7,610,091 shares of Class A Common
4,728,327 shares of Class B Common
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 1996 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, manufacture and sell
over 3,000 types of proprietary and custom electrical, electronic and
semiconductor components used by a broad range of original equipment
manufacturers (OEM's) and distributors in 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; Cherry Electrical
Products Ltd., United Kingdom; Cherry SARL, France; Cherasia Limited, Hong
Kong; Cherry SRO, Czech Republic; and Cherry Australia Pty., Ltd., Australia.
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.
NARRATIVE DESCRIPTION OF BUSINESS
Cherry has three major business segments:
The Automotive Market segment designs, manufactures and sells semiconductors,
electronic controls and switch assemblies for the automobile industry.
Automobile special-use switches and switch assemblies are used in a variety of
applications including power windows and mirrors, central door locks and cruise
controls. The Company's semiconductor devices are integrated circuits used in
power train controls, body electronics, vehicle control and safety,
instrumentation and entertainment electronics. Its electronic control modules
are used as controls for sunroofs, convertible tops and memory power seats.
These products are custom made for major U.S. and European manufacturers,
including Japanese transplants in North America. The Company's automotive
customers generally pay for the tooling and other special manufacturing
requirements.
The Computer Market segment designs, manufactures and sells keyboards and
related products, semiconductors and switches for computer applications. Cherry
sells standard and specialty keyboards for use with personal computers; data
entry, point-of-sale and reservation terminals; word processing systems; and
other computer input applications. Specialty keyboards include integrated
magnetic card readers, bar code readers or chip card readers. Semiconductors
are used for power management solutions in the computer market and applications
include uninterruptible power sources, tape backup and distributed power
sources. Selector switches are used in addressing peripherals in computer
networks, among other applications.
The Consumer and Commercial Market segment designs, manufactures and sells
switches, semiconductors and electronic controls and displays used in household
appliances, office equipment and cellular telephones. Snap-action switches are
generally manufactured to customer specifications by modifying the Company's
standard products. Switches are used in various appliances, office equipment
and control and measurement device applications. Semiconductor applications
include cellular communications, off-line power supplies and DC/DC converters.
Plasma display products are primarily sold to the enterainment industry as
readouts for electronic games. Electronic controls are used in office equipment
and medical instrumentation.
Inflation has not been a material factor in any segment.
MARKETS, MAJOR CUSTOMERS AND SEASONALITY
Virtually all of the Company's sales are made to original equipment
manufacturers and to independent distributors. In fiscal 1996, sales to the
Company's five largest customers accounted for 36.4% of consolidated sales. Of
these five largest customers, sales to General Motors and Ford were 16.4% and
12.5%, respectively.
Within the Company's Automotive Market segment, four customers account for 73.8%
of the segment sales and include General Motors and Ford mentioned above. In
fiscal 1996, the Consumer and Commercial Market segment has one customer which
accounts for 11.8% of that segment's sales.
The Company normally experiences a slowdown in sales during the summer months
from model changeovers and factory vacation shutdowns by its customers.
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 Semiconductor Corporation sales outside the United States are handled by
Cherry sales representatives or through independent sales representatives and
distributors. 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 are 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.
COMPETITION
The Company does business in highly competitive markets. The Company believes
that it is the second or third largest manufacturer of snap-action switches and
automotive special use switches in North America. In addition, the Company
believes it has a significant market position in the other two markets it
serves. Competitors include a large number of independent domestic and foreign
suppliers. Certain competitors in each of the Company's markets have
substantially greater manufacturing, sales, research and financial resources
than the Company. The Company believes that the principal competitive factors
in its markets are price, product quality and reliability, and the ability to
meet customer delivery requirements and to custom design products to customer
specifications.
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
------------------------
<CAPTION>
(000's Omitted) 1996 1995
--------- ---------
<S> <C> <C>
Automotive Market Segment $ 43,450 $ 46,278
Computer Market Segment 49,159 31,912
Consumer and Commercial Market Segment 41,390 37,817
--------- ---------
$ 133,999 $ 116,007
========= =========
</TABLE>
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. Although patents are important to the Company, Cherry 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 1996, the Company spent
approximately $20,319,000 on product development. The Company spent
approximately $14,841,000 and $10,424,000 on product development in fiscal 1995
and 1994, respectively. The percentage of development expenses reimbursed by
customers was not significant in any of the periods discussed.
EMPLOYEES
As of February 29, 1996, the Company employed 4,399 persons.
ENVIRONMENTAL PROTECTION
The Company believes that its manufacturing operations and properties are in
material 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. Such compliance has been achieved without
material effect on Cherry's earnings or competitive position.
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 29, 1996.
Term as Business Experience During
Name Age Officer the Past Five Years
Peter B. Cherry 48 22 Chairman of the Board since 1992
and President since 1982
Alfred S. Budnick 58 19 Vice President of the Company
and President of Cherry
Semiconductor Corporation since
1977.
Klaus D. Lauterbach 53 4 Vice President since June 1992;
General Manager of Cherry Mikro-
schalter GmbH since 1990;
Assistant General Manager prior
to 1990.
Dan A. King 46 8 Vice President of Finance
since June 1995;
Secretary in 1993; Treasurer and
Corporate Controller prior to
1993.
Kevin G. Powers 36 1 Corporate Controller and
Assistant Secretary since June
1995; Assistant Treasurer in
January 1993; Manager, Corporate
Accounting of Square D Company
prior to 1993.
<PAGE>
ITEM 2. PROPERTIES
Cherry owns and leases manufacturing, warehousing and office space in 15 cities
around the world. The Company owns its major facilities which are located in
Illinois, Rhode Island and Germany and comprise 345,000, 150,000 and 352,000
square feet, respectively. In addition, the Company also owns a 33,000 square
foot facility in England. All owned facilities are used for a combination of
production, warehousing and administrative activities. The Company also leases
facilities totaling 168,000 square feet, with approximately 84% used for
production, assembly and warehousing and the balance primarily for sales
activities. The leases expire at various dates through December 31, 2000.
The total owned and leased facilities noted above are currently used by the
business segments in the following estimated proportion:
Automotive Market 44%
Computer Market 27%
Consumer & Commercial Market 29%
------
100%
======
All facilities are in generally good condition and provide adequate and suitable
space for the operations at each location.
The Company utilizes machinery and equipment necessary to conduct its
operations. Substantially all of such machinery and equipment is owned by the
Company.
Refer to Item 8 of this Annual Report on Form 10-K for information regarding
notes payable secured by real estate.
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 common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbols CHERA and CHERB. As of May 16, 1996,
there were approximately 2,200 and 1,800 holders of record of the Class A and
Class B common stocks, respectively. The Class A Common Stock began trading on
Nasdaq in July, 1994. The historical sales price for Class B Common Stock has
been restated to reflect the estimated effect of the stock dividend issued on
July 14, 1994. The quarterly high and low prices reported on Nasdaq and the
dividends paid per common share in the last two fiscal years are shown below:
<TABLE>
Class A Common Class B Common
<CAPTION>
Fiscal 1996 High Low Dividend High Low Dividend
Quarters:
<S> <C> <C> <C> <C> <C> <C>
Fourth $10.50 $ 9.25 $ -- $10.50 $ 9.25 $ --
Third 15.50 9.25 -- 15.25 9.75 --
Second 15.75 12.38 -- 15.50 11.75 --
First 16.50 13.50 -- 15.75 13.00 --
<CAPTION>
Fiscal 1995
Quarters:
<S> <C> <C> <C> <C> <C> <C>
Fourth $16.50 $12.50 $ -- $16.25 $12.00 $ --
Third 17.38 13.25 -- 17.25 13.50 --
Second 15.00 11.75 -- 15.88 11.50 --
First -- -- -- 15.50 12.13 --
</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 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 424,681 339,237 275,269 266,231 228,631
Gross margin 105,189 97,018 80,179 76,521 60,650
Operating expenses 89,437 73,620 62,419 59,840 54,002
Earnings from operations 15,752 23,398 17,760 16,681 6,648
Other income, net 2,862 1,671 1,240 483 2,047
Earnings before interest and taxes 18,614 25,069 19,000 17,164 8,695
Interest expense, net 3,765 3,218 3,817 5,230 5,740
Earnings before income taxes, extra-
ordinary tax credit and cumulative
effect of change in accounting
principle 14,849 21,851 15,183 11,934 2,955
Income tax provision (benefit) 3,598 7,028 5,692 4,216 (819)
Earnings before extraordinary tax
credit and cumulative effect of
change in accounting principle 11,251 14,823 9,491 7,718 3,774
Extraordinary tax credit -- -- -- 2,539 891
Cumulative effect of change in
accounting principle -- -- 1,542 -- --
Net earnings $ 11,251 14,823 11,033 10,257 4,665
OTHER STATISTICS
Net earnings as a percent of sales 2.6% 4.4% 4.0% 3.9% 2.0%
Average shares outstanding 12,287,459 10,882,950 9,299,848 9,184,228 9,113,490
Earnings per share:
Earnings before extraordinary tax
credit and cumulative effect of
change in accounting principle $ .92 1.36 1.02 .84 .41
Extraordinary tax credit -- -- -- .28 .10
Cumulative effect of change in
accounting principle -- -- .17 -- --
Net earnings per share $ .92 1.36 1.19 1.12 .51
Return on average stockholders' equity 7.4% 12.3% 12.6% 13.4% 6.7%
Dividends per share $ -- -- -- -- --
Capital expenditures, net $ 50,864 44,736 23,356 19,023 8,247
Depreciation and amortization $ 23,406 18,768 16,720 18,023 16,729
FINANCIAL POSITION
Working capital $ 50,734 46,001 39,395 43,791 33,893
Current ratio 1.6 1.7 1.9 2.2 1.7
Total assets $ 303,339 261,193 193,548 183,219 181,580
Long-term debt $ 44,237 25,863 42,970 50,817 49,808
Total debt $ 73,135 48,658 53,632 58,248 70,180
Stockholders' equity $ 158,292 147,627 93,476 82,014 71,049
Stockholders' equity per share $ 12.83 12.03 10.03 8.83 7.78
Debt to capital ratio 31.6% 24.8% 36.5% 41.5% 49.7%
Net cash provided by operating
activities $ 24,340 23,786 28,347 26,871 17,940
PER EMPLOYEE DATA
Average number of employees 4,193 3,617 3,048 2,765 2,846
Net sales $ 101,283 93,790 90,311 96,286 80,334
Average assets employed $ 67,318 62,862 61,806 65,967 65,831
</TABLE>
<PAGE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FISCAL 1996 VS. FISCAL 1995
Consolidated sales of $424.7 million for fiscal 1996 increased 25% over the
prior year. Approximately one-fifth of the increase is attributable to foreign
currency translation. Domestic sales increased 27% and international sales
increased 23% (10% in local currency). Increases were broad based, resulting
from new products, increased market share, the strength of the underlying
markets and a weaker dollar.
All business segments recorded increases in current year consolidated sales
compared to the prior year. The Automotive Market continues to lead the way
with sales increasing 32% , while the Consumer and Commercial (C&C) Market and
the Computer Market recorded sales increases of 25% and 16%, respectively.
Within the Automotive Market, sales of switch assemblies and semiconductor
devices increased 41% and 29%, respectively, while electronic controls decreased
16%. Sales of electronic controls and displays increased 80% in the C&C Market,
followed by 34% and 15% higher sales of semiconductor devices and switches,
respectively. The Computer Market sales increase came primarily from keyboards
and related products. Although current year sales of the Company's
semiconductor products to the Automotive Market and the C&C Market (specifically
sales to a cellular telephone manufacturer), were higher than the prior year,
the sales increases were less than anticipated as a result of general market
conditions.
Current year operating profit declined to $15.8 million or 3.7% of sales
from $23.4 million or 6.9% of sales in the prior year. The current year gross
margin rate declined to 24.8% from 28.6% in the prior year. The decline results
from a combination of factors, listed in the order of their significance, as
follows:
. The Company experienced high production costs. In response, the Company
continues to aggressively work to reduce costs associated with product and
process introductions made during fiscal 1996 and 1995.
. The Company installed greater capacity and staffed its semiconductor
operation based on growth estimates. Actual semiconductor sales in the last
half of fiscal 1996 were up 16% but below Company expectations.
. Selling price reductions and increased material prices have led to margin
erosions in many products. Copper and plastic have increased in price this
year. The weak dollar has also resulted in higher material costs for foreign
sourced purchased materials. These higher costs have not been fully
recoverable from the customer.
The current year domestic and foreign operating profit margin declined for the
reasons noted above. The decline occurred at the gross margin level, since
operating expenses were slightly lower as a percent of sales.
Current year operating profit margins by business segment were mixed. The
Automotive Market current year operating profit margins declined to 2.4% from
7.3% primarily as a result of high production costs, start-up issues, and
selling price reductions discussed earlier. The Computer Market operating
profit margins for the current year declined to 5.6% from 9.2% as a result of
higher production costs associated with new product and process introductions
and increased raw material costs. The C&C Market current year operating profit
margins improved slightly from 6.1% to 6.9% primarily from higher sales volume
and a better product mix.
Other income of $ 2.9 million for the current year increased $1.2 million
from the prior year primarily as a result of a $1.3 million gain on the sale of
a German facility.
Interest expense for the current year increased to $3.9 million from $3.4
million primarily as a result of higher debt levels. In fiscal 1995,
substantial debt was repaid with the proceeds from the equity offering in August
1994. Debt has increased since then to help finance expansion of production
capacity to accommodate sales growth. Interest rates in the current year were
generally lower as a result of more favorable credit facilities and general
economic conditions.
The effective tax rate for fiscal 1996 was 24.2% versus 32.2% in the prior
year. The lower current year tax rate is primarily attributable to state tax
credits resulting from the Company's significant capital expenditures and the
implementation of a tax planning strategy which resulted in the recognition of
pre-merger U.S. loss carryforwards.
Since a significant portion of the Company's manufacturing and sales are
overseas, foreign currency translation can have an impact on future sales,
earnings, and financial position of the Company when translated into U.S.
dollars. The Company selectively enters into forward contracts to hedge certain
firm purchase commitments denominated in foreign currencies (primarily German
marks). At February 29, 1996, the U.S. dollar equivalent of forward contracts
outstanding approximated $6.1 million.
FISCAL 1995 VS. FISCAL 1994
For fiscal 1995, consolidated sales of $339.2 million and net earnings of
$14.8 million were new records for the third consecutive year.
Consolidated sales of $339.2 million increased 23% over fiscal 1994 sales,
with domestic sales increasing 26% and international sales increasing 19%.
Approximately one fourth of the international sales increase is attributable to
foreign currency translation. The domestic sales growth resulted primarily from
increased sales to the Automotive Market together with new sales to a cellular
phone manufacturer. International sales grew from increasing penetration into
the European automotive market, expanding sales of keyboards and the steadily
improving European economy.
All business segments recorded fiscal 1995 consolidated sales increases
compared to the prior year. The Automotive Market led the way with a 40%
increase in sales, while the C&C Market and the Computer Market recorded sales
increases of 20% and 8%, respectively. Within the Automotive Market, sales of
switch assemblies increased 48%, semiconductor devices 36% and electronic
controls 14%. The primary contributor to the sales increase in the C&C Market
was semiconductor sales to a new customer that manufactures cellular phones.
The Computer Market sales increases came primarily from keyboards and related
products, which more than offset a decline from semiconductor sales.
Fiscal 1995 operating profit increased to $23.4 million or 6.9% of sales
from $17.8 million or 6.5% of sales in the prior year. Although the operating
profit margin improved and current operating expenses as a percentage of sales
declined to 21.7% from 22.7%, we did not receive the full benefit from the
increased sales volume. The fiscal 1995 gross margin rate declined to 28.6%
from 29.1% in the prior year. This decline resulted primarily from higher than
anticipated model changeover costs in our domestic automotive power option
control business where 70% of our programs in fiscal 1995 were new. The
significantly higher than anticipated demand also resulted in increased costs
caused by labor inefficiencies, air freight and scrap. The fiscal 1995 domestic
operating profit margin declined to 8.4% from 9.9% for the reasons noted above.
Whereas, the foreign operating profit margin for fiscal 1995 improved to 6.6%
from 4%, as a result of increased sales volume and ongoing cost reductions.
Fiscal 1995 operating profit margins by business segment were mixed. The
Automotive Market fiscal 1995 operating profit margins declined to 7.3% from
11.1% primarily as a result of the higher domestic model changeover costs
discussed earlier. The Computer Market operating profit margins for fiscal 1995
improved to 9.2% from 5.2% as a result of higher volume, improved product mix
and cost reduction programs. The C&C Market fiscal 1995 operating profit
margins improved to 6.1% from 4.5% primarily from higher sales to a new cellular
phone customer noted above and a better product mix.
Other income of $1.7 million for fiscal 1995 increased $.4 million from the
prior year primarily from an increase in customer tooling income.
Interest expense for fiscal 1995 declined to $3.4 million from $3.9
million. The net proceeds from the August 1994 equity offering were used to
reduce domestic borrowings, resulting in the lower interest expense in fiscal
1995. In addition, foreign borrowings in local currencies and related interest
rates also declined and contributed to the lower interest expense.
The effective tax rate for fiscal 1995 was 32.2% versus 37.5% in the prior
year. The lower fiscal 1995 tax rate results primarily from the utilization of
foreign tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996, the Company continued to improve its long-term financial
flexibility by arranging new credit facilities and a long-term debt placement.
These complement the capital resources obtained from the equity offering in
fiscal 1995. On May 15, 1995, a new credit facility for $65 million was
consummated. The new facility is unsecured, allows for multicurrency
borrowings, provides lower interest rates and commitment fees, and has less
restrictive covenants than the previous credit facility. On July 28, 1995, the
Company completed a $25 million long-term debt placement with an insurance
company. The placement is in the form of 6.99% Senior Notes due July 15, 2007,
with principal prepayments of $5 million required in years 8 through 12. The
notes are unsecured and interest is payable semi-annually each January and July.
Covenants pertain to consolidated net worth and debt to capital ratios, among
others. The proceeds from the long-term debt placement were used to repay
outstanding debt under the Company's new credit facility and uncommitted
domestic facilities. During the second quarter of fiscal 1996, the existing
three uncommitted, unsecured credit facilities were reduced from $45 million to
$31 million. On November 1, 1995, the Company entered into a fourth
uncommitted, unsecured credit facility for $10 million. A provision in the
multicurrency revolving credit agreement limits the Company's combined domestic
borrowings under the facility and the uncommitted facilities to $65 million.
The consolidated debt to capital ratio increased to 31.6% at February 29,
1996, from 24.8% at the end of the prior fiscal year. The increase in the debt
to capital ratio is above expectations due to lower than anticipated earnings.
However, 31.6% is still within what the Company considers an acceptable level.
An increase in borrowings was expected to help fund production capacity
increases in fiscal 1996.
Consolidated operations generated $24.3 million in cash, with an additional
$25.0 million coming from the long-term debt issuance, $6.2 million from short-
term borrowings and $2.0 million in proceeds from the sale of a German facility.
Proceeds from employee stock purchase and stock option transactions also
provided $.5 million. The Company invested $52.2 million in facilities and
equipment ($32.2 million domestic and $20.0 million foreign) and $.6 million in
patents. The Company repaid $3.0 million on the domestic revolver and
uncommitted credit facilities and $3.8 million on other long-term debt.
For fiscal 1997, if currently anticipated sales growth materializes, the
Company estimates that capital expenditures will average approximately 10% of
sales. Operations are expected to generate enough cash to fund capital
expenditures and still maintain an acceptable debt to capital ratio in fiscal
1997.
At February 29, 1996, the Company has unused lines of credit available of
approximately $45.2 million for domestic operations and $20.4 million for
foreign operations. These credit facilities and bank lines should be
sufficient, together with internally generated cash, to finance the Company's
operations.
FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
when adopted in fiscal 1997 is not expected to be material.
SFAS No. 123 "Accounting for Stock Based Compensation" will apply in fiscal
1997. The Company has not completed its analysis to determine the impact of
adopting this statement. If not adopted, the Company will be required to
provide in a footnote, pro-forma disclosures of what earnings and earnings per
share for years beginning with fiscal 1996, would have been had the statement
been adopted.
<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, 1996 and 1995, and the related consolidated statements of earnings,
cash flows and stockholders' equity for each of the three years ended the last
day of February, 1996. 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 accounting 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 consolidated 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, 1996 and 1995, and
the results of their operations and cash flows for each of the three years ended
the last day of February, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for purposes of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedule listed in Item 14(a) 2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states 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 LLP
-------------------
Arthur Andersen LLP
Chicago, Illinois
April 3, 1996
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except share data)
<CAPTION>
Year Ended the Last Day of February
1996 1995 1994
<S> <C> <C> <C>
SALES AND COSTS
Net sales $ 424,681 $ 339,237 $ 275,269
Cost of products sold 319,492 242,219 195,090
----------- ----------- -----------
Gross margin 105,189 97,018 80,179
----------- ----------- -----------
EXPENSES
Research and engineering 27,017 20,567 15,230
Distribution 32,020 26,834 22,843
Administration 30,400 26,219 24,346
----------- ----------- -----------
Operating expenses 89,437 73,620 62,419
----------- ----------- -----------
EARNINGS
Earnings from operations 15,752 23,398 17,760
Other income, net 2,862 1,671 1,240
----------- ----------- -----------
Earnings before interest and taxes 18,614 25,069 19,000
Interest expense, net 3,765 3,218 3,817
----------- ----------- -----------
Earnings before income
taxes and cumulative effect of
change in accounting principle 14,849 21,851 15,183
Income tax provision - Note C 3,598 7,028 5,692
----------- ----------- -----------
Earnings before cumulative effect
of change in accounting principle 11,251 14,823 9,491
Cumulative effect of change in
method of accounting for income
taxes - Note C -- -- 1,542
----------- ----------- ----------
Net earnings $ 11,251 $ 14,823 $ 11,033
=========== =========== ===========
EARNINGS PER SHARE
Before cumulative effect of change
in accounting principle $ .92 $ 1.36 $ 1.02
Cumulative effect of change in
accounting principle -- -- .17
----------- ----------- -----------
Net earnings $ .92 $ 1.36 $ 1.19
========== ========== ===========
Average shares outstanding 12,287,459 10,882,950 9,299,848
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
<CAPTION>
The Last Day of February
1996 1995
-----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 4,213 $ 5,694
Receivables, less allowances of $1,935 and
$1,818, in 1996 and 1995, respectively 62,640 56,247
Inventories - Note E 54,734 48,071
Income taxes, net 2,218 459
Prepaid expenses and other current assets 6,133 4,811
------- -------
Total Current Assets 129,938 115,282
Land, Buildings & Equipment at Cost:
Land 2,588 1,736
Buildings and improvements 83,907 79,924
Machinery and equipment 243,134 202,469
Construction in progress 16,623 15,951
------- -------
346,252 300,080
Less: accumulated depreciation 186,944 168,025
------- -------
Total Land, Buildings & Equipment, net 159,308 132,055
Investment in affiliates and other assets,
net - Note A 14,093 13,856
------- -------
Total Assets $303,339 $261,193
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt - Note F $24,699 $18,464
Accounts payable 20,598 21,273
Payroll related accruals 13,435 10,938
Other accruals 16,273 14,275
Current maturities of long-term debt - Note F 4,199 4,331
------- -------
Total Current Liabilities 79,204 69,281
Long-term debt - Note F 44,237 25,863
Deferred income taxes, net and deferred credits 21,606 18,422
Stockholders' Equity - Note B:
Class A common stock, $1.00 par value
Authorized 20,000,000 shares; issued and
outstanding 7,608,304 in 1996 and
7,560,652 in 1995 7,608 7,561
Class B common stock, $1.00 par value
Authorized 10,000,000 shares; issued and
outstanding 4,726,577 in 1996 and
4,712,341 in 1995 4,727 4,712
Additional paid-in capital 41,400 40,924
Retained earnings 94,443 83,192
Cumulative translation adjustments 10,114 11,238
------- -------
Total Stockholders' Equity 158,292 147,627
------- -------
Total Liabilities and Stockholders' Equity $303,339 $261,193
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Year Ended the Last Day of February
1996 1995 1994
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $11,251 $14,823 $ 11,033
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 23,406 18,768 16,720
Cumulative effect of change in accounting
principle -- -- (1,542)
(Gain)loss on sale of land, buildings,
equipment and
intangibles (1,387) 127 4
Income from unconsolidated affiliates (511) (625) (643)
Changes in assets and liabilities:
(Increase) in receivables (4,943) (10,472) (2,118)
(Increase) in inventories (6,728) (10,538) (2,989)
(Decrease) increase in accounts payable (2,042) 7,614 784
(Increase) decrease in income taxes, net (1,726) 487 654
Increase in deferred income taxes 3,568 2,433 1,335
Decrease in other working capital,
excluding cash and short-term borrowings 3,452 1,169 5,109
------- ------- --------
Total adjustments 13,089 8,963 17,314
------- ------- --------
Net cash provided by operating activities 24,340 23,786 28,347
------- ------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales of land, buildings and
equipment 2,014 806 28
Expenditures for land, buildings and equipment (52,169) (44,865) (23,390)
Other (701) (759) (445)
-------- ------- --------
Net cash used by investing activities (50,856) (44,818) (23,807)
-------- ------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in short-term debt 6,219 10,797 4,447
Increase (decrease) in domestic revolver and
uncommitted credit facilities (3,000) (5,800) 3,651
Principal payments on long-term debt (3,863) (14,928) (11,383)
Net proceeds from equity offering -- 33,176 --
Proceeds from long-term debt 25,000 -- --
Equity and other transactions 538 487 238
------- ------- --------
Net cash from (used by) financing activities 24,894 23,732 (3,047)
------- ------- --------
Effect of exchange rate changes on cash flows 141 297 (127)
------- ------- --------
Net increase (decrease) in cash and equivalents (1,481) 2,997 1,366
Cash and equivalents, at beginning of year 5,694 2,697 1,331
------- ------- --------
Cash and equivalents, at end of year $ 4,213 $ 5,694 $ 2,697
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,702 $ 3,314 $ 4,041
Income taxes (net of refunds) $ 2,143 $ 4,108 $ 3,703
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Class A Class B Additional Cumulative Total
Common Common Paid-In Retained Translation Stockholders'
Year ended the last day of February Stock Stock Capital Earnings Adjustments Equity
------- -------- -------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, 1993 $ -- $ 4,644 $ 9,979 $ 62,009 $ 5,382 $ 82,014
Employee options and stock
purchase plan -- 17 221 -- -- 238
Net earnings -- -- -- 11,033 -- 11,033
Translation adjustments -- -- -- -- 191 191
------ ------- -------- --------- ----------- ---------------
Balance, 1994 -- 4,661 10,200 73,042 5,573 93,476
Employee options and stock
purchase plan 13 51 423 -- -- 487
Net earnings -- -- -- 14,823 -- 14,823
Stock dividend - Note B 4,673 -- -- (4,673) -- --
Public sale of common stock -
Note B 2,875 -- 30,301 -- -- 33,176
Translation adjustments -- -- -- -- 5,665 5,665
------ ------- -------- --------- ----------- ---------------
Balance, 1995 7,561 4,712 40,924 83,192 11,238 147,627
Employee options and stock
purchase plan 47 15 476 -- -- 538
Net earnings -- -- -- 11,251 -- 11,251
Translation adjustments -- -- -- -- (1,124) (1,124)
------ ------- -------- --------- ------------ ----------------
Balance, 1996 $7,608 $ 4,727 $ 41,400 $ 94,443 $ 10,114 $ 158,292
====== ======= ======== ========= =========== ===============
<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 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. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures. Actual results could differ from these estimates.
INVESTMENT IN AFFILIATES
The Company accounts for its investments in 50% owned affiliates in Japan and
India by the equity method of accounting. Retained earnings at February 29,
1996, include $7,360 which represents the Company's share of the undistributed
earnings of these unconsolidated affiliates.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and highly liquid securities with original
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 38% of the
Company's inventories as of the last day of February 1996 and 1995,
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. Depreciation expense was $23,406, $18,768 and $16,720 for fiscal
1996, 1995 and 1994, respectively. Accelerated depreciation methods are
generally used for tax purposes.
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.
INCOME TAXES
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 the Japanese
affiliate will continue to be invested indefinitely. Federal income taxes on
distribution of these earnings, if any, would not be significant.
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' Equity, net of interperiod tax
allocations.
RESEARCH AND DEVELOPMENT
Research and development (R&D) costs are expensed as incurred. R&D expense was
$20,319, $14,841 and $10,424 for fiscal 1996, 1995 and 1994, respectively.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of common
(Class A and Class B) shares outstanding during the year. Stock options are not
materially dilutive and therefore are excluded from the computation of earnings
per share. On June 16, 1994, the Board of Directors authorized a stock dividend
of one share of Class A Common for each share of Prior Common Stock outstanding
on July 11, 1994. The stock dividend had the same effect on the total number of
shares of common stock outstanding as a two-for-one stock split. Historical
earnings per share and average shares outstanding have been restated to reflect
the stock dividend. See Note B.
NOTE B: CAPITAL STOCK
On July 12, 1994, the Company filed with the Delaware Secretary of State an
amended and restated certificate of incorporation which (i) increased the number
of authorized shares of common stock of the Company from 10,000,000 to
30,000,000 consisting of 20,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock, (ii) reclassified the Prior Common
Stock as Class B Common Stock, (iii) authorized a new class of non-voting stock
designated as Class A Common Stock, and (iv) established the rights, powers and
limitations of the Class A Common Stock and the Class B Common Stock. On June
16, 1994, the Board of Directors authorized a stock dividend of one share of
Class A Common Stock for each share of Prior Common Stock outstanding on July
11, 1994. The stock dividend had the same effect on the total number of shares
of Common Stock outstanding as a two-for-one stock split. The historical
earnings per share, average shares outstanding, stock option and employee stock
purchase transactions have been restated to reflect the stock dividend.
On July 12, 1994, the Company offered 2,500,000 shares of Class A Common
Stock to the public and also granted the underwriters an option to purchase an
additional 375,000 shares to cover over-allotments. The offering concluded on
August 19 with the entire 2,875,000 shares sold. The $33.2 million of net
proceeds was used to repay domestic debt at that time.
On an unaudited, pro-forma basis, earnings per share for the year ended February
28, 1995, would have been $1.26 had the equity offering been made on March 1,
1994, and the domestic debt repaid at that time.
<PAGE>
NOTE C: INCOME TAXES
Effective March 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes". The cumulative effect
of the change was to record a deferred tax benefit of $1,542, or $.17 per share,
related primarily to recognition of the benefit of net operating loss(NOL)
carryforwards.
<TABLE>
The sources of earnings before income taxes are as follows:
<CAPTION>
Year ended the last day of February 1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
Earnings before income taxes,
extraordinary tax credit and
cumulative effect of accounting
change:
United States $ 8,056 $13,631 $ 10,683
Foreign 6,793 8,220 4,500
</TABLE>
<TABLE>
<CAPTION>
Year ended the last day of February 1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
Provisions for Income Taxes:
Current: Federal and state $ 358 $ 2,196 $ 3,648
Foreign 1,582 2,206 1,219
--------- ------- --------
Current provision 1,940 4,402 4,867
--------- ------- --------
Deferred: Federal and state 657 1,605 536
Foreign 1,001 1,021 289
--------- ------- --------
Deferred provision 1,658 2,626 825
--------- ------- --------
Total income tax provision $ 3,598 $ 7,028 $ 5,692
========= ======= ========
</TABLE>
<PAGE>
<TABLE>
Reconciliations of the differences between income taxes computed at federal
statutory tax rates and the consolidated provisions for income taxes are as
follows:
<CAPTION>
Year ended the last day of February 1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Income taxes computed at federal
statutory tax rates $ 5,197 $ 7,429 $ 5,162
Equity in earnings of unconsolidated
affiliates (179) (213) (217)
Foreign tax rate differentials 284 558 194
Current taxation of foreign earnings,
net of foreign tax credit (504) (1,348) (170)
Change in valuation allowances, net (610) -- --
State tax provisions, net of federal
benefits (211) 538 663
Other, net (379) 64 60
--------- ------- --------
Consolidated provisions $ 3,598 $ 7,028 $ 5,692
======== ======= ========
</TABLE>
At February 29, 1996, the Company has pre-merger U.S. NOL carryforwards of
$2,142 which expire in 1999 and 2000. The Company also has state tax credit
carryforwards of approximately $720 that expire in the year 2003. The
carryforwards will be available to reduce future income tax liabilities.
<PAGE>
<TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax liabilities and assets follows:
<CAPTION>
Year ended the last day of February 1996 1995
------- ----------
<S> <C> <C>
Liabilities:
Book versus tax basis of depreciable assets $ 14,816 $ 9,920
Foreign currency translation 5,976 6,051
Other 2,316 1,859
-------- ---------
Gross deferred tax liabilities 23,108 17,830
-------- ---------
Assets:
Reserves and nondeductible accruals 1,430 1,225
Undistributed earnings of foreign subsidiaries 1,632 1,239
Compensation related accruals 1,111 842
Pre-merger NOL and credit carryforwards 838 838
Other 2,015 601
Valuation allowance for deferred tax assets (387) (997)
--------- ----------
Net deferred tax assets 6,639 3,748
-------- ---------
Net deferred tax liability $ 16,469 $ 14,082
======== =========
</TABLE>
The valuation allowance of $387 relates to noncurrent tax assets for net
operating loss carryforwards due to the uncertainty of realizing the benefit of
certain foreign carryforwards. The net change in the valuation allowance for
deferred tax assets was a decrease of $610. Of this amount, $838 resulted from
recognition of the benefit of pre-merger NOL and credit carryforwards. Due to
the implementation of tax planning strategies, management has determined that it
is more likely than not that these tax carryforwards will be utilized prior to
their expiration.
<PAGE>
NOTE D: SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year ended the last day of February 1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Other Income (Expense)
Earnings of affiliates $ 511 $ 625 $ 643
Investment grants 344 426 539
Tooling income 291 450 44
Foreign exchange (9) (182) 46
Gain(loss) on sale of assets 1,387 (127) (4)
Other, net 338 479 (28)
-------- ------- ---------
Total other income, net $ 2,862 $ 1,671 $ 1,240
======== ======= ========
Interest expense $ 3,914 $ 3,396 $ 3,919
Interest income (149) (178) (102)
--------- ------- --------
Interest expense, net $ 3,765 $ 3,218 $ 3,817
======== ======= ========
---------------------------------------------------------------------
</TABLE>
NOTE E: INVENTORIES
<TABLE>
<CAPTION>
The last day of February 1996 1995
------- --------
<S> <C> <C>
Inventories
Raw materials $ 8,655 $ 5,581
Component parts 11,663 11,787
Work-in-process 18,036 16,670
Finished goods 16,380 14,033
------- --------
Total inventories $54,734 $ 48,071
======= ========
Excess of replacement cost over the stated
value of LIFO inventories $ 6,028 $ 5,159
</TABLE>
<PAGE>
NOTE F: DEBT
<TABLE>
<CAPTION>
The last day of February 1996 1995
------- --------
<S> <C> <C>
SHORT-TERM DEBT
(With domestic and foreign banks)
Bank loans outstanding $24,699 $ 18,464
Weighted average interest rate 3.8% 5.7%
LONG-TERM DEBT
Foreign obligations:
Construction, mortgage and equipment loans (at
4% to 5.5%, secured by real estate in the
amount of $14,558 in the Federal Republic
of Germany) due in periodic installments
through December 31, 2000 $ 8,844 $ 12,015
Capital lease obligations payable in installments
through June 1997 with a weighted average
interest rate of 12% 1,592 2,117
Domestic obligations:
Senior unsecured notes, at 6.99%, due in 2007 25,000 --
Borrowings under unsecured revolving credit
agreement with interest at LIBOR plus
.375% to .625%, prime rate or competitive
bid rates 13,000 --
Borrowings under uncommitted, unsecured credit
facilities -- 16,000
Capital lease obligations payable in installments
through 1996 with a weighted average interest
rate of 7.4% at February 28, 1995 -- 62
------- --------
48,436 30,194
Less current maturities 4,199 4,331
------- --------
Long-term debt $44,237 $ 25,863
======= ========
</TABLE>
The following payments, exclusive of capitalized lease payments, are required
during the next five fiscal years: 1997 - $3,027; 1998 - $1,666; 1999 - $1,666;
2000 - $14,668; 2001 - $817.
The Company has an unsecured, multicurrency revolving credit agreement for $65
million. The interest rate on this agreement is the prime rate or, depending
upon the Company's financial performance, LIBOR plus .375% to .625%. The
facility has a competitive bid option which can result in interest rates below
the stated facility rates.The facility fee is also dependent upon the Company's
financial performance and ranges from 1/8 of 1% to 2/10 of 1% of the facility
amount. The facility has an initial maturity of May 12, 2000, but may be
extended for an additional year on both the first and second anniversary dates
of the facility upon mutual agreement of the Company and the banks. The
covenants for this credit facility pertain to consolidated net worth, leverage,
cash flow coverage and cash flow to debt levels, among others. Under the most
restrictive of these covenants, the Company is required to:
. Maintain a leverage ratio, as defined, of 40% or less. The leverage ratio at
February 29, 1996, was 31.4%.
. Maintain an interest expense coverage ratio, as defined, of 3:1 or greater.
The interest expense coverage ratio at February 29, 1996, was 3.3:1.
. Maintain an indebtedness to cash flow ratio, as defined, of 2:1 or less. The
indebtedness to cash flow ratio at February 29, 1996, was 1.7:1.
The Company has four uncommitted, unsecured credit facilities totaling $41
million. These facilities are utilized when the borrowing rates available under
them are below those available under the committed facility. A provision in the
multicurrency revolving credit agreement limits the Company's combined domestic
borrowings under that facility and the uncommitted facilities to $65 million.
On July 28, 1995, the Company completed a $25 million long-term debt placement
with an insurance company in the form of 6.99% Senior Notes, due July 15, 2007
with principal prepayments of $5 million required in years 8 through 12. The
notes are unsecured and interest is payable semi-annually each January and July.
Covenants pertain to consolidated net worth and debt to capital ratios, among
others.
The Company was in compliance with all covenants under all agreements at
February 29, 1996.
As of February 29, 1996, the Company had unused lines of credit available for
working capital of approximately $45.2 million for U.S. operations and $20.4
million for foreign operations.
<PAGE>
NOTE G: DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-
defined interest rate and foreign exchange price risks.
The Company selectively enters into forward contracts to hedge certain firm
purchase commitments denominated in foreign currency (principally German marks).
Gains or losses on forward contracts designated to hedge a foreign currency
transaction are included in the measurement of income when the hedged
transaction occurs. On the last day of February, 1996 and 1995 , the U. S
dollar equivalent of forward contracts outstanding approximated $6.1 and $2.2
million, respectively.
The Company uses variable rate credit lines to finance a portion of its working
capital requirements. Borrowings under those credit lines fluctuate throughout
the year. Interest rate cap agreements are used to reduce the potential impact
of increases in interest rates on these borrowings. The Company is party to
three separate interest rate cap agreements. Under two agreements, the Company
is protected against interest rate increases above 6.0% LIBOR on $10 million of
floating rate debt through March 1998. Under the other agreement, the Company
is protected against interest rate increases above 7.0% deutschemark LIBOR on DM
20 million of floating rate debt through December 1999. Premiums paid for
interest rate cap agreements are amortized to interest expense over the term of
the agreements. Unamortized premiums are included in other assets,net in the
consolidated balance sheet. On the last day of February, 1996, and 1995,
unamortized premiums amounted to $536 and $922, respectively.
Counterparties to all of these financial instruments are major financial
institutions. Credit loss from counterparty nonperformance is not anticipated.
NOTE H: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments.
<TABLE>
<CAPTION>
The last day of February 1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ -------- ------ --------
<S> <C> <C> <C> <C>
Financial Assets
Other assets, net $ 536 $ 237 $ 922 $ 1,249
Currency contracts -- 22 -- 95
Financial Liabilities
Long-term debt $46,844 $ 47,395 $ 28,015 $27,565
</TABLE>
The carrying amounts shown above are included in the consolidated balance sheet
under the indicated captions.
The following methods and assumptions were used to estimate fair value of each
class of financial instrument:
Other assets, net: The amounts reported relate to the interest rate caps
reported in Note G. The carrying amount represents the unamortized premiums
paid for the contracts. The fair value is based on its quoted market price as
provided by the financial institutions which are counterparty to the caps.
Currency contracts: The fair value of foreign currency contracts (used for
hedging) is estimated by obtaining quotes from the financial institution which
is counterparty to the contracts.
Long-term debt: The fair value of the Company's long-term debt excludes
capitalized leases. The estimated fair value is based on the current rates
available to the Company for debt on the same remaining maturities, using the
discounted cash flow method.
<PAGE>
NOTE I: LEASES
The Company leases automobiles, machinery and equipment under noncancelable
operating leases which expire over the next seven years. Renewal and escalation
clauses are not significant. Rent expense was $ 2,778, $2,229 and $1,782 for
fiscal 1996, 1995 and 1994, respectively.
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 $6,279 and
$6,279 less accumulated amortization of $4,866 and $4,148 as of the last
day of February 1996 and 1995, respectively.
Future minimum lease payments under capitalized and long-term noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
------------ ------------
<S> <C> <C>
1997 $ 1,292 $ 1,967
1998 431 1,386
1999 -- 831
2000 -- 424
2001 -- 337
Thereafter -- 52
---------- ---------
Total minimum lease payments $ 1,723 $ 4,997
=========
Less amount representing interest 131
----------
Total obligations under capitalized
leases $ 1,592
==========
</TABLE>
NOTE J: 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 K: EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
The Company's original incentive stock option plan was established in June 1982
by stockholder approval and reserved 450,000 shares for distribution. This plan
may grant only non-qualified stock options after June 1992. In fiscal 1993,
57,400 incentive stock options were granted at $7.50.
In June 1995, the stockholders approved the 1995 Stock Incentive Plan and the
1995 Nonemployee Director Stock Option Plan and reserved for distribution
900,000 and 100,000 shares of Class A Common Stock, respectively. The Stock
Incentive Plan also has available for awards 133,560 shares remaining under the
1982 Stock Option Plan.
The 1995 Stock Incentive Plan provides for grants to key employees of awards in
the form of incentive stock options, non-qualified stock options, stock
appreciation rights(SARs) and stock awards, including restricted stock. The
maximum number of shares that may be awarded to any participant in any year
during the term of the plan is 90,000 shares. The awards may be granted singly,
in combination or in tandem. The stock option exercise price may not be less
than fair market value on the date of the grant. For SARs granted in tandem
with an option, the grant price is equal to the exercise price of the underlying
option. For SARs issued independent of any stock option, the grant price is not
less than the fair market value of the Class A Common Stock on the date the
right is granted. Stock options and SARs are exercisable in installments but
not prior to six months nor later than ten years after the grant date. Stock
awards may be granted to participants of the plan at no cost to them. Stock
awards will be subject to such terms, conditions, restrictions and/or
limitations, if any, as deemed appropriate. No more than 180,000 shares may be
issued as stock awards not based on performance goals during the term of the
plan.
Under the terms of the 1995 Nonemployee Director Stock Option Plan, each
nonemployee director in office on adjournment of the June 15, 1995 Annual
meeting automatically received a non-qualified stock option to purchase the
whole number of shares of Class A Common Stock equal to the amount of the
nonemployee director's annual retainer ($15 thousand) divided by the fair market
value of a share of Class A Common Stock on June 15, 1995. Thereafter, each
nonemployee director in office on adjournment of each subsequent annual meeting
of stockholders will receive a stock option using the same formula above except
that the fair market value of a share of Class A Common Stock will be determined
based on the date of such subsequent annual meeting. Stock options are
exercisable in installments but not prior to twelve months nor later than ten
years after the grant date.
The following table summarizes the transactions pursuant to the Company's stock
option plans for the three-year period ended February 29, 1996:
<TABLE>
<CAPTION>
1995
Nonemployee
1982 1995 Director
Stock Stock Stock
Option Incentive Option
Plan Plan Plan
------- ---------- ------------
<S> <C> <C> <C>
Options outstanding at February 28, 1993 183,054 -- --
Cancelled (8,734) -- --
Expired (500) -- --
Exercised (17,934) -- --
-------- ------- -------
Options outstanding at February 29, 1994 155,886 -- --
Exercised (49,106) -- --
-------- ------- -------
Options outstanding at February 28, 1995 106,780 -- --
Granted -- 116,500 6,222
Cancelled (2,334) (13,000) --
Exercised (28,472) -- --
-------- ------- -------
Options outstanding at February 29, 1996 75,974 103,500 6,222
Options available to grant at
February 29, 1996 133,560 796,500 93,778
Average option price per share:
At February 28, 1994 $ 10.28 $ -- $ --
At February 28, 1995 5.43 -- --
At February 29, 1996 5.45 14.96 14.47
Options exercisable:
At February 28, 1994 43,798 -- --
At February 28, 1995 88,653 -- --
At February 29, 1996 75,974 -- --
Average price of options exercised:
At February 28, 1994 $ 9.40 $ -- $ --
At February 28, 1995 4.50 -- --
At February 29, 1996 5.21 -- --
</TABLE>
FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards(SFAS) No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed OF,"
when adopted in fiscal 1997 is not expected to be material.
SFAS No. 123 "Accounting for Stock Based Compensation" will apply in fiscal
1997. The Company has not completed its analysis to determine the impact of
adopting this statement. If not adopted, the Company will be required to
provide in a footnote, pro-forma disclosures of what earnings and earnings per
share for years beginning with fiscal 1996 would have been had the statement
been adopted.
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, 33,453, 26,689 and 15,360 shares were
issued at $9.26, $9.98 and $9.98 per share during fiscal 1996, 1995 and 1994,
respectively. At February 29, 1996, 64,488 shares are available for issuance
under the plan.
BONUS, DEFERRED COMPENSATION, PROFIT SHARING AND RETIREMENT PLANS
The Company and its operating entities have various bonus, deferred
compensation, 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 plan covers substantially all employees for
the domestic operating entities and is qualified under Section 401(k) of the
Internal Revenue Code. It allows for employee and employer contributions.
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 1996, 1995 and 1994, the expenses
for these plans were $2,980, $4,075 and $3,654, respectively.
Effective January 1, 1996, the Company established a non-qualified, unfunded
deferred compensation program. The program allows designated employees to elect
to defer a portion of their annual incentives and base pay for periods of five
years to retirement. Participants are provided the same investment options as
for the separate 401(k) plan. Any distributions payable under the program shall
be paid from the general assets of the Company. Amounts deferred by
participants as of February 29, 1996 was not significant.
<PAGE>
NOTE L: SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION
The Company designs and manufactures a wide range of electrical, electronic and
semiconductor components which it sells to original equipment manufacturers and
distributors in three market segments: Automotive, Computer, and Consumer and
Commercial (C&C). Principal products include, but are not limited to, snap-
action switches and switch assemblies, semiconductor devices, keyboards and
related products, and electronic controls and displays.
Principal products sold by business segment are summarized as follows:
Automotive Computer C&C
---------- --------- ---
Switches X X X
Semiconductors X X X
Keyboards and Related Products X
Electronic controls and displays X X
Two Automotive Market customers individually account for 16.4% and 12.5% of
consolidated net sales in fiscal 1996 and 13.9% and 13.8% of consolidated net
sales in fiscal 1995. Prior to fiscal 1995, no customer accounted for more than
10% of net sales.
The Company's principal international operations are conducted in Western Europe
with other operations, primarily sales offices, located in Hong Kong, Australia
and Japan.
Prior to 1996, export sales were less than 10% of consolidated sales. In fiscal
1996, export sales from the Company's U.S. operations to unaffiliated customers
was 10% of consolidated sales. Fiscal 1996 export sales were to the following
geographic areas:
Canada $ 13,928
Europe 11,612
Far East 7,375
Mexico, Central and South America 7,302
Other 1,112
--------
Total export sales $ 41,329
========
In the following tables, intercompany sales between segments and geographic
areas are made at prices approximating market and are eliminated from total net
sales. Identifiable assets report only the assets used in the operation of that
business segment or geographic area. All other assets are shown separately as
corporate assets. Corporate assets include cash, other current and noncurrent
assets and the Company's investment in unconsolidated affiliates.
<PAGE>
<TABLE>
BUSINESS SEGMENT INFORMATION
<CAPTION>
Consumer & Eliminations
Fiscal Year Automotive Computer Commercial & Corporate Consolidated
---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
Sales to unaffiliated customers $192,655 $124,773 $107,253 $ $ 424,681
Intersegment sales 2,496 22,923 8,197 (33,616) --
Total net sales 195,151 147,696 115,450 (33,616) 424,681
Earnings from operations 4,649 6,930 7,442 (3,269) 15,752
Identifiable assets 124,493 88,652 70,264 19,930 303,339
Capital expenditures, net 24,933 15,367 10,564 50,864
Depreciation 10,693 7,120 5,593 23,406
1995
Sales to unaffiliated customers $145,768 $107,347 $ 86,122 $ -- $ 339,237
Intersegment sales 1,620 16,133 5,014 (22,767) --
Total net sales 147,388 123,480 91,136 (22,767) 339,237
Earnings from operations 10,687 9,865 5,284 (2,438) 23,398
Identifiable assets 105,924 77,036 58,702 19,531 261,193
Capital expenditures, net 25,928 9,026 9,782 -- 44,736
Depreciation 7,493 6,733 4,499 43 18,768
1994
Sales to unaffiliated customers $104,018 $ 99,346 $ 71,905 $ -- $ 275,269
Intersegment sales 2,420 12,630 4,198 (19,248) --
Total net sales 106,438 111,976 76,103 (19,248) 275,269
Earnings from operations 11,582 5,161 3,241 (2,224) 17,760
Identifiable assets 64,317 67,884 44,444 16,903 193,548
Capital expenditures, net 16,713 5,665 978 -- 23,356
Depreciation 7,371 6,929 2,357 63 16,720
</TABLE>
<PAGE>
<TABLE>
GEOGRAPHIC AREA INFORMATION
<CAPTION>
United Eliminations
Fiscal Year States International & Corporate Consolidated
--------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers $ 248,911 $ 175,770 $ $ 424,681
Transfers between areas 4,480 29,136 (33,616) --
Total net sales 253,391 204,906 (33,616) 424,681
Earnings from operations 12,997 5,758 (3,003) 15,752
Identifiable assets 153,903 129,137 20,299 303,339
1995
Sales to unaffiliated customers $ 196,633 $ 142,604 $ -- $ 339,237
Transfers between areas 3,035 19,732 (22,767) --
Total net sales 199,668 162,336 (22,767) 339,237
Earnings from operations 16,446 9,380 (2,428) 23,398
Identifiable assets 127,311 114,161 19,721 261,193
1994
Sales to unaffiliated customers $ 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 from operations 15,451 4,814 (2,505) 17,760
Identifiable assets 83,957 92,336 17,255 193,548
<FN>
Net assets, including intercompany balances, of foreign subsidiaries and
affiliates were $74,662 (1996), $70,147 (1995), and $56,007 (1994) at each
respective year end.
</TABLE>
<PAGE>
<TABLE>
QUARTERLY DATA (UNAUDITED)
<CAPTION>
GROSS NET EARNINGS
FISCAL YEAR NET SALES MARGIN EARNINGS PER SHARE*
<S> <C> <C> <C> <C>
1996 $ 424,681 $ 105,189 $ 11,251 $ .92
QUARTERS
Fourth 109,983 26,971 2,311 .19
Third 107,242 25,496 3,145 .26
Second 99,055 23,459 1,531 .12
First 108,401 29,263 4,264 .35
1995 $ 339,237 $ 97,018 $ 14,823 $ 1.36
QUARTERS
Fourth 93,859 26,017 4,917 .40
Third 91,490 25,284 4,277 .35
Second 74,241 20,814 1,712 .18
First 79,647 24,903 3,917 .42
<FN>
*Fiscal 1995 restated to reflect stock dividend in July 1994.
</TABLE>
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification and information as to Directors is incorporated herein by
reference to the information under the caption "Election of Directors" in the
Company's Proxy Statement for its 1996 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 1996 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 Information" in the
Company's Proxy Statement for its 1996 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 1996 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
II. Valuation and Qualifying Accounts S-1
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 affiliates, accounted for by the equity method, have been omitted because
the affiliates do not constitute significant subsidiaries.
(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 1996.
<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, Vice President of Finance,
President and Director Treasurer and Secretary
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 Charles W. Denny By W. Ed Tyler
----------------------------- ----------------------------
Charles W. Denny W. Ed Tyler
Director Director
By Peter A. Guglielmi By Henry J. West
----------------------------- ----------------------------
Peter A. Guglielmi Henry J. West
Director Director
Dated May 17, 1996
--------------------
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 1996, 1995 AND 1994
(Dollars in Thousands)
<CAPTION>
Balance (A) Balance
Beginning Charged to Additions Close of
of Period Expense (Deductions) Period
--------- ------- ------------ -------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
1996 $ 1,818 $ 301 $ (184) $ 1,935
======= ======= ======= =======
1995 $ 1,368 $ 293 $ 157 $ 1,818
======= ======= ====== =======
1994 $ 1,377 $ 255 $ (264) $ 1,368
======= ======= ======= =======
<FN>
(A) Additions (deductions) include the currency translation effects resulting
from applying SFAS No. 52 to our financial statements for all three years in
this schedule.
</TABLE>
S-1
<PAGE>
THE CHERRY CORPORATION
INDEX TO EXHIBITS
3. a.Amended and restated Certificate of Incorporation (incorporated by
reference to 3(a) to Form 8-K dated July 13, 1994).
b.Amended and restated By-laws (incorporated by reference to 3(b) to Form
8-K dated July 6, 1994).
4. a.Multicurrency Credit Agreement as of May 12, 1995 among The Cherry
Corporation, the banks party thereto and Harris Trust and Savings Bank
as agent, filed as Exhibit 4 to Form 8-K dated May 19, 1995 and is
incorporated herein by reference.
Note Agreement as of July 15, 1995 between The Cherry Corporation and
Nationwide Life Insurance Company and Employers Life Insurance Company
of Wasua, filed as Exhibit 4 to Form 8-K dated October 10, 1995 and is
incorporated herein by reference.
c.Other instruments defining the rights of holders of other long-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, 1996.
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. (1)
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. (1)
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. (1)
d.Executive agreement dated May 26, 1992, between Cherry Semiconductor
Corporation and Alfred S. Budnick filed as Exhibit 4d to 1993 Form 10-
K is incorporated herein by reference (1).
e.1995 Stock Incentive Plan, filed as Exhibit A to the Registrant's Proxy
Statement for 1995 Annual Meeting of Stockholders is incorporated
herein by reference. (1)
f.1995 Nonemployee Director Stock Option Plan, filed as Exhibit B to the
Registrant's Proxy Statement for 1995 Annual Meeting of Stockholders
is incorporated herein by reference. (1)
11. Statement of Computation of earnings per share. (2)
21. Table of Subsidiaries of the Registrant. (2)
23. Consent of independent public accountants. (2)
27. Article 5 Financial Data Schedule (2)
(1) 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.
(2) 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 1996 1995 1994
<S> <C> <C> <C>
Earnings before cumulative effect of
change in accounting principle $ 11,251 $ 14,823 $ 9,491
Cumulative effect of change in accounting
for income taxes -- -- 1,542
--------- --------- ---------
Net earnings $ 11,251 $ 14,823 $ 11,033
========= ========= =========
Weighted average number of shares
outstanding 12,287,459 10,882,950 9,299,848
Primary Earnings per Share:
Before cumulative effect of change in
accounting principle $ .92 $ 1.36 $ 1.02
Cumulative effect of change in
accounting principle -- -- .17
-------- --------- ---------
Net earnings $ .92 $ 1.36 $ 1.19
========= ========= =========
Additional Primary Computation:
Weighted average shares outstanding
per primary computation above 12,287,459 10,882,950 9,299,848
Add dilutive effect of stock options
determined by the treasury stock
method 53,545 80,970 89,802
--------- --------- ---------
Weighted average shares outstanding as
adjusted 12,341,004 10,963,920 9,389,650
=========== =========== =========
Primary earnings per share, as adjusted:
Before extraordinary tax credit and
cumulative effect of change in
accounting principle $ .91 $ 1.35 $ 1.01
Cumulative effect of change in
accounting principle -- -- .16
--------- --------- ---------
Net earnings (a) $ .91 $ 1.35 $ 1.17
========= ========= =========
<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%.
The historical earnings per share and average shares outstanding have been
restated to reflect the 4,672,568 share stock dividend on July 11, 1994. The
weighted average shares outstanding include both Class A and Class B Common
Stock.
</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 1996 1995 1994
<S> <C> <C> <C>
Earnings before cumulative effect of change in
accounting principle $ 11,251 $ 14,823 $ 9,491
Cumulative effect of change in accounting
for income taxes -- -- --
--------- --------- ---------
Net earnings $ 11,251 $ 14,823 $ 9,491
========= ========= =========
Weighted average number of shares
outstanding 12,287,459 10,882,950 9,299,848
Fully Diluted Earnings per Share:
Before cumulative effect of change in
accounting principle $ .92 $ 1.36 $ 1.02
Cumulative effect of change in accounting
principle -- -- .17
-------- -------- ---------
Net earnings $ .92 $ 1.36 $ 1.19
======== ======== =========
Additional Fully Diluted Computation:
Weighted average shares outstanding per
fully diluted computation above 12,287,459 10,882,950 9,299,848
Add dilutive effect of stock options
determined by the treasury stock
method 54,087 81,394 91,902
--------- --------- ---------
Weighted average shares outstanding as
adjusted 12,341,546 10,964,344 9,391,750
=========== =========== =========
Fully diluted earnings per share, as adjusted:
Before cumulative effect of change in
accounting principle $ .91 $ 1.35 $ 1.01
Cumulative effect of change in
accounting principle -- -- .16
--------- -------- ---------
Net earnings (a) $ .91 $ 1.35 $ 1.17
======== ======== =========
<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%.
The historical earnings per share and average shares outstanding have been
restated to reflect the 4,672,568 share stock dividend on July 11, 1994. The
weighted average shares outstanding include both Class A and Class B Common
Stock.
</TABLE>
<PAGE>
THE CHERRY CORPORATION Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
STATE OR COUNTRY
NAME OF SUBSIDIARY/DIVISION OF ORGANIZATION
--------------------------- -------------------
Cherry Electrical Products (1)
Waukegan, Illinois Not Applicable
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
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
(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 Statements, File Nos. 2-93004, 2-68204 and 033-63881.
Arthur Andersen LLP
-------------------
Arthur Andersen LLP
Chicago, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND CONDENSED CONSOLIDATED BALANCE
SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 4,213
<SECURITIES> 0
<RECEIVABLES> 62,640
<ALLOWANCES> 0
<INVENTORY> 54,734
<CURRENT-ASSETS> 129,938
<PP&E> 346,252
<DEPRECIATION> 186,944
<TOTAL-ASSETS> 303,339
<CURRENT-LIABILITIES> 79,204
<BONDS> 44,237
0
0
<COMMON> 12,335
<OTHER-SE> 145,957
<TOTAL-LIABILITY-AND-EQUITY> 303,339
<SALES> 424,681
<TOTAL-REVENUES> 424,681
<CGS> 319,492
<TOTAL-COSTS> 319,492
<OTHER-EXPENSES> 89,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,914
<INCOME-PRETAX> 14,849
<INCOME-TAX> 3,598
<INCOME-CONTINUING> 11,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,251
<EPS-PRIMARY> .92
<EPS-DILUTED> 0
</TABLE>
