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 (No Fee Required)
For this fiscal year ended the Last Day of February, 1997
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 25, 1997 held by nonaffiliates was approximately $77 million, based on
a calculation that 55% 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 25, 1997.
Number of common shares outstanding as of April 25, 1997:
7,672,620 shares of Class A Common
4,755,564 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 1997 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; Cherry Australia Pty., Ltd., Australia; and
Cherry de Mexico S.A. de C.V., Mexico. 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 operates a
branch sales and engineering office in Japan under the name Cherry Automotive-
Japan and a branch technical support office in South Korea under the name Cherry
Semiconductor International, Inc..
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, switch assemblies and sensors 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.
Hall-effect sensors can be used in applications where a magnetically actuated
solid state device is desireable, such as a position sensor for seat belt
engagement. Automotive 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, sensors, 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. Hall-effect sensors are
magnetically actuated solid state devices that can be used in a wide range of
office and industrial equipment applications to measure speed or position.
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 1997, sales to the
Company's five largest customers accounted for 41.5% of consolidated sales. Of
these five largest customers, sales to General Motors and Ford were 18.4% and
12.9%, respectively.
Within the Company's Automotive Market segment, four customers account for 78%
of the segment sales and include General Motors and Ford mentioned above. In
fiscal 1997, the Consumer and Commercial Market segment has one customer which
accounts for 13.9% 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, 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 raw material 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 Automotive Controls Group in Waukegan does not report
nor maintain a backlog number because they ship product based on daily releases
from their customers with minimal forecast data. Therefore, the Automotive
Market Segment backlog reported below excludes any potential orders for the
Automotive Controls Division. As a result of the above factors, the following
figures should not be considered indicative of sales for an ensuing period.
<TABLE>
Backlog as of
The Last Day of February
---------------------------
<CAPTION>
(000's Omitted) 1997 1996
--------- ---------
<S> <C> <C>
Automotive Market Segment $ 51,057 $ 43,450
Computer Market Segment 51,727 49,159
Consumer and Commercial Market Segment 40,561 41,390
--------- ---------
$ 143,345 $ 133,999
========= =========
</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 1997, the Company spent
approximately $22.2 million on product development. The Company spent
approximately $20.3 million and $14.8 million on product development in fiscal
1996 and 1995, respectively. The customer often pays for the tooling related to
their project. The tooling expense, net of amounts rebilled to the customer, is
reported in other income as tooling gain or loss.
EMPLOYEES
As of February 28, 1997, the Company employed 4,367 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 28, 1997.
Term as Business Experience During
Name Age Officer the Past Five Years
Peter B. Cherry 49 23 Chairman of the Board since 1992
and President since 1982
Alfred S. Budnick 59 20 Vice President of the Company and
President of Cherry Semiconductor
Corporation since 1977.
Klaus D. Lauterbach 54 5 Vice President since June 1992;
General Manager of Cherry Mikro-
schalter GmbH since 1990;
Assistant General Manager prior
to 1990.
Dan A. King 47 9 Vice President of Finance
since June 1995;
Secretary in 1993; Treasurer and
Corporate Controller prior to 1993.
Kevin G. Powers 37 2 Corporate Controller and Assistant
Secretary since June 1995;
Assistant Treasurer in January
1993; Manager, Corporate Account-
ing of Square D Company prior
to 1993.
Robert G. Terwall 44 1 Vice President of Cherry Electrical
Products Division and General
Manager of the Control Devices
Group since 1986
<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 that are located in
Illinois, Rhode Island and Germany and comprise 345,000, 151,000 and 402,000
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 136,000 square feet, with approximately 75% 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 31%
Consumer & Commercial Market 25%
------
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 6, 1997,
there were approximately 2,200 and 1,800 holders of record of the Class A and
Class B common stocks, respectively. 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>
<CAPTION>
Class A Common Class B Common
Fiscal 1997 High Low Dividend High Low Dividend
Quarters:
<S> <C> <C> <C> <C> <C> <C>
Fourth $16.75 $10.50 $ -- $16.00 $10.25 $ --
Third 11.50 10.75 -- 11.00 10.00 --
Second 12.00 10.56 -- 13.00 9.81 --
First 12.00 9.25 -- 12.89 9.00 --
<CAPTION>
Fiscal 1996
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 --
</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 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 439,592 424,681 339,237 275,269 266,231
Gross profit $ 119,186 105,189 97,018 80,179 76,521
Operating expenses $ 93,387 89,437 73,620 62,419 59,840
Earnings from operations $ 25,799 15,752 23,398 17,760 16,681
Other income, net $ 2,796 2,862 1,671 1,240 483
Earnings before interest and taxes $ 28,595 18,614 25,069 19,000 17,164
Interest expense, net $ 3,787 3,765 3,218 3,817 5,230
Earnings before income taxes, extra-
ordinary tax credit and cumulative
effect of change in accounting
principle $ 24,808 14,849 21,851 15,183 11,934
Income tax provision $ 8,894 3,598 7,028 5,692 4,216
Earnings before extraordinary tax
credit and cumulative effect of
change in accounting principle $ 15,914 11,251 14,823 9,491 7,718
Extraordinary tax credit $ -- -- -- -- 2,539
Cumulative effect of change in
accounting principle $ -- -- -- 1,542 --
Net earnings $ 15,914 11,251 14,823 11,033 10,257
OTHER STATISTICS
Net earnings as a percent of sales 3.6% 2.6% 4.4% 4.0% 3.9%
Average shares outstanding 12,366,471 12,287,459 10,882,950 9,299,848 9,184,228
Earnings per share:
Earnings before extraordinary tax
credit and cumulative effect of
change in accounting principle $ 1.29 .92 1.36 1.02 .84
Extraordinary tax credit -- -- -- -- .28
Cumulative effect of change in
accounting principle -- -- -- .17 --
Net earnings per share $ 1.29 .92 1.36 1.19 1.12
Return on average stockholders' equity 9.8% 7.4% 12.3% 12.6% 13.4%
Dividends per share $ -- -- -- -- --
Capital expenditures, net $ 38,797 50,864 44,736 23,356 19,023
Depreciation and amortization $ 28,049 23,406 18,768 16,720 18,023
FINANCIAL POSITION
Working capital $ 55,220 50,734 46,001 39,395 43,791
Current ratio 1.8 1.6 1.7 1.9 2.2
Total assets $ 295,646 303,339 261,193 193,548 183,219
Long-term debt $ 37,009 44,237 25,863 42,970 50,817
Total debt $ 62,866 73,135 48,658 53,632 58,248
Stockholders' equity $ 168,076 158,292 147,627 93,476 82,014
Stockholders' equity per share $ 13.54 12.83 12.03 10.03 8.83
Debt-to-capital ratio 27.2% 31.6% 24.8% 36.5% 41.5%
Net cash provided by operating
activities $ 45,712 24,340 23,786 28,347 26,871
PER EMPLOYEE DATA
Average number of employees 4,383 4,193 3,617 3,048 2,765
Net sales $ 100,295 101,283 93,790 90,311 96,286
Average assets employed $ 68,330 67,318 62,862 61,806 65,967
</TABLE>
<PAGE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FISCAL 1997 VS. FISCAL 1996
Consolidated net earnings for fiscal 1997 increased 41% to $15.9 million,
setting a new company record. Earnings per share of $1.29 increased 40% from
the prior year but were not a record because of additional shares
outstanding. Annual sales of $439.6 million were also a record, up 3.5% from
last year. Foreign denominated sales were reduced approximately $12 million
from the prior year because of the strengthening dollar during fiscal 1997.
Domestic sales increased 9% and international sales decreased 4%, despite
increasing 3% in local currency.
Consolidated operating profit for fiscal 1997 increased 64% to $25.8
million, or 5.9% of sales, from $15.8 million, or 3.7% of sales, in the prior
year. Gross margins for fiscal 1997 of 27.1% improved significantly from the
prior year's 24.8% as the result of improvements in manufacturing efficiency
and the successful resolution of last year's product startup issues.
Operating expenses, as a percent of sales, increased in fiscal 1997 as the
company increased its product development efforts. In fiscal 1997, the
company developed proprietary integrated circuits for the computer and
telecommunications markets and a new line of proprietary Hall-effect sensors.
Automotive business segment operating profits increased 211% in fiscal
1997 to $14.5 million, or 6.7% of sales, on a 12% increase in sales. Fiscal
1997 automotive sales of $215 million accounted for 49% of consolidated
sales. This dramatic improvement in operating profit is due to improvements
in manufacturing efficiency and the successful resolution of startup issues
pertaining to new product and process startups.
Computer business segment operating profits increased 30% in fiscal 1997
to $9.0 million, or 7.8% of sales, on a 7% decrease in sales. Approximately
70% of the fiscal 1997 computer market sales decrease is due to the
strengthening of the dollar. The remainder of the decrease is due to
continuing price pressure. The increase in operating profit on decreasing
sales can be attributed to improved manufacturing efficiencies, improved
margins on the new generation keyboards, and the successful resolution of
startup problems associated with last year's introduction of a new standard
keyboard.
Consumer and commercial business segment operating profits declined 20%
in fiscal 1997 on a 1% increase in sales. The profitability improvements in
domestic electronic controls were offset by increased sensor and integrated
circuit development efforts and decreased profitability on a reduced sales
level of proprietary switches.
Other income of $2.8 million for the current year declined slightly from
the prior year. A $400 thousand decline in earnings from joint venture
affiliates and a nonrecurring $1.3 million gain on the sale of a German
facility during the prior year were partially offset primarily by higher
customer tooling income and deferred income recognition on a completed
keyboard program.
Interest expense of $4.1 million for the current year increased slightly
from the $3.9 million in the prior year, primarily as a result of higher
borrowing levels throughout the year.
The effective tax rate for fiscal 1997 was 36% versus 24% in the prior
year. The rate was lower in the prior year primarily from a nonrecurring
benefit 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 and anticipated purchase commitments denominated in foreign currencies
(primarily German marks). At February 28, 1997, the U.S. dollar equivalent of
forward contracts outstanding approximated $9.5 million.
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 was 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 fiscal 1996 consolidated sales
compared to the prior year. The Automotive Market continued 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 fiscal 1996 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.
Fiscal 1996 consolidated 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
fiscal 1996 consolidated gross margin rate declined to 24.8% from 28.6% in
the prior year. The decline resulted from a combination of factors, listed
in the order of their significance, as follows:
. The Company experienced high production costs. In response, the Company
aggressively worked 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 led to margin
erosions in many products. Copper and plastic increased in price during
fiscal 1996. The weak dollar also resulted in higher material costs for
foreign-supplied purchased materials. These higher costs were not fully
recoverable from customers.
Fiscal 1996 domestic and foreign operating profit margins declined for the
reasons noted above. The decline occurred at the gross profit level, since
operating expenses were slightly lower as a percent of sales.
Fiscal 1996 operating profit margins by business segment were mixed. The
Automotive Market fiscal 1996 operating profit margin 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 fiscal 1996 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 fiscal 1996 operating profit
margin 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 fiscal 1996 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 fiscal 1996 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 fiscal
1996 were generally lower as a result of more favorable credit facilities and
general economic conditions.
The effective tax rate for fiscal 1996 was 24% versus 32% in the prior
year. The lower fiscal 1996 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 that resulted in the recognition of
pre-merger U.S. loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996, the Company improved its long-term financial flexibility by
arranging new credit facilities and a long-term debt placement. In fiscal 1997,
the Company's emphasis turned to improving cash flow through better operational
performance, working capital management and more moderate capital expenditures.
The consolidated debt-to-capital ratio decreased to 27.2% at February 28,
1997 from 31.6% at the end of the prior fiscal year.
Consolidated operations generated $45.7 million in cash, with an additional
$1.0 million provided by a dividend from the Company's joint venture in Japan.
Short-term debt and long-term debt provided additional funds in the amounts of
$2.7 million and $1.9 million, respectively. Proceeds from employee stock
purchase and stock option transactions also provided $.5 million. The Company
invested $39.1 million in facilities and equipment ($19.6 million domestic and
$19.5 million foreign). The Company also repaid $6.0 million on the domestic
revolver and uncommitted credit facilities and made principal payments on long-
term debt of $4.1 million.
Capital expenditures in fiscal 1998 are expected to continue at a moderate
level of 8% to 10% of sales which is lower than the 12% to 13% of sales
experienced in fiscal 1995 and 1996 when the Company had higher sales growth.
The capital expenditure rate may be revised further as sales growth estimates
are updated. Operations are expected to generate enough cash to fund capital
expenditures.
At February 28, 1997, the Company has unused lines of credit available of
approximately $52.1 million for domestic operations and $38.1 million for
foreign operations. These credit facilities and bank lines should be
sufficient, together with internally generated cash, to finance the Company's
operations.
<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, 1997 and 1996, and the related consolidated statements of earnings,
cash flows and stockholders' equity for each of the three years ended the last
day of February, 1997. 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, 1997 and 1996, and
the results of their operations and cash flows for each of the three years ended
the last day of February, 1997, 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 10, 1997
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except share data)
<CAPTION>
Year ended the last day of February
1997 1996 1995
<S> <C> <C> <C>
SALES AND COSTS
Net sales $ 439,592 $ 424,681 $ 339,237
Cost of products sold 320,406 319,492 242,219
--------- --------- ---------
Gross profit 119,186 105,189 97,018
--------- --------- ---------
EXPENSES
Research and engineering 29,135 27,017 20,567
Distribution 31,679 32,020 26,834
Administration 32,573 30,400 26,219
--------- --------- ---------
Operating expenses 93,387 89,437 73,620
--------- --------- ---------
EARNINGS
Earnings from operations 25,799 15,752 23,398
Other income, net 2,796 2,862 1,671
--------- --------- ---------
Earnings before interest and taxes 28,595 18,614 25,069
Interest expense, net 3,787 3,765 3,218
--------- --------- ---------
Earnings before income taxes 24,808 14,849 21,851
Income tax provision - Note C 8,894 3,598 7,028
--------- --------- ---------
Net earnings $ 15,914 $ 11,251 $ 14,823
========= ========= =========
EARNINGS PER SHARE $ 1.29 $ .92 $ 1.36
========= ========= =========
Average shares outstanding 12,366,471 12,287,459 10,882,950
========== ========== ==========
<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
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 6,215 $ 4,213
Receivables, less allowances of $2,245 and
$1,935, in 1997 and 1996, respectively 57,118 58,815
Inventories - Note E 54,786 54,734
Income taxes -- 2,218
Prepaid expenses and other current assets 6,734 9,958
------- -------
Total Current Assets 124,853 129,938
Land, Buildings & Equipment at Cost:
Land 2,461 2,588
Buildings and improvements 81,733 83,907
Machinery and equipment 261,419 243,134
Construction in progress 9,632 16,623
------- -------
355,245 346,252
Less: accumulated depreciation 195,978 186,944
------- -------
Total Land, Buildings & Equipment, net 159,267 159,308
Investment in affiliates and other assets,
net - Note A 11,526 14,093
------- -------
Total Assets $295,646 $303,339
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt - Note F $23,806 $24,699
Accounts payable 17,803 20,598
Payroll related accruals 11,833 13,435
Other accruals 13,574 16,273
Income taxes 566 --
Current maturities of long-term debt - Note F 2,051 4,199
------- -------
Total Current Liabilities 69,633 79,204
Long-term debt - Note F 37,009 44,237
Deferred income taxes, net and deferred credits 20,928 21,606
Stockholders' Equity - Note B:
Class A common stock, $1.00 par value
Authorized 20,000,000 shares; issued and
outstanding 7,667,119 in 1997 and
7,608,341 in 1996 7,667 7,608
Class B common stock, $1.00 par value
Authorized 10,000,000 shares; issued and
outstanding 4,750,063 in 1997 and
4,726,577 in 1996 4,750 4,727
Additional paid-in capital 41,858 41,400
Retained earnings 110,357 94,443
Cumulative translation adjustments 3,444 10,114
------- -------
Total Stockholders' Equity 168,076 158,292
------- -------
Total Liabilities and Stockholders' Equity $295,646 $303,339
======== ========
<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
1997 1996 1995
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $15,914 $11,251 $ 14,823
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 28,049 23,406 18,768
(Gain)loss on sale of land, buildings,
equipment and intangibles (76) (1,387) 127
Income from unconsolidated affiliates (62) (511) (625)
Changes in assets and liabilities:
(Increase) in receivables (780) (4,943) (10,472)
(Increase) in inventories (3,339) (6,728) (10,538)
(Decrease) increase in accounts payable (1,983) (2,042) 7,614
Decrease (increase) in income taxes 3,455 (1,726) 487
Increase in deferred income taxes 3,303 3,568 2,433
Decrease in other working capital,
excluding cash and short-term borrowings 1,231 3,452 1,169
------- ------- --------
Total adjustments 29,798 13,089 8,963
------- ------- --------
Net cash provided by operating activities 45,712 24,340 23,786
------- ------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales of land, buildings and
equipment 371 2,014 806
Expenditures for land, buildings and equipment (39,092) (52,169) (44,865)
Dividend from joint venture affiliate 1,050 -- --
Other (198) (701) (759)
-------- ------- --------
Net cash used by investing activities (37,869) (50,856) (44,818)
-------- ------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in short-term debt 2,720 6,219 10,797
Decrease in domestic revolver and
uncommitted credit facilities (6,000) (3,000) (5,800)
Principal payments on long-term debt (4,116) (3,863) (14,928)
Net proceeds from equity offering -- -- 33,176
Proceeds from long-term debt 1,935 25,000 --
Equity and other transactions 540 538 487
------- ------- --------
Net cash from (used by) financing activities (4,921) 24,894 23,732
------- ------- --------
Effect of exchange rate changes on cash flows (920) 141 297
------- ------- --------
Net increase (decrease) in cash and equivalents 2,002 (1,481) 2,997
Cash and equivalents, at beginning of year 4,213 5,694 2,697
------- ------- --------
Cash and equivalents, at end of year $ 6,215 $ 4,213 $ 5,694
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,983 $ 3,702 $ 3,314
Income taxes (net of refunds) $ 2,040 $ 2,143 $ 4,108
<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, 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
Employee options and stock
purchase plan 59 23 458 -- -- 540
Net earnings -- -- -- 15,914 -- 15,914
Translation adjustments -- -- -- -- (6,670) (6,670)
------ -------- ------- --------- ------------ ---------------
Balance, 1997 $7,667 $ 4,750 $41,858 $ 110,357 $ 3,444 $ 168,076
====== ======== ======= ========= =========== ==============
<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 28,
1997, include $7,420 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 32% and 37% of the
Company's inventories as of the last day of February 1997 and 1996,
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 $27,907, $23,406 and $18,768 for fiscal
1997, 1996 and 1995, 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 Company has not recorded deferred income taxes applicable to certain
undistributed earnings of foreign subsidiaries and affiliates that are
indefinitely reinvested. 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
$22,171, $20,319 and $14,841 for fiscal 1997, 1996 and 1995, 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.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of". The statement establishes accounting
standards for the impairment of long-lived assets, certain intangibles and
goodwill related to those assets. There was no material effect on the financial
statements as a result of adoption.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
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
The sources of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
Year ended the last day of February 1997 1996 1995
--------- ------- --------
<S> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES
United States $ 14,552 $ 8,056 $ 13,631
Foreign 10,256 6,793 8,220
PROVISIONS FOR INCOME TAXES
Current: Federal and state $ 1,990 $ 358 $ 2,196
Foreign 4,257 1,582 2,206
--------- ------- --------
Current provision 6,247 1,940 4,402
--------- ------- --------
Deferred:Federal and state 2,873 657 1,605
Foreign (226) 1,001 1,021
---------- ------- --------
Deferred provision 2,647 1,658 2,626
--------- ------- --------
Total income tax provision $ 8,894 $ 3,598 $ 7,028
========= ======= ========
</TABLE>
<PAGE>
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 1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Income taxes computed at federal
statutory tax rates $ 8,683 $ 5,197 $ 7,429
Equity in earnings of unconsolidated
affiliates (22) (179) (213)
Foreign tax rate differentials 490 284 558
Current taxation of foreign earnings,
net of foreign tax credit (281) (504) (1,348)
Change in valuation allowances, net (14) (610) --
State tax provisions, net of federal
benefits 218 (211) 538
Other, net (180) (379) 64
--------- -------- --------
Consolidated provisions $ 8,894 $ 3,598 $ 7,028
======== ======= ========
</TABLE>
For income tax reporting at February 28, 1997, the Company has state tax credit
carryforwards of approximately $919 that expire in the years 2002 through 2004.
The carryforwards will be available to reduce future income tax liabilities.
<PAGE>
The tax effects of the significant temporary differences which comprise the
deferred tax liabilities and assets follows:
<TABLE>
<CAPTION>
Year ended the last day of February 1997 1996
------- ----------
<S> <C> <C>
LIABILITIES
Book versus tax basis of depreciable assets $ 15,966 $ 14,816
Foreign currency translation 2,990 5,976
Other 2,521 2,316
-------- ---------
Gross deferred tax liabilities 21,477 23,108
-------- ---------
ASSETS
Reserves and nondeductible accruals 1,662 1,430
Undistributed earnings of foreign subsidiaries 1,425 1,632
Compensation related accruals 1,475 1,111
Inventory valuation 1,459 853
Pre-merger NOL and credit carryforwards -- 838
Other 865 1,162
Valuation allowance for deferred tax assets (373) (387)
--------- ----------
Net deferred tax assets 6,513 6,639
-------- ---------
Net deferred tax liability $ 14,964 $ 16,469
======== =========
</TABLE>
The valuation allowance of $373 relates to noncurrent tax assets for net
operating loss carryforwards due to the uncertainty of realizing the benefit of
certain foreign carryforwards. No other valuation allowances are deemed
necessary.
<PAGE>
NOTE D: SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year ended the last day of February 1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
OTHER INCOME (EXPENSE)
Earnings of affiliates $ 62 $ 511 $ 625
Investment grants 320 344 426
Tooling income 838 387 450
Foreign exchange 130 (9) (182)
Gain(loss) on sale of assets 76 1,387 (127)
Completed keyboard program 277 -- --
Other, net 1,093 242 479
-------- ------- --------
Total $ 2,796 $ 2,862 $ 1,671
======== ======= ========
Interest expense $ 4,109 $ 3,914 $ 3,396
Interest income (322) (149) (178)
--------- ------- --------
INTEREST EXPENSE, NET $ 3,787 $ 3,765 $ 3,218
======== ======= ========
- ---------------------------------------------------------------------------
</TABLE>
NOTE E: INVENTORIES
<TABLE>
<CAPTION>
The last day of February 1997 1996
------- --------
<S> <C> <C>
INVENTORIES
Raw materials $10,915 $ 8,655
Component parts 10,244 11,663
Work-in-process 19,121 18,036
Finished goods 14,506 16,380
------- --------
Total inventories $54,786 $ 54,734
======= ========
Excess of replacement cost over the stated
value of LIFO inventories $ 4,844 $ 6,028
</TABLE>
<PAGE>
NOTE F: DEBT
<TABLE>
<CAPTION>
The last day of February 1997 1996
------- --------
<S> <C> <C>
SHORT-TERM DEBT
(With domestic and foreign banks)
Bank loans outstanding $23,806 $ 24,699
Weighted average interest rate 3.8% 3.8%
LONG-TERM DEBT
Foreign obligations:
Construction, mortgage and equipment loans (at
4% to 5.5%, secured by real estate in the
amount of $12,588 in the Federal Republic
of Germany) due in periodic installments
through December 31, 2000 $ 5,029 $ 8,844
Capital lease obligations payable in installments
through December 2000 with a weighted average
interest rate of 8.15% 2,031 1,592
Domestic obligations:
Senior unsecured notes, at 6.99%, due in 2007 25,000 25,000
Borrowings under unsecured revolving credit
agreement with interest at LIBOR plus
.375% to .625%, prime rate or competitive
bid rates 7,000 13,000
------- --------
39,060 48,436
Less current maturities 2,051 4,199
------- --------
Long-term debt $37,009 $ 44,237
======= ========
</TABLE>
The following principal payments, exclusive of capitalized lease payments, are
required during the next five fiscal years: 1998 - $1,441; 1999 - $1,441; 2000
- - $1,442; 2001 - $705; 2002 - $7,000.
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 a maturity of May 12, 2001, but may be
extended for an additional year 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 covenants, the Company is required to:
. Maintain a leverage ratio, as defined, of 40% or less. The leverage ratio at
February 28, 1997, was 26.6%.
. Maintain an interest expense coverage ratio, as defined, of 2.25 to 1.00 or
greater through February 28, 1997 and 3.00 to 1.00 at all times thereafter.
The interest expense coverage ratio at February 28, 1997, was 4.28 to 1.00.
. Maintain an indebtedness to cash flow ratio, as defined, of 2.00 to 1.00 or
less. The indebtedness to cash flow ratio at February 28, 1997, was 1.08 to
1.00.
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 28, 1997.
As of February 28, 1997, the Company had unused lines of credit available for
general corporate purposes of approximately $52.1 million for U.S. operations
and $38.1 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, foreign exchange and commodity price risks.
The Company selectively enters into forward contracts to hedge certain firm and
anticipated purchase commitments denominated in foreign currency (principally
German marks). Gains or losses related to qualifying hedges of foreign currency
transactions are recognized in income when the hedged transaction occurs. Other
foreign exchange transactions are marked-to-market on a current basis through
income. On the last day of February, 1997 and 1996, the U. S. dollar equivalent
of forward contracts outstanding approximated $9.5 million and $6.1 million,
respectively.
The Company also uses derivative contracts to reduce the impact of commodity
price changes on the cost of its products. The Company entered into a collar
agreement that effectively sets the maximum and minimum price per pound on 2
million pounds of copper ranging from a floor of $.86 per pound to a maximum of
$1.05 per pound for the period March 1, 1997, through February 28, 1998. No
premium was paid for this contract.
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% deutsche mark 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, 1997 and 1996,
unamortized premiums amounted to $328 and $536, 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 1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- -------- ------ ------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Other assets, net $ 328 $ 41 $ 536 $ 237
Currency contracts (471) (471) -- 22
Commodity -- 79 -- --
FINANCIAL LIABILITIES
Long-term debt $37,029 $ 36,358 $ 46,844 $47,395
</TABLE>
The carrying amounts shown above are included in the consolidated balance sheet.
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 AND COMMODITY CONTRACTS: The fair value of foreign currency and
commodity 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 with the same remaining maturities, using the
discounted cash flow method.
<PAGE>
NOTE I: LEASES
The Company leases automobiles, machinery and equipment, including computers,
under noncancelable operating leases which expire over the next eight years.
Renewal and escalation clauses are not significant. Rent expense was $3,787,
$2,778 and $2,229 for fiscal 1997, 1996 and 1995, respectively.
Land, buildings and equipment include capitalized leases of $6,245 and
$6,279 less accumulated amortization of $4,145 and $4,866 as of the last
day of February 1997 and 1996, 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>
1998 $ 748 $ 2,208
1999 563 1,292
2000 563 664
2001 470 361
2002 -- 176
Thereafter -- 262
---------- ---------
Total minimum lease payments $ 2,344 $ 4,963
=========
Less amount representing interest 313
----------
Total obligations under capitalized
leases $ 2,031
==========
</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: STOCK BASED COMPENSATION PLANS
STOCK OPTION PLANS
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
Company's 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 Company's annual meeting
automatically receives 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 divided by the fair market value of a share of Class
A Common Stock on that date. Stock options are exercisable in installments but
not prior to twelve months nor later than ten years after the grant date.
<PAGE>
The following table summarizes the transactions pursuant to the Company's stock
option plans for the three-year period ended February 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
--------------------- ----------------------
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
February 28, 1994 155,886 $5.14
Exercised (49,106) 4.50
------- ----
February 28, 1995 106,780 5.43 88,653 $5.01
------- ----
Granted 122,722 14.97
Exercised (28,472) 5.21
Cancelled (15,334) 14.07
------- -----
February 29, 1996 185,696 11.06 75,794 5.45
------- -----
Granted 285,377 9.42
Exercised (46,972) 4.54
Cancelled (11,596) 10.21
Expired (4,000) 4.13
------- ----
February 28, 1997 408,505 $10.76 61,040 $11.89
======= ======
</TABLE>
<TABLE>
<CAPTION>
Exercisable Options at
Options Outstanding at February 28, 1997 February 28, 1997
- ----------------------------------------------- ---------------------------------
Wtd. Avg.
Remaining Wtd. Avg. Wtd. Avg.
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- --------------- ------ ------------ ----- ------ -----------
<S> <C> <C> <C> <C> <C>
$7.50 25,002 0.2 $7.50 25,002 $ 7.50
$9.25 to $15.25 383,503 9.0 10.97 36,038 14.93
------- --- ----- ------ ----------
408,505 8.4 $10.76 61,040 $ 11.89
======= === ====== ====== ==========
</TABLE>
<PAGE>
EMPLOYEE STOCK PURCHASE PLANS
The Company sponsors an Employee Stock Purchase Plan that allows eligible
employees to contribute a portion of their pay towards the purchase of the
Company's Common Stock. Up through December 31, 1996, the program was governed
by the 1980 Employee Stock Purchase Plan. Under the plan, 35,292, 33,453 and
26,689 shares were issued at $9.26, $9.26 and $9.98 per share during fiscal
1997, 1996 and 1995, respectively.
In June, 1996, the stockholders approved the 1996 Employee Stock Purchase Plan
(1996 Plan) to replace the 1980 Plan, effective January 1, 1997. Under the 1996
Plan, an aggregate of 400,000 shares of Class A Common Stock may be sold plus
29,196 shares remaining under the 1980 Plan. The Compensation Committee of the
Board of Directors administers the plan and has the authority to establish the
annual purchase price and contribution levels within the limitations provided by
the plan. For the initial plan year beginning January 1, 1997, the Compensation
Committee approved 50,000 shares for issuance, set the purchase price at 95% and
limited the maximum employee contribution to $5 thousand dollars. At February
28, 1997, 429,196 shares are available for issuance under the plan.
ACCOUNTING
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation" applies to the Company for the fiscal year ended the
last day of February 1997. SFAS No. 123 requires a fair value-based method to
determine the costs of such plans. As allowed by the new standard, the Company
continued to account for its stock-based compensation plans under the prior
standard of Accounting Principles Board (APB) Opinion No. 25. Had compensation
costs been determined consistent with SFAS No. 123, the Company's pro-forma net
income and earnings per share would have been $11.0 million and $.90,
respectively, for fiscal 1996 and $15.4 million and $1.25, respectively, for
fiscal 1997. Because SFAS No. 123 does not apply to options granted prior to
March 1, 1995, the resulting pro-forma compensation cost may not be
representative of that to be expected in future years.
The weighted average estimated fair value of options granted during fiscal 1996
and 1997 was $7.47 and $5.49, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in fiscal 1996
and 1997, respectively: risk-free interest rate of 6.33% and 6.45%; expected
lives of 6.70 years and 7.45 years; expected volatility of 43.8% and 46.8%;
and no dividends for either year.
NOTE L: EMPLOYEE BENEFIT PLANS
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 1997, 1996 and 1995, the expenses
for these plans were $4,630, $2,980 and $4,075, 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 are
paid from the general assets of the Company. Amounts deferred by participants
as of February 28, 1997 were not significant.
<PAGE>
NOTE M: 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 18.4% and 12.9% of
consolidated net sales in fiscal 1997,16.4% and 12.5% in fiscal 1996 and 13.9%
and 13.8% 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
1997 and 1996, export sales from the Company's U.S. operations to unaffiliated
customers were approximately 11% and 10% of consolidated sales, respectively.
Export sales were to the following geographic areas:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
----------- -----------
<S> <C> <C>
Canada $ 16,140 $ 13,928
Europe 13,746 11,612
Far East 5,744 7,375
Mexico, Central and South America 12,217 7,302
Other 1,420 1,112
-------- ---------
Total export sales $ 49,267 $ 41,329
======== =========
</TABLE>
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>
1997
Sales to unaffiliated customers $ 215,066 $ 116,051 $108,475 $ -- $ 439,592
Intersegment sales 2,705 25,386 6,315 (34,406) --
Total net sales 217,771 141,437 114,790 (34,406) 439,592
Earnings from operations 14,461 9,034 5,977 (3,673) 25,799
Identifiable assets 135,161 82,481 61,841 16,163 295,646
Capital expenditures, net 16,270 13,637 8,890 -- 38,797
Depreciation 13,705 7,667 6,535 -- 27,907
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
</TABLE>
<PAGE>
<TABLE>
GEOGRAPHIC AREA INFORMATION
<CAPTION>
United Eliminations
Fiscal Year States International & Corporate Consolidated
------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
1997
Sales to unaffiliated customers $ 270,717 $ 168,875 $ -- $ 439,592
Transfers between areas 5,862 28,544 (34,406) --
Total net sales 276,579 197,419 (34,406) 439,592
Earnings from operations 19,630 9,747 (3,578) 25,799
Identifiable assets 164,909 114,074 16,663 295,646
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
<FN>
Net assets, including intercompany balances, of foreign subsidiaries and
affiliates were $70,377 (1997), $74,662 (1996), and $70,147 (1995) 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>
1997 IN TOTAL $ 439,592 $ 119,186 $ 15,914 $ 1.29
BY QUARTERS
Fourth 108,781 29,276 4,023 .32
Third 116,733 35,097 7,181 .58
Second 102,377 25,438 1,505 .12
First 111,701 29,375 3,205 .26
1996 IN TOTAL $ 424,681 $ 105,189 $ 11,251 $ .92
BY 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
</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 1997 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 1997 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 1997 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Employment Contracts and Change of
Control Agreements" in the Company's Proxy Statement for its 1997 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 1997.
<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
Date May 20, 1997 By /s/ Dan A. King
------------------------
Dan A. King
Vice President of Finance,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities indicated as of May 20, 1997:
Signature Title
- -------------------------- ---------------------------
By /s/Peter B. Cherry Chairman of the Board,
------------------------- President and Director
Peter B. Cherry (principal executive officer)
By /s/Dan A. King Vice President of Finance,
------------------------ Treasurer and Secretary
Dan A. King (principal financial officer)
By /s/Kevin G. Powers Corporate Controller and
------------------------- Assistant Secretary
Kevin G. Powers (principal accounting officer)
By /s/Alfred S. Budnick Vice President, President of
------------------------- Cherry Semiconductor Corporation
Alfred S. Budnick and Director
By /s/Charles W. Denny Director
-------------------------
Charles W. Denny
By /s/Peter A. Guglielmi Director
-------------------------
Peter A. Guglielmi
By /s/Thomas L. Martin, Jr Director
--------------------------
Dr. Thomas L. Martin, Jr.
By /s/Robert B. McDermott Director
-------------------------
Robert B. McDermott
By /s/W. Ed Tyler Director
------------------------
W. Ed Tyler
By /s/Henry J. West Director
-------------------------
Henry J. West
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 1997, 1996 AND 1995
(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:
1997 $ 1,935 $ 1,247 $ (937) $ 2,245
======= ======= ======= =======
1996 $ 1,818 $ 301 $ (184) $ 1,935
======= ======= ======= =======
1995 $ 1,368 $ 293 $ 157 $ 1,818
======= ======= ====== =======
<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, 1997.
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)
g.1996 Employee Stock Purchase Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1996 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 1997 1996 1995
<S> <C> <C> <C>
Net earnings $ 15,914 $ 11,251 $ 14,823
========= ========= =========
Weighted average number of shares
outstanding 12,366,471 12,287,459 10,882,950
Primary Earnings per Share:
Net earnings $ 1.29 $ .92 $ 1.36
========= ========= =========
Additional Primary Computation:
Weighted average shares outstanding
per primary computation above 12,366,471 12,287,459 10,882,950
Add dilutive effect of stock options
determined by the treasury stock
method 61,789 53,545 80,970
--------- --------- ---------
Weighted average shares outstanding as
adjusted 12,428,260 12,341,004 10,963,920
========== ========== ==========
Primary earnings per share, as adjusted:
Net earnings (a) $ 1.28 $ .91 $ 1.35
========= ========= =========
<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 1997 1996 1995
<S> <C> <C> <C>
Net earnings $ 15,914 $ 11,251 $ 14,823
========= ========= =========
Weighted average number of shares
outstanding 12,366,471 12,287,459 10,882,950
Fully Diluted Earnings per Share:
Net earnings $ 1.29 $ .92 $ 1.36
========= ========= =========
Additional Fully Diluted Computation:
Weighted average shares outstanding per
fully diluted computation above 12,366,471 12,287,459 10,882,950
Add dilutive effect of stock options
determined by the treasury stock
method 104,411 54,087 81,394
--------- --------- ---------
Weighted average shares outstanding as
adjusted 12,470,882 12,341,546 10,964,344
========== ========== ==========
Fully diluted earnings per share, as adjusted:
Net earnings (a) $ 1.28 $ .91 $ 1.35
========= ========= =========
<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 Semiconductor International, Inc.
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
Cherry de Mexico, S.A. de C.V.
Juarez, Mexico Mexico
(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 and 33-63881.
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 statments.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 6,215
<SECURITIES> 0
<RECEIVABLES> 57,118
<ALLOWANCES> 0
<INVENTORY> 54,786
<CURRENT-ASSETS> 124,853
<PP&E> 355,245
<DEPRECIATION> 195,978
<TOTAL-ASSETS> 295,646
<CURRENT-LIABILITIES> 69,633
<BONDS> 37,009
0
0
<COMMON> 12,417
<OTHER-SE> 155,659
<TOTAL-LIABILITY-AND-EQUITY> 295,646
<SALES> 439,592
<TOTAL-REVENUES> 439,592
<CGS> 320,406
<TOTAL-COSTS> 320,406
<OTHER-EXPENSES> 93,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,109
<INCOME-PRETAX> 24,808
<INCOME-TAX> 8,894
<INCOME-CONTINUING> 15,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,914
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 0
</TABLE>
