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, 2000
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 incorporation (I. R. S. Employer
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:
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 Common Stock on April 28, 2000
held by nonaffiliates was approximately $81 million, based on a calculation that
45% of the shares are owned by nonaffiliates and are valued at the closing price
as reported on the Nasdaq National Market tier of The Nasdaq Stock Market on
April 28, 2000.
Number of shares of Common Stock outstanding as of April 28, 2000 was
10,079,983.
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 2000 Annual Meeting
<PAGE>
INCLUSION OF FORWARD LOOKING INFORMATION
Certain statements under the captions "BUSINESS", "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and elsewhere in this
report constitute "Forward-Looking Statements" within the meaning of Section 21E
of the Securities Exchange Act. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, changes in the following: general economic and business
conditions, demand for the Company's products, competition, currency
fluctuations, interest rate fluctuations, relationships with strategic or major
customers, suppliers, joint venture partners and product distributors, cost and
availability of raw materials, Year 2000 readiness, technology, domestic and
international business legislation and regulations, our ability to obtain
adequate financing in the future, operational capabilities due to natural
disasters and other unforeseen events. Although the Company believes that its
expectations with respect to forward-looking statements are based upon
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results, performance or
achievements of the Company will not differ materially from any future results,
performance or achievement expressed or implied by such forward-looking
statement.
In addition to the risks and uncertainties of ordinary business operations, the
forward looking statements of the Company contained in this Annual Report on
Form 10-K are also subject to the following risks and uncertainties:
FOREIGN CURRENCY TRANSLATION
The Company has substantial operations outside of the United States. For fiscal
2000, international operations provided 51% of consolidated sales and utilized
47% of identifiable assets. As a result, fluctuations in currency exchange
rates can significantly effect the Company's sales, profitability and financial
position when the foreign currencies, primarily German marks, of its
international operations are translated into U.S. dollars for financial
reporting. Although the Company cannot predict the extent to which currency
fluctuations may or will effect the Company's business and financial position,
there is a risk that such fluctuations will have an adverse impact on the
Company's sales, profits and financial position for locations outside the United
States.
CYCLICAL DEMAND FOR PRODUCTS OF THE COMPANY AND RELIANCE ON MAJOR CUSTOMERS
Many of the Company's products are sold to industries that are cyclical and
dependent upon economic conditions, consumer confidence or other matters beyond
the control of the Company. In particular, the automotive industry, which is
sensitive to such factors, is currently the Company's largest market and
comprised 46% of consolidated sales in fiscal 2000. The Company believes that
increased market penetration and increased electrical and electronic content per
vehicle would offset a decline in automotive sales to some extent. However, a
significant reduction in automotive production in North America or Western
Europe or a loss of a significant portion of business from its major customer
could have an adverse effect on the Company's business. The labor strike at
General Motors in fiscal 1999 had an adverse effect on Company sales. Future
labor strikes at General Motors or other major automotive customers could have
an adverse effect on the Company's business. Demand in the computer, consumer
and commercial markets served by the Company is also directly related to general
economic conditions. Accordingly, a downturn in U.S. or foreign economies could
have a negative impact on the Company's results of operations.
2
<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 proprietary
and custom electrical and electronic components used by a broad range of Tier 1
suppliers, original equipment manufacturers (OEM's) and distributors in the
automotive, computer and consumer and commercial markets.
On March 9, 2000 the Company announced that it had signed a definitive agreement
to sell its subsidiary, Cherry Semiconductor Corporation to a third party. The
sale was completed on April 3, 2000. Therefore, Cherry Semiconductor
Corporation has been treated as a discontinued operation and removed from the
content in Part I and Part II of this Annual report on Form 10-K. See also Note
C to the Financial Statements in Item 8 of this report for disclosures on the
discontinued operation.
Cherry's executive offices are located in Waukegan, Illinois, which also
contains the operations of the Cherry Automotive division. The other operating
division, Cherry Electrical Products, is located in Pleasant Prairie, Wisconsin.
Its wholly owned subsidiary companies operate in the following locations: Cherry
GmbH, the Federal Republic of Germany; Cherry Electrical Products Limited,
United Kingdom; Cherry SARL, France; Cherasia Limited, Hong Kong; Cherry, spol.
s r.o., 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 Limited, respectively.
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 Switches and Modules segment designs, manufactures and sells
switches, switch assemblies, sensors and electronic modules for automotive
manufacturers and suppliers worldwide. Automobile special-use switches and
switch assemblies are used in a variety of applications including latches,
safety and direct operated controls, such as door and trunk electric latches,
cruise control and overdrive applications, central door locks, power windows,
seats and mirrors. Applications for the Company's electronic control modules
include power seat adjustments and hydraulic systems for sunroofs and
convertible tops. Hall-effect sensors can be used in applications where a
magnetically actuated solid state device is desirable, such as a position sensor
for occupant safety systems. Automotive products are custom made for major
U.S., European and Japanese Tier 1 suppliers and original equipment
manufacturers. The Company's automotive customers have generally paid for the
tooling and other special manufacturing requirements.
The Computer Keyboards segment designs, manufactures and sells keyboards and
related products for computer applications. Cherry sells standard and advanced
performance keyboards for use with personal computers; data entry, point-of-sale
and reservation terminals; word processing systems; and other computer input
applications. Advanced performance ("AP") keyboards include integrated
magnetic-stripe readers, chip-card readers and/or bar code scanners, The
company's newest AP keyboards now offer fingerprint recognition, which
incorporate biometric technology for security applications.
3
The Switches and Controls segment designs, manufactures and sells switches,
sensors, electronic controls and displays, infrared controls and multifunction
modules used in appliances, office equipment, postage machines, motorcycle
controls, industrial controls, exercise equipment and personal computers. 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.
Plasma display products are primarily sold to the entertainment industry as
readouts for electronic games. Electronic controls are used in office equipment
and appliances. Hall-effect sensors can be used in a wide range of office,
industrial and exercise equipment applications to measure speed or position
involving harsh environments.
Inflation has not been a material factor in any segment.
MARKETS, MAJOR CUSTOMERS AND SEASONALITY
The Company sells to three markets; the Automotive market, the Computer market
and the Consumer and Commercial market. The Automotive market is our largest
market and accounts for 46% of total sales while the Computer market and the
Consumer and Commercial markets account for 28% and 26% of total sales,
respectively, for the year ended February 29, 2000.
The Company's sales are made to Tier 1 and Tier 2 suppliers, original equipment
manufacturers, and to independent distributors. In fiscal 2000, sales to the
Company's five largest customers accounted for 43% of consolidated sales. Of
these five largest customers, sales to General Motors were 19%. No other
customer accounted for 10% or more of consolidated sales.
Within the Company's Automotive Switches and Modules segment, two customers
account for 62% of the segment sales and include General Motors mentioned above.
In fiscal 2000, the Computer Keyboards segment has one customer that accounts
for 34% of that segment's sales. One customer accounts for 11% of the sales for
the Switches and Controls segment.
The Company normally experiences a slowdown in sales during the summer months
from model changeovers and factory vacation shutdowns by its customers.
DISTRIBUTION
Domestic and foreign sales are handled by Company sales personnel, Cherry
foreign sales offices, or through independent sales representatives and
distributors that are supported by the Company's customer service personnel.
The independent sales organizations also sell products for other companies,
although generally not those that compete with Cherry products.
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. The Company is the largest
non-captive manufacturer of computer keyboards in Europe. 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.
4
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
cancelable - subject to payment by the customer for charges incurred up to the
date of cancellation. Cherry Automotive Division 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 backlog reported below for
the Automotive Switches and Modules segment excludes any potential orders for
this domestic operation. 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) 2000 1999
--------- ---------
<S> <C> <C>
Automotive Switches and Modules Segment $ 26,867 $ 24,679
Computer Keyboards Segment 36,288 34,918
Switches and Controls segment 24,930 35,836
--------- ---------
$ 88,085 $ 95,433
========= =========
</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 years ended the last day of February 2000, 1999 and 1998 the
Company spent approximately $11,774 million, $12,035 million and $10,810 million
on product development, 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 29, 2000, the Company employed 3,424 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.
5
<PAGE>
ITEM 2. PROPERTIES
Cherry owns and leases manufacturing, warehousing and office space around the
world. The Company owns its major facilities that are located in Illinois,
Wisconsin and Germany that comprise approximately 280,000, 153,000 and 402,000
square feet, respectively. In addition, the Company also owns a 33,000 square
foot facility in England. All owned facilities noted above are used for a
combination of production, warehousing and administrative activities. The
Company also leases approximately 177,000 square feet in facilities used 88% for
production, assembly and warehousing and the balance primarily for sales
activities. The leases expire at various dates through February 2017.
The total owned and leased facilities noted above are currently used by the
business segments in the following estimated proportion:
Automotive Switches and Modules 49%
Computer Keyboards 24%
Switches and Controls 27%
-------
100%
=======
All facilities are in generally good condition and provide adequate and suitable
space for each operation.
The Company utilizes machinery and equipment necessary to conduct its
operations. Substantially all 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 and equipment.
ITEM 3. LEGAL PROCEEDINGS
The Company is named in various suits and claims that 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.
In April 2000, four class action lawsuits were filed in the Court of Chancery
of the State of Delaware against the Company and its directors, alleging,
inter alia, breach of fiduciary duties on the part of the directors of the
Company in connection with Peter Cherry's proposal to acquire the Company. See
Footnote Q for more information on Mr. Cherry's proposal. On May 9, 2000,
another class action suit was filed in Delaware Chancery Court. The Company
believes the claims against it are without merit and intends to file motions to
dismiss. The Company further intends to deny and vigorously defend these cases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
6
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, 2000.
Term as Business Experience During
Name Age Officer the Past Five Years
Peter B. Cherry 52 26 Chairman of the Board since
1992 and President since 1982
Alfred S. Budnick 62 23 Vice President of the Company
and President of Cherry
Semiconductor Corporation
since 1977. (see * below)
Klaus D. Lauterbach 57 8 Vice President of the Company
since June 1992; General
Manager of Cherry GmbH since
1990; Assistant General
Manager prior to 1990.
Dan A. King 50 12 Vice President of Finance and
Administration since September
1997; V. P. of Finance since
June 1995; Secretary in 1993;
Treasurer and Corporate
Controller prior to 1993.
Kevin G. Powers 40 4 Corporate Controller and
Assistant Secretary since June
1995; Assistant Treasurer
1993-1995.
Robert G. Terwall 46 3 Vice President of the Company
since June 1997; General
Manager of Cherry Electrical
Products Division since 1986.
Kenneth C. Kunin 37 1/2 Vice President of the Company
since November 1999; General
Manager of Cherry Automotive
Division since November 1999;
Director of New Business
Development from January 1999;
Director of Automotive
Engineering prior to 1999.
* Effective April 12, 2000, Mr. Budnick resigned as executive officer and
director of the Company as a consequence of the sale of Cherry Semiconductor
Corporation.
7
<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 CHER. On June 17, 1999, the
stockholders approved the reclassification of its two classes of common stock to
one class of voting common stock. The price history of the former Class B
voting common stock is shown for all prior periods. As of April 28, 2000, there
were approximately 1,600 holders of record. 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>
(Dollars) First Quarter Second Quarter Third Quarter Fourth Quarter
Years ended the Last Day of February 2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $14.50 $19.00 $15.75 $17.31 $13.25 $15.38 $25.00 $15.50
Low 12.00 16.25 12.25 10.50 9.75 9.50 10.00 12.00
Cash dividends per share -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Quarterly Results (Unaudited)
(Dollars in thousands except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
Years ended the Last Day of February 2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $92,755 $92,698 $88,857 $81,588 $95,151 $99,854 $83,924 $85,741
Gross profit 23,614 25,666 22,944 21,891 23,961 30,311 21,483 20,392
Earnings from continuing operations 2,545 4,494 1,140 1,335 2,486 6,156 (306) 1,961
Earnings from discontinued operations 1,031 1,837 977 184 1,239 2,034 3,143 851
----- ------ ----- ------ ----- ----- ----- -----
Net earnings $3,576 $6,331 $2,117 $1,519 $3,725 $8,190 $2,837 $2,812
====== ====== ====== ====== ====== ====== ====== ======
Basic Earnings per Share:
Continuing operations $ .25 $ .36 $ .11 $ .11 $ .25 $ .49 $ (.03) $ .18
Discontinued operations .10 .15 .10 .01 .12 .17 .31 .08
----- ----- ----- ----- ----- ----- ----- -----
Basic net earnings $ .35 $ .51 $ .21 $ .12 $ .37 $ .66 $ .28 $ .26
====== ====== ====== ====== ====== ====== ====== ======
Diluted Earnings per Share:
Continuing operations $ .25 $ .35 $ .11 $ .11 $ .25 $ .49 $ (.03) $ .18
Discontinued operations .10 .15 .10 .01 .12 .16 .31 .08
----- ----- ----- ----- ------ ----- ----- -----
Diluted net earnings $ .35 $ .50 $ .21 $ .12 $ .37 $ .65 $ .28 $ .26
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The fourth quarter of fiscal 2000 was positively affected by lower depreciation
expense resulting from an adjustment to previous estimates to reflect actual
capital expenditures for the year, and by a $1.0 million tax benefit for foreign
tax credits to be utilized as a result of a dividend declared at its German
subsidiary.
8
<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, per share and employee data)
<CAPTION>
Year ended the last day of February 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 360,727 359,881 340,838 339,792 327,962
Gross profit $ 92,002 98,260 88,747 85,721 75,693
Operating expenses $ 82,439 77,409 71,507 70,431 69,526
Profit from continuing operations $ 9,563 20,851 17,240 15,290 6,167
Other income, net $ 1,542 982 1,195 2,796 2,862
Earnings before interest and taxes $ 11,105 21,833 18,435 18,086 9,029
Interest expense, net $ 2,877 790 716 1,158 1,753
Earnings from continuing operations
before income taxes $ 8,228 21,043 17,719 16,928 7,276
Income tax provision $ 2,363 7,097 6,821 6,189 1,471
Net earnings from continuing operations $ 5,865 13,946 10,898 10,739 5,805
As a percent of sales 1.6% 3.9% 3.2% 3.2% 1.8%
Earnings from discontinued operations,
net of income taxes $ 6,390 4,906 6,505 5,175 5,446
Net earnings $ 12,255 18,852 17,403 15,914 11,251
Return on average stockholders' equity 7.2% 10.7% 9.9% 9.8% 7.4%
OTHER STATISTICS
Average shares outstanding:
Basic 10,122,279 12,105,269 12,445,927 12,366,471 12,287,459
Diluted 10,184,674 12,196,670 12,547,910 12,425,152 12,342,971
Basic earnings per share:
Continuing operations $ .58 1.15 .88 .87 .47
Discontinued operations .63 .41 .52 .42 .45
--- --- --- --- ---
Basic net earnings $ 1.21 1.56 1.40 1.29 .92
Diluted earnings per share:
Continuing operations $ .57 1.15 .87 .86 .47
Discontinued operations .63 .40 .52 .42 .44
--- --- --- --- ---
Diluted net earnings $ 1.20 1.55 1.39 1.28 .91
Dividends per share $ -- -- -- -- --
Capital expenditures, net $ 27,601 31,830 26,907 30,976 32,207
Depreciation and amortization $ 24,788 23,761 21,460 20,609 17,671
Net cash provided by operating activities $ 32,468 33,826 30,230 37,629 21,801
FINANCIAL POSITION
Cash and equivalents $ 13,602 13,720 13,236 7,944 5,118
Working capital (1) $ 59,676 49,338 38,055 26,559 27,782
Current ratio (1) 1.5 1.9 1.6 1.4 1.4
Net assets of discontinued operations 78,738 79,161 70,641 71,950 67,529
Total assets $ 312,118 320,496 295,486 283,458 293,718
Long-term debt $ 4,732 75,389 33,393 37,009 44,237
Total debt $ 84,531 95,148 55,803 62,866 73,135
Stockholders' equity $ 174,151 167,669 183,454 168,076 158,292
Stockholders' equity per share $ 17.28 16.47 14.71 13.54 12.83
Debt-to-Capital ratio (debt, net of cash) 28.9% 32.7% 18.8% 24.6% 30.1%
PER EMPLOYEE DATA - CONTINUING OPERATIONS
Average number of employees 3,491 3,523 3,452 3,433 3,276
Net sales $ 103,331 102,152 98,736 98,978 100,111
Average assets employed $ 67,991 66,162 63,203 63,749 65,723
<FN>
(1) Net assets of discontinued operations are excluded from the working capital
and current ratio for fiscal 1996-1999 to
eliminate distortions. For fiscal 2000, the net assets were included so that
they matched accelerations of long term debt
to current maturities that were directly related to the sale of the discontinued
operation.
</TABLE>
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
DISCONTINUED OPERATIONS
On April 3, 2000, the Company completed the sale of its subsidiary, Cherry
Semiconductor Corporation, to Semiconductor Components Industries, LLC (a
subsidiary of SCG Holding Corporation which does business under the trade name
ON SemiconductorTM) for approximately $250 million in cash, subject to certain
adjustments.
Operating results, net assets and cash flows of Cherry Semiconductor have been
segregated as discontinued operations in the accompanying consolidated financial
statements. Net earnings of Cherry Semiconductor were $6.4 million ($.63 per
fully diluted share) on sales of $128 million for the twelve months ended
February 29, 2000 and $4.9 million ($.40 per fully diluted share) on sales of
$117 million for the year ended February 28, 1999.
Prior year results of operations, financial position and cash flows noted in the
following discussion have been restated to reflect the current year's
presentation of Cherry Semiconductor as a discontinued operation.
CONTINUING OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total sales represented by the line items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
Years ended the last day of February,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of sales 74.5 72.7 74.0
----- ----- -----
Gross profit 25.5 27.3 26.0
Operating expenses 22.8 21.5 21.0
----- ----- -----
Earnings from operations 2.7 5.8 5.0
Other income, net 0.4 0.3 0.4
Interest expense, net 0.8 0.2 0.2
------ ------ ------
Earnings before income taxes 2.3 5.9 5.2
Income tax provision 0.7 2.0 2.0
------ ------ ------
Net earnings from continuing operations 1.6 3.9 3.2
====== ====== ======
</TABLE>
FISCAL 2000 VS. FISCAL 1999
Sales for fiscal 2000 were $360.7 million, up slightly from fiscal 1999's sales
of $359.9 million. Sales by our domestic operations increased 5.7 percent while
foreign sales reflected a decrease of 4.5 percent. Underlying the decline in
foreign sales was a modest 2.4 percent sales increase when measured in the
currencies in which these foreign locations operate. This increase, however,
was more than offset by weakening of these currencies, principally the German
mark, against the U. S. dollar.
Sales for the Automotive Switches and Modules segment grew 4.7 percent to $166.6
million which represents 46 percent of total consolidated sales. Much of this
increase is attributable to the reduction in fiscal 1999 sales which resulted
from a strike against General Motors.
Sales for the Computer Keyboards segment totaled $100.2 million and decreased
3.1 percent from last year. Sales increased in unit volume, but this increase
was more than offset by the stronger dollar. Competitive pricing, particularly
on standard keyboards, also served to offset some of the unit volume increase.
Sales of the Advanced Performance keyboards continued to grow and now represent
just over 25 percent of total keyboard sales, up from 23 percent last year.
10
Sales for our Switches and Controls segment decreased 3.6 percent to $93.9
million. Sales of our switch products which are primarily designed for the
appliance and office equipment markets, account for approximately 80 percent of
this segment's total. Sales of these switch products decreased 1.2 percent to
$77.2 million.
Gross profit margins decreased to 25.5 percent of sales in fiscal 2000 from 27.3
percent last year. The major cause of the reduced gross profit margin was
production difficulties experienced at the domestic automotive operation in the
second half of the year. This resulted in increased manufacturing costs to meet
customer orders.
Operating expenses of $82.4 million increased 6.5 percent during fiscal 2000.
As a percent of sales, operating expenses increased to 22.8 percent up from 21.5
percent last year. Spending increases on engineering initiatives to develop and
broaden the Company's Advanced Performance keyboard, sensor and electronic
controls product offerings was a major contributor to this increase. The
Company also incurred severance costs during the year in connection with changes
in personnel, particularly at the domestic automotive operation.
Other income was $1.5 million for fiscal 2000 compared with $1.0 million for
fiscal 1999. An increase in earnings of the Company's Japanese joint venture
was largely responsible for this change.
Net interest expense of $2.9 million increased substantially from last year.
The increase is due to higher average borrowings in fiscal 2000 resulting from
the Company's Dutch tender which was completed in December, 1998.
The effective tax rate for fiscal 2000 was 28.7 percent compared with 33.7
percent last year. The decreased rate results from increased foreign tax
credits which can be utilized as a result of a dividend declared at the
Company's German subsidiary.
FISCAL 1999 VS. FISCAL 1998
Sales for fiscal 1999 of $359.9 million grew 5.6 percent over the prior year.
Sales from our international operations grew 17.4 percent and accounted for
approximately 54 percent of worldwide sales. Sales from domestic operations
decreased 5.4 percent and accounted for 46 percent of worldwide sales.
Sales for the Automotive Switches and Modules segment increased 7.7 percent to
$159.1 million in fiscal 1999 compared with $147.7 in fiscal 1998. The sales
growth came from foreign operations which account for 48.1 percent of total
segment sales, up from 36.6 percent last year. In Europe, the Company has
established itself as a leading supplier of electronic switch assemblies to
several door-latch and door-lock manufacturers. Domestically, sales decreased,
largely as a result of a strike against General Motors, but also as a result of
new product introductions being outpaced slightly by programs which were due to
expire.
Sales for the Computer Keyboards segment rose to $103.3 million from $98.2
million, an increase of 5.2 percent. Unit growth occurred for standard
keyboards which are most commonly purchased as computer users upgrade their
desktop systems as well as for advanced performance keyboards which are most
commonly used in commercial applications. Foreign sales account for 78.6
percent of the segment total with the majority of those occurring in Europe.
Sales for the Switches and Controls segment grew 2.7 percent to $97.5 million in
fiscal 1999. Approximately 80 percent of this segment's sales consist of our
traditional switches which are sold to appliance and office equipment
manufacturers. Sales of switch products were up slightly over last year. Our
line of electronic interface controls also had modest growth; however, fiscal
1999 did provide us with some additional design wins for future years.
11
Gross profit margins increased to 27.3 percent from 26.0 percent. The primary
factors are the increased utilization of our international manufacturing
facilities coupled with cost reductions at all operations.
Consolidated operating expenses increased 8.3 percent to $77.4 million.
Increased engineering spending resulted from the Company's efforts to introduce
additional products to the market. Additional marketing efforts were also
undertaken to increase market awareness of these product offerings, resulting in
higher distribution costs. Administration expense increased largely as a result
of facility relocations and software conversions as we generally update our
facilities and systems.
Other income decreased 17.8 percent to $982 thousand. Increased customer
tooling income and investment grants from the German government were more than
offset by foreign exchange losses on cross currency transactions.
Net interest expense of $790 thousand increased .2 percent over fiscal 1998.
Borrowings of $36.6 million were used to finance the Company's Dutch tender
which was completed on December 23, 1998.
The effective tax rate for fiscal 1999 was 33.7 percent compared with 38.5
percent last year. The decreased rate results largely from a nonrecurring tax
credit derived from the payment of a dividend from the Company's subsidiary in
England.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operating activities, available cash balances and selected
borrowings are the Company's major sources of funds for investments. The
Company uses its cash balances and other sources of liquidity to invest in its
current businesses and new market opportunities. These investments, along with
other actions taken to improve the profit margins of current businesses, are
designed to continue the improvement in the Company's financial performance.
Net cash provided by operating activities totaled $32.5 million in fiscal 2000
compared with $33.8 million in fiscal 1999. The primary components of net cash
provided by operating activities include: the Company's net earnings adjusted
for non-cash revenues and expenses; the timing of cash flows relating to
operating expenses, sales, and income taxes; and the management of inventory
levels.
The Company invested $28.0 million in facilities and equipment in its continuing
effort to take advantage of improvements in manufacturing technologies and
increase manufacturing capacities when such expenditures were warranted.
As a result of positive cash including $6.8 million from the Company's
discontinued semiconductor operation, debt decreased to $84.5 million at
February 29, 2000. The Company's debt-to-capital ratio, net of cash balances
decreased from 32.7 percent to 28.9 percent.
In April 2000, the Company completed the sale of its semiconductor subsidiary
for $250 million. The net proceeds from the sale, after transaction costs and
income taxes, are estimated at $175 million. The Company has already used a
portion of the proceeds to reduce borrowings under various credit facilities and
expects to prepay its senior unsecured notes.
At February 29, 2000, the Company had unused lines of credit available of
approximately $24.0 million for domestic operations and $31.9 million for
foreign operations. These credit facilities together with funds generated from
future earnings should be sufficient to finance the Company's operations.
MARKET CONDITIONS AND OUTLOOK
Capital expenditures in fiscal 2001 are expected to be at a level of 10 percent
to 12 percent of sales. The capital expenditure rate may be revised further as
sales growth estimates are updated. Operations are expected to generate enough
cash to fund capital expenditures.
12
Since a significant portion of the Company's manufacturing and sales are
overseas, foreign currency exchange rates 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 29, 2000, the U.S. dollar equivalent of
forward contracts outstanding approximated $9.7 million.
MARKET RISK
In the normal course of business, the Company is exposed to market risk,
including changes in interest rates, currency exchange rates and commodity
prices. To manage the volatility relating to these exposures, the Company
selectively enters into derivative transactions. The Company does not hold or
issue derivative financial instruments for trading purposes.
The Company imports products from its German subsidiary and sells them in the U.
S. This arrangement creates a currency exchange exposure between U. S. dollars
and German marks. The Company uses foreign currency forward contracts to manage
this exchange rate exposure.
The Company uses copper as a raw material in many of its products. The Company
uses a collar to manage fluctuations in the price of this commodity by
effectively establishing a maximum (cap) price and a minimum (floor) price for
this metal.
The tables below provide information about the Company's derivative instruments
and other financial instruments that are sensitive to changes in interest rates,
currency exchange rates and commodity prices. The financial instruments are
grouped by market risk exposure category. Instrument denominations are
indicated in parentheses. For instruments denominated in currencies other than
the U. S. dollar, the information is presented by its equivalent in U. S.
dollars, the Company's reporting currency.
Interest rate risk sensitive instruments as of February 29, 2000 were:
<TABLE>
(Dollars in thousands except average interest rate)
<CAPTION>
Expected Maturity Date (Fiscal Year)
2001 2002 2003 2004 2005 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed rate ($US)
Principal amount $25,135 $ 140 $ 146 $ 152 $ 158 $ 74 $25,805 $24,649
Average interest rate 7.0% 4.0% 4.0% 4.0% 4.0% 4.0% 6.9%
Fixed rate (German marks)
Principal amount $1,225 $ 625 $ 625 $ 625 $ 625 $ 1,563 $ 5,288 $ 5,160
Average interest rate 4.4% 4.8% 4.8% 4.8% 4.8% 4.8% 4.7%
Variable rate ($US)
Principal amount $34,000 $34,000 $34,000
Average interest rate* 6.4% 6.4%
Short-Term Debt
Variable rate ($US)
Principal amount $17,000 $17,000 $17,000
Average interest rate* 6.1% 6.1%
Variable rate (German marks)
Principal amount $2,014 $ 2,014 $ 2,014
Average interest rate* 3.7% 3.7%
<FN>
*Average variable rates are based on FY2000 year-end rates. Actual rates may be
higher or lower.
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.
</TABLE>
13
<PAGE>
<TABLE>
Currency exchange rate risk sensitive instruments as of February 29, 2000
(dollars in thousands, except average exchange rate):
<CAPTION>
Weighted
Average
Notional Exchange Fair
Expected Maturity Fiscal Year 2000 Amount Rate Value
<S> <C> <C> <C>
Forward contracts:
Purchase of German marks $9,700 1.852 $(700)
</TABLE>
<TABLE>
Commodity price risk sensitive instruments as of February 29, 2000 (volume in
thousands of pounds):
<CAPTION>
Expected Fiscal Year Maturity 2001
<S> <C>
Copper collar contract:
Fair value $31
Contract volume 1,500
Cap price per pound $.81
Floor price per pound $.63
</TABLE>
Fair values of foreign currency and commodity contracts are estimated by
obtaining quotes from the financial institution that is counterparty to the
contracts.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires all derivatives to be recorded on the balance sheet at fair value.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." This statement defers the effective date of SFAS No. 133.
As a result, SFAS No. 133 will not be effective for the Company until the year
2001. The Company is in the process of evaluating the impact of the reporting
requirements of SFAS No. 133.
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to the recognition of revenues. The
Company has evaluated the impact of the reporting requirements of SAB No. 101
and has determined that there will be no material impact on its consolidated
results of operations, financial position or cash flows.
YEAR 2000 READINESS
The Company completed all Year 2000 remediation before December 31, 1999. No
material Year 2000 issues occurred at any of our locations and there were no
Year 2000 problems with any of our major vendors or customers. The cost to
address Year 2000 issues at the Company was not material.
14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to "Market Risk" in Item 7 of this Annual Report on Form 10-K for related
disclosures.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders 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, 2000 and 1999, and the related consolidated statements of earnings,
comprehensive income, cash flows and stockholders' equity for each of the three
years ended the last day of February, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and
the results of their operations and cash flows for each of the three years ended
the last day of February, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose 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.
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
Chicago, Illinois
March 30, 2000
(except with respect to the matters discussed in Notes C and Q, as to which the
date is April 24, 2000)
15
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except share and per share data)
<CAPTION>
Year ended the last day of February
2000 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES AND COSTS
Net sales $ 360,727 $ 359,881 $ 340,838
Cost of products sold 268,725 261,621 252,091
----------- ----------- -----------
Gross profit 92,002 98,260 88,747
----------- ----------- -----------
EXPENSES
Research and engineering 23,957 21,809 21,606
Distribution 24,922 24,707 23,132
Administration 33,560 30,893 26,769
----------- ----------- -----------
Operating expenses 82,439 77,409 71,507
----------- ----------- -----------
EARNINGS
Profit from continuing operations 9,563 20,851 17,240
Other income, net - Note E 1,542 982 1,195
----------- ----------- -----------
Earnings before interest and taxes 11,105 21,833 18,435
Interest expense, net - Note E 2,877 790 716
----------- ----------- -----------
Earnings from continuing operations
before income taxes 8,228 21,043 17,719
Income tax provision - Note D 2,363 7,097 6,821
----------- ----------- -----------
Net earnings from continuing operations 5,865 13,946 10,898
Earnings from discontinued operations, net of
income taxes - Note C 6,390 4,906 6,505
----------- ----------- -----------
Net earnings $ 12,255 $ 18,852 $ 17,403
=========== =========== ===========
BASIC EARNINGS PER SHARE - Note N
Continuing operations $ .58 $ 1.15 $ .88
Discontinued operations .63 .41 .52
------------ ----------- -----------
Basic net earnings $ 1.21 $ 1.56 $ 1.40
============ =========== ===========
DILUTED EARNINGS PER SHARE - Note N
Continuing operations $ .57 $ 1.15 $ .87
Discontinued operations .63 .40 .52
------------ ----------- -----------
Diluted net earnings $ 1.20 $ 1.55 $ 1.39
============ =========== ===========
AVERAGE SHARES OUTSTANDING - Note N
Basic 10,122,279 12,105,269 12,445,927
=========== =========== ===========
Diluted 10,184,674 12,196,670 12,547,910
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands except share and per share data)
<CAPTION>
Year ended the last day of February
2000 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 12,255 $ 18,852 $ 17,403
Other comprehensive income, net of tax - Note O
Foreign currency translation adjustments (4,425) 1,379 (2,635)
----------- ----------- -----------
Other comprehensive income (4,425) 1,379 (2,635)
----------- ----------- -----------
Comprehensive income $ 7,830 $ 20,231 $ 14,768
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
16
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and par value data)
<CAPTION>
The last day of February
2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $13,602 $ 13,720
Receivables, less allowances of $2,181 and
$1,659, in 2000 and 1999, respectively 48,019 53,003
Inventories - Note F 37,317 33,201
Prepaid expenses and other current assets 4,889 7,391
Net assets of discontinued operations - Note C 78,738 79,161
------- --------
Total Current Assets 182,565 186,476
Land, Buildings and Equipment at Cost:
Land 3,076 3,265
Buildings and improvements 64,749 71,298
Machinery and equipment 211,142 214,208
Construction in progress 12,527 7,625
------- --------
291,494 296,396
Less: accumulated depreciation 175,136 174,755
------- --------
Total Land, Buildings and Equipment, net 116,358 121,641
Investment in affiliates and other assets,
net - Note A 13,195 12,379
------- -------
TOTAL ASSETS $312,118 $320,496
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt - Note G $19,014 $ 17,458
Accounts payable 16,487 11,926
Payroll related accruals 11,085 11,206
Other accruals 12,648 13,184
Income taxes 2,870 1,902
Current maturities of long-term debt - Note G 60,785 2,301
------- --------
Total Current Liabilities 122,889 57,977
Long-term debt - Note G 4,732 75,389
Deferred income taxes, net 7,589 16,508
Deferred credits 2,757 2,953
Stockholders' Equity - Note A:
Common stock, $1.00 par value
Authorized 30,000,000 shares; issued and
outstanding, including shares in treasury -
12,574,909 in 2000 and 12,521,743 in 1999 12,575 12,522
Additional paid-in capital 43,546 42,994
Retained earnings 158,867 146,612
Accumulated other comprehensive income (2,237) 2,188
------- --------
212,751 204,316
Less: cost of common stock held in treasury,
2,494,926 shares in 2000 and 2,340,926
shares in 1999 (38,600) (36,647)
------- --------
Total Stockholders' Equity 174,151 167,669
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $312,118 $320,496
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
17
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Year ended the last day of February
2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $12,255 $ 18,852 $ 17,403
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Income) from discontinued operations (6,390) (4,906) (6,505)
Depreciation and amortization 24,788 23,761 21,460
(Gain) loss on sale of land, buildings,
equipment and intangibles (69) 544 (47)
Income from unconsolidated affiliates (763) (271) (254)
Changes in assets and liabilities:
Decrease (increase) in receivables 1,319 (5,551) (6,294)
(Increase) decrease in inventories (6,645) 1,012 (333)
Increase (decrease) in accounts payable 3,707 (3,423) 4,219
Increase (decrease) in accrued income taxes 1,967 (1,013) 920
(Decrease) increase in deferred income taxes (4,853) 1,580 1,563
Decrease (increase) in other working capital,
excluding cash and short-term borrowings 7,152 3,241 (1,902)
------- ------- -------
NET CASH PROVIDED BY CONTINUING OPERATIONS 32,468 33,826 30,230
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 17,601 12,635 19,689
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 50,069 46,461 49,919
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales of land, buildings
and equipment 3,124 34 229
Expenditures for land, buildings and equipment (30,656) (32,408) (27,089)
Other (512) 217 (915)
------- ------- -------
NET CASH USED IN CONTINUING OPERATIONS (28,044) (32,157) (27,775)
NET CASH USED IN DISCONTINUED OPERATIONS (10,756) (16,472) (11,874)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (38,800) (48,629) (39,649)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt 3,376 (3,822) (1,699)
(Decrease) increase in domestic revolver (9,000) 43,000 (7,000)
Principal payments on long-term debt (2,307) (2,167) (1,981)
Purchase of treasury shares (1,953) (36,647) --
Proceeds from long-term debt -- 1,377 5,682
Equity and other transactions 605 631 610
------- ------- -------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (9,279) 2,372 (4,388)
------- ------- -------
Effect of exchange rate changes on cash flows (2,108) 280 (590)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS (118) 484 5,292
Cash and equivalents, at beginning of year 13,720 13,236 7,944
------- ------- -------
CASH AND EQUIVALENTS, AT END OF YEAR $13,602 $13,720 $13,236
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) $ 4,952 $ 3,518 $ 3,143
Income taxes (net of refunds) $ 5,142 $ 5,960 $ 4,434
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
18
<PAGE>
<TABLE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury
Year ended the last day of February Stock Capital Earnings Income Stock Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, 1997 $12,417 $41,858 $110,357 $ 3,444 $ -- $168,076
Employee options and stock
purchase plan 59 551 -- -- -- 610
Net earnings -- -- 17,403 -- -- 17,403
Foreign currency
translation adjustments -- -- -- (2,635) -- (2,635)
------- ------- ------- ------- ------- -------
Balance, 1998 $12,476 $42,409 $127,760 $ 809 $ -- $183,454
Employee options and stock
purchase plan 46 585 -- -- -- 631
Net earnings -- -- 18,852 -- -- 18,852
Purchase of common stock -- -- -- -- (36,647) (36,647)
Foreign currency
translation adjustments -- -- -- 1,379 -- 1,379
------- ------- ------- ------- ------- -------
Balance, 1999 $12,522 $42,994 $146,612 $ 2,188 $(36,647) $167,669
Employee options and stock
purchase plan 53 552 -- -- -- 605
Net earnings -- -- 12,255 -- -- 12,255
Purchase of common stock -- -- -- -- (1,953) (1,953)
Foreign currency
translation adjustments -- -- -- (4,425) -- (4,425)
------- ------- ------- -------- ------- -------
BALANCE, 2000 $12,575 $43,546 $158,867 $ (2,237) $(38,600) $174,151
======= ======= ======= ======= ======== =======
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
19
<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.
REVENUE RECOGNITION
The company recognizes revenue when title passes to its customers.
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,
2000 include $8,708 representing 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 53% and 46% of the
Company's inventories as of the last day of February 2000 and 1999,
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 AND 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 $24,683, $23,655 and $21,348 for fiscal
2000, 1999 and 1998, 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.
20
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 $11,774, $12,035 and $10,810 for fiscal 2000, 1999 and 1998, respectively.
EARNINGS PER SHARE AND CAPITAL STOCK
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
On June 17, 1999 the Company's stockholders' approved the charter amendment
reclassifying the previous two classes of common stock to one class of voting
common stock. The stockholders' equity classifications affected by this change
have been retroactively restated to reflect one class of common stock.
In December 1998, the Company concluded a "Dutch Auction" self-tender offer and
acquired 2,340,926 shares at an aggregate cost of $36,647. On March 1, 1999,
the Company announced a program to repurchase from time to time during the next
year, depending on market conditions and other factors, up to 250,000 shares of
its common stock on the open market or through privately negotiated transactions
at the then prevailing market prices. During fiscal 2000, 154,000 shares were
repurchased at an aggregate cost of $1,953. The shares purchased are accounted
for as treasury stock and may be used for general corporate purposes.
STOCK-BASED COMPENSATION
In fiscal 1997, the Company adopted the disclosure-only provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require, a fair value
based method for determining expense related to stock-based compensation. As
allowed by the standard, the Company continues to account for its stock-based
compensation using the intrinsic value method prescribed under the prior
standard of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations.
LONG-LIVED ASSETS
The Company continually evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful lives of its intangibles and other
long-lived assets may warrant revision or that the remaining balance of such
assets may not be recoverable. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the asset to measure whether
the asset is recoverable. If the fair value is less than the carrying amount of
the asset, a loss is recognized for the difference.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
21
NOTE B: NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133." This statement delayed the required
implementation of SFAS No. 133 to fiscal years beginning after June 15, 2000.
SFAS No. 133 requires all derivatives to be recorded on the balance sheet at
fair value. The Company is assessing the effect of SFAS No. 137 and currently
believes it will not have a material effect on its earnings or financial
position when it is adopted in fiscal 2002.
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to the recognition of revenues. The
Company has evaluated the impact of the reporting requirements of SAB No. 101
and has determined that there will be no material impact on its consolidated
results of operations, financial position or cash flows.
NOTE C: DISCONTINUED OPERATION
On March 9, 2000 the Company announced that it had signed a definitive agreement
to sell its subsidiary, Cherry Semiconductor Corporation to Semiconductor
Components Industries, LLC, a subsidiary of SCG Holding Corporation, which does
business under the trade name, ON SemiconductorTM. The transaction was
structured as a sale of all of the common stock of Cherry Semiconductor
Corporation for a purchase price of $250 million, subject to adjustment in
certain circumstances. The sale was completed on April 3, 2000. The Company
expects to record a net gain after income taxes of approximately $90 million in
the first quarter of fiscal 2001. The board of directors of the Company
approved the stock purchase agreement and the related transaction. Accordingly,
the Company reported the Cherry Semiconductor Corporation results of operations
as discontinued operations and restated all years presented. Net assets
relating to the sale have been segregated on the balance sheets presented.
Certain information with respect to discontinued operations is summarized as
follows:
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $128,295 $116,827 $113,035
Earnings from discontinued operations:
Before income taxes 8,677 7,309 9,668
Income tax provision 2,287 2,403 3,163
------- ------- -------
Net earnings $ 6,390 $ 4,906 $ 6,505
======== ======== ========
</TABLE>
Interest expense charged to discontinued operations was $2,099, $2,202 and
$2,199 for fiscal 2000, 1999 and 1998, respectively. Such amounts represent
interest on debt directly attributable to the discontinued operations.
22
<PAGE>
<TABLE>
<CAPTION>
Net assets of discontinued operations as of the last day of February:
2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 214 136
Receivables 17,167 16,903
Inventory 20,340 20,467
Refundable Income taxes 2,647 1,544
Prepaid expenses and other current assets 3,257 2,076
Property, plant and equipment, net 56,763 57,676
Other assets 1,028 1,112
------- -------
Total Assets 101,416 99,914
Liabilities
Accounts payable 7,675 9,476
Payroll related accruals 2,073 1,623
Other accruals 5,111 1,934
Deferred taxes 7,819 7,720
------- -------
Total Liabilities 22,678 20,753
------- -------
Net assets of discontinued operations $78,738 $79,161
======= =======
</TABLE>
NOTE D: INCOME TAXES
The sources of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999 1998
--------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes
United States $(13,263) $ (2,640) $ 4,010
Foreign 21,491 23,683 13,709
Provisions for income taxes
Current: Federal and state $ (247) $ (1,609) $ 706
Foreign 8,828 8,311 4,464
------- ------- -------
Current provision 8,581 6,702 5,170
------- ------- -------
Deferred: Federal and state (5,872) (277) 1,019
Foreign (346) 672 632
------- ------- -------
Deferred provision (6,218) 395 1,651
------- ------- -------
Total income tax provision $ 2,363 $ 7,097 $ 6,821
======== ======== ========
</TABLE>
23
<PAGE>
Reconciliation 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 2000 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at federal
statutory tax rates $ 2,880 $ 7,365 $ 6,202
Foreign tax rate differentials 1,627 1,396 387
Foreign tax rebate coincident with
repatriation of foreign earnings (1,133) (737) --
Research and development tax credit (122) (306) (48)
Current taxation of foreign earnings,
net of foreign tax credit (3) (347) (100)
State tax provisions, net of federal
benefits (289) (78) 500
Equity in earnings of unconsolidated
affiliates (267) (95) (89)
Other, net (330) (101) (31)
-------- ------- -------
Consolidated provisions $ 2,363 $ 7,097 $ 6,821
======= ======= =======
</TABLE>
For income tax reporting at February 29, 2000, the Company has state tax credit
carryforwards of approximately $2,403 that expire in the year 2005. The Company
also has available research tax credits of $342, which expire in 2015 and
alternative minimum tax carryforwards of $483 that are available to reduce
future regular income taxes over an indefinite period. In addition, the Company
has state tax credit carryforwards of approximately $111 and state net operating
loss carryforwards of approximately $197 that will expire from 2014 to 2020.
The carryforwards will be available to reduce future income tax liabilities.
In fiscal 2000, the Company's subsidiary in Germany remitted a dividend of
$16,325 that resulted in a net tax benefit of $1,264. In fiscal 1999, the
Company's subsidiary in England remitted a dividend of $8,695 that resulted in a
net tax benefit of $737.
<PAGE>
The tax effects of the significant temporary differences that comprise the
deferred tax liabilities and assets follows:
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Liabilities
Book versus tax basis of depreciable assets $ 9,823 $ 13,055
Foreign currency translation -- 1,969
Undistributed earnings of foreign subsidiaries 776 --
Other 1,882 2,809
--------- --------
Gross deferred tax liabilities 12,481 17,833
--------- --------
Assets
Tax credits and loss carryforward 3,228 --
Reserves and nondeductible accruals 2,985 2,372
Compensation related accruals 1,411 1,310
Foreign currency translation 1,276 --
Undistributed earnings of foreign subsidiaries -- 1,038
Inventory valuation 947 748
Other 1,024 221
Valuation allowance for deferred tax assets (353) (233)
------- -------
Net deferred tax assets 10,518 5,456
------- -------
Net deferred tax liability $ 1,963 $ 12,377
========= ========
</TABLE>
The valuation allowances noted above relate 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.
24
<PAGE>
NOTE E: SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C>
Other Income (Expense):
Earnings of affiliates $ 763 $ 271 $ 254
Investment grants 305 469 278
Tooling income 165 899 408
Foreign exchange 349 (426) 252
Gain (loss) on sale of assets 69 (544) 47
Other, net (109) 313 (44)
------- ------- -------
Other income, net $ 1,542 $ 982 $ 1,195
======= ======= ========
Interest expense $ 3,117 $ 1,518 $ 1,196
Interest income (240) (728) (480)
------- ------- -------
Interest expense, net $ 2,877 $ 790 $ 716
======= ======== ========
</TABLE>
NOTE F: INVENTORIES
<TABLE>
<CAPTION>
The last day of February 2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Inventories
Raw materials $ 5,352 $ 4,662
Component parts 12,868 8,230
Work-in-process 8,422 8,070
Finished goods 10,675 12,239
-------- --------
Total inventories $ 37,317 $ 33,201
======== ========
Excess of replacement cost over the stated
value of LIFO inventories $ 6,201 $ 4,528
</TABLE>
25
<PAGE>
NOTE G: DEBT
<TABLE>
<CAPTION>
The last day of February 2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Short-term Debt
(With domestic and foreign banks)
Bank loans outstanding, unsecured $ 19,014 $ 17,458
Weighted average interest rate 5.9% 4.6%
Long-term Debt
Foreign obligations:
Construction, mortgage and equipment loans (at
4% to 5.5%, secured by real estate in the
amount of $8 million in the Federal Republic
of Germany) due in periodic installments
through March 2007 $ 5,288 $ 7,712
Capital lease obligations payable in installments
through December 2000 with a weighted average
interest rate of 1.23% 424 1,044
Domestic obligations:
Equipment loans at 4%, secured in the
amount of $1,000, due in periodic
installments through October 2005 805 934
Senior unsecured notes, at 6.99%, due in 2007,
that will be paid off in September, 2000 25,000 25,000
Borrowings under unsecured revolving credit agreement
with interest at LIBOR plus .375% to .625%,
prime rate or competitive bid rates 34,000 43,000
-------- --------
65,517 77,690
Less current maturities 60,785 2,301
-------- --------
Long-term debt $ 4,732 $ 75,389
======== ========
</TABLE>
The following principal payments, exclusive of capitalized lease payments, are
required during the next five fiscal years: 2001 - $60,360; 2002 - $765; 2003 -
$771; 2004 - $777; 2005 - $783; thereafter - $1,636.
In September, 1999 the unsecured, multicurrency revolving credit agreement was
increased from $65 million to $75 million. Preceding the sale of Cherry
Semiconductor Corporation on April 3, 2000, two participants withdrew from the
revolving credit agreement and the line was reduced to $61 million on March 31,
2000. Also as a result of the sale, the $34 million in borrowings outstanding
at February 29, 2000 were reclassified as current maturities since the debt
balance was paid subsequent to year end from the sale proceeds. 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 that 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, 2002. The covenants for this credit facility pertain to
consolidated net worth, leverage, cash flow coverage and cash flow to debt
levels, among others.
At February 29, 2000 there were three uncommitted, unsecured credit facilities
available totaling $33 million, of which $17 million was outstanding and
reported as short term debt. Following the sale of the discontinued operation,
one of the uncommitted facilities for $18 million was closed on April 4, 2000,
leaving two facilities totaling $15 million. These facilities are utilized when
26
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 $61 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 2003 through 2007.
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. As a result of the sale of Cherry Semiconductor Corporation, the
insurance company has the option to call the notes due six months after the
transaction and has informed the Company of their intention to do so.
Therefore, the Senior Notes have also been reclassified as current maturities
and will be paid with the proceeds from the sale of the discontinued operation.
In fiscal 1999, the Company obtained $1 million in financing from the State of
Wisconsin and the local business development group, in conjunction with the
construction of a new manufacturing facility. The loan agreements are dated May
19, 1998. The promissory notes have terms of seven years, are secured by
equipment at the new facility, bear interest at a rate of 4% and require monthly
installments through July 2005 and October 2005, respectively. Covenants
pertain to employment guarantees at the new facility, among others.
The Company was in compliance with all covenants under all agreements at
February 29, 2000.
As of February 29, 2000, the Company had unused lines of credit available for
general corporate purposes of approximately $24 million for U.S. operations and
$31.9 million for foreign operations.
<PAGE>
NOTE H: 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.
Hedges of anticipated commitments are marked-to-market on a current basis
through the income statement. The U. S. dollar equivalent of forward contracts
outstanding on the last day of February 2000 and 1999 approximated $9.7 million
and $15.9 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 minimum and maximum price per pound on 125
thousand pounds of copper per month ranging from a minimum of $.63 per pound to
a maximum of $.81 per pound for the period March 1, 1999 through February 28,
2001. Amounts paid or received under this agreement is recognized as an
adjustment to the purchase price of the metal. 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 was party to
one separate interest rate cap agreement, which protected against interest rate
increases above 7.0% deutsche mark LIBOR on DM 20 million of floating rate debt
through December 1999. Amounts received under this agreement are recognized as
an adjustment to interest expense. Premiums paid for interest rate cap
agreements are amortized to interest expense over the term of the agreements.
Unamortized premiums are included in the consolidated balance sheet under the
caption other assets, net. On the last day of February 2000 and 1999,
unamortized premiums amounted to zero and $84, respectively.
Counterparties to all of these financial instruments are major financial
27
institutions. Credit loss from counterparty nonperformance is not anticipated.
NOTE I: 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 2000 1999
------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Financial Assets
Other assets, net $ -- $ -- $ 84 $ 21
Currency contracts (700) (700) (600) (600)
Commodity contracts -- 52 -- (105)
Financial Liabilities
Long-term debt $ 65,093 $ 63,809 $ 76,646 $ 76,441
</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 cap reported
in Note H. The carrying amount represents the unamortized premiums paid for the
contract. The fair value is based on its quoted market price as provided by the
financial institutions that are counterparty to the cap.
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 that 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 J: LEASES
The Company leases automobiles, machinery and equipment, including computers,
under noncancelable operating leases that expire over the next seventeen years.
Renewal and escalation clauses are not significant. Rent expense was $3,652,
$3,776 and $3,501 for fiscal 2000, 1999 and 1998, respectively.
Land, buildings and equipment include capitalized leases of $2,891 and $3,267
less accumulated amortization of $2,499 and $2,293 as of the last day of
February 2000 and 1999, respectively.
28
Future minimum lease payments under capitalized and long-term noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
------------ ------------
<S> <C> <C>
2001 $ 426 $ 2,353
2002 -- 1,635
2003 -- 1,323
2004 -- 1,090
2005 -- 891
Thereafter -- 6,898
---------- ----------
Total minimum lease payments $ 426 $ 14,190
==========
Less amount representing interest 2
----------
Total obligations under capitalized
leases $ 424
=========
</TABLE>
NOTE K: CONTINGENCIES
The Company is named in various suits and claims that 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 L: 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 common stock, respectively. In June 1999, the
stockholders approved an amendment to the 1995 Stock Incentive Plan that
increased the common stock reserved for distribution by 900,000 shares, bringing
the total reserved to 1,800,000. The Stock Incentive Plan also has available
for awards 133,560 shares of common stock 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 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. Although the
Company's Stock Incentive Plan allows for restricted stock awards and SARs,
neither has been granted to date.
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 common stock equal to the amount of the nonemployee director's
annual retainer divided by the fair market value of a share of 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.
29
The following table summarizes the transactions pursuant to the Company's stock
option plans for the three-year period ended February 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
---------------------------------------------------------------------------
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 28, 1997 408,505 $10.76 61,040 $11.89
------- ------
Granted 171,006 14.21
Exercised (40,467) 8.33
Cancelled (25,840) 11.22
-------- -----
February 28, 1998 513,204 12.08 145,870 12.06
------- -----
Granted 276,716 16.34
Exercised (26,578) 10.46
Cancelled (16,031) 14.64
-------- -----
February 28, 1999 747,311 13.66 291,725 12.18
------- -----
Granted 239,700 13.79
Exercised (34,074) 10.70
Cancelled (81,544) 14.79
-------- -----
February 29, 2000 871,393 $13.70 456,136 $12.74
======= ======
</TABLE>
<TABLE>
<CAPTION>
Exercisable Options at
Options Outstanding at February 29, 2000 February 29, 2000
-------------------------------------------------------------- ----------------------
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>
$9.25 - 11.625 200,945 6.31 $ 9.49 194,343 $ 9.43
$11.75 - 14.00 324,344 8.34 13.81 75,873 13.79
$14.125-19.00 346,104 7.30 16.05 185,920 15.77
------- ---- ------- ------- -------
871,393 7.46 $13.70 456,136 $ 12.74
======= ==== ======= ======= =======
</TABLE>
In February, 1999, Cherry Semiconductor Corporation ("Cherry Semiconductor"), a
wholly owned subsidiary of the Company, adopted a stock option plan which
provided for the granting of equity rights to its officers and key employees.
It was intended that the plan would provide for the granting of equity rights up
to 9.8% of Cherry Semiconductor's total equity. Generally, rights vest over
four years and were granted with an exercise price equal to their fair market
value. During fiscal 2000, Cherry Semiconductor granted rights to purchase 3.5%
of the subsidiary. In connection with the sale of Cherry Semiconductor, these
equity rights were repurchased and settled by the Company for $4.1 million in
payments to the employees. This settlement was included in the computation of
the estimated gain (see Note C) that will be recorded in the first quarter of
fiscal 2001.
30
<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. 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 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 five thousand dollars. Under the plan, 19,092, 19,516 and
17,966 shares were issued at $10.09, $13.06 and $15.20 per share during fiscal
2000, 1999 and 1998, respectively. At February 29, 2000, 372,588 shares are
available for issuance under the plan.
ACCOUNTING
SFAS No. 123, "Accounting for Stock-Based Compensation", requires a fair value
based method to determine the costs of such plans. As allowed by the standard,
the Company continues 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 reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED THE LAST DAY OF FEBRUARY
-----------------------------------------------------------------------------------
(In thousands, except share data) 2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Net earnings
As reported $12,255 $18,852 $17,403
Pro forma 10,929 17,620 16,566
Basic earnings per share
As reported 1.21 1.56 1.40
Pro forma 1.08 1.46 1.33
Diluted earnings per share
As reported 1.20 1.55 1.39
Pro forma 1.07 1.44 1.32
</TABLE>
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 2000,
1999 and 1998 was $7.64, $9.38 and $8.58, 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:
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 6.23% 5.69% 6.5%
Expected lives in years 7.02 7.07 7.56
Expected volatility 45% 48.9% 48.6%
Dividend -- -- --
</TABLE>
31
<PAGE>
NOTE M: 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 2000, 1999 and 1998, the expenses
for these plans were $2,790, $3,010 and $2,770, 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 distribution payable under the program is
paid from the general assets of the Company. Amounts deferred by participants
as of February 29, 2000 were not significant.
NOTE N: EARNINGS PER SHARE DISCLOSURE
Following is a reconciliation of the numerators and the denominators of the
basic and diluted EPS computation.
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999 1998
---------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C>
Numerator:
Net earnings from continuing operations $5,865 $13,946 $10,898
Net earnings from discontinued operations 6,390 4,906 6,505
------- ------- -------
Net earnings available to common stockholders $12,255 $18,852 $17,403
Denominator:
Weighted average shares for basic EPS 10,122,279 12,105,269 12,445,927
Effect of dilutive securities:
Common stock options 62,395 91,401 101,983
----------- ----------- -----------
Adjusted weighted average shares
and assumed conversions for diluted EPS 10,184,674 12,196,670 12,547,910
Basic EPS - continuing operations $.58 $1.15 $.88
Basic EPS - discontinued operations .63 .41 .52
--- --- ---
Basic EPS $1.21 $1.56 $1.40
Diluted EPS - continuing operations $.57 $1.15 $.87
Diluted EPS - discontinued operations .63 .40 .52
--- --- ---
Diluted EPS $1.20 $1.55 $1.39
</TABLE>
32
<PAGE>
NOTE O: OTHER COMPREHENSIVE INCOME
The income tax expense (benefit) allocated to each component of other
comprehensive income follows:
<TABLE>
<CAPTION>
Year ended the last day of February 2000 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustments:
Before tax amount $ (7,669) $ 1,722 $ (3,946)
Tax (expense) benefit 3,244 (343) 1,311
----------- ------------ -----------
Net-of-tax amount $ (4,425) $ 1,379 $ (2,635)
============ =========== ============
</TABLE>
NOTE P: SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION
The Company designs and manufactures a wide range of electrical and electronic
components, which it sells to original equipment manufacturers, Tier 1 suppliers
and distributors through three business segments: Automotive Switches and
Modules, Computer Keyboards, and Switches and Controls. These business segments
also represent the Company's principal products, which are sold into three
markets as follows:
Consumer &
Automotive Computer Commercial
Business Segment Market Market Market
---------------- ------ ------ ----------
Automotive Switches and Modules X
Computer Keyboards X
Switches and Controls X X
One automotive customer accounted for 19%, 17% and 20% of consolidated net sales
in fiscal 2000, 1999 and 1998, respectively. Export sales by the Company were
less than 10% for all periods reported.
The Company's principal international operations are conducted in Germany.
Other manufacturing operations in Western Europe include smaller facilities in
England and the Czech Republic. Other operations, primarily sales offices, are
located in France, Hong Kong, and Australia. The Company also has a smaller
manufacturing operation in Mexico.
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 of continuing operations
are shown separately as corporate assets. Corporate assets include cash, other
current and noncurrent assets and the Company's investment in unconsolidated
affiliates. Total assets on the consolidated balance sheet include amounts from
discontinued operations (see Note C), which have been excluded from the business
segment and geographic area information below. The net assets of discontinued
operations totaled $70,641 as of February 28, 1998.
33
<PAGE>
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Automotive
Switches Computer Switches Eliminations
Fiscal Year & Modules Keyboards & Controls & Corporate Consolidated
--------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
2000
Sales to unaffiliated customers $ 166,605 $100,188 $ 93,934 $ -- $360,727
Intersegment sales -- -- 1,198 (1,198) --
Total net sales 166,605 100,188 95,132 (1,198) 360,727
Profit from operations 1,209 15,752 (3,158) (4,240) 9,563
Identifiable assets 90,562 57,400 56,763 28,655 233,380
Capital expenditures, net 13,853 7,167 6,573 8 27,601
Depreciation 11,235 7,081 6,353 14 24,683
1999
Sales to unaffiliated customers $ 159,069 $103,340 $ 97,472 $ -- $359,881
Intersegment sales -- -- 1,377 (1,377) --
Total net sales 159,069 103,340 98,849 (1,377) 359,881
Profit from operations 6,677 17,072 1,086 (3,984) 20,851
Identifiable assets 95,919 62,632 55,655 27,129 241,335
Capital expenditures, net 13,743 5,582 12,505 -- 31,830
Depreciation 11,518 6,349 5,770 18 23,655
1998
Sales to unaffiliated customers $ 147,715 $ 98,242 $ 94,881 $ -- $340,838
Intersegment sales -- -- 1,643 (1,643) --
Total net sales 147,715 98,242 96,524 (1,643) 340,838
Profit from operations 4,510 11,288 4,583 (3,141) 17,240
Identifiable assets 86,925 64,053 49,409 24,458 224,845
Capital expenditures, net 14,286 5,078 7,543 -- 26,907
Depreciation 8,549 7,308 5,491 -- 21,348
</TABLE>
<PAGE>
<TABLE>
GEOGRAPHIC AREA INFORMATION
<CAPTION>
United Other Eliminations
Fiscal Year States Germany International & Corporate Consolidated
------ ------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
2000
Sales to unaffiliated customers $ 176,535 $ 160,331 $ 23,861 $ -- $ 360,727
Transfers between areas 1,892 25,207 4,277 (31,376) --
Total net sales 178,427 185,538 28,138 (31,376) 360,727
Profit from operations (6,090) 17,670 2,223 (4,240) 9,563
Identifiable assets 95,169 97,790 11,766 28,655 233,380
1999
Sales to unaffiliated customers $ 167,015 $ 163,990 $ 28,876 $ -- $ 359,881
Transfers between areas 1,877 28,051 4,960 (34,888) --
Total net sales 168,892 192,041 33,836 (34,888) 359,881
Profit from operations 1,782 19,371 3,612 (3,914) 20,851
Identifiable assets 95,424 106,257 12,525 27,129 241,335
1998
Sales to unaffiliated customers $ 176,555 $ 136,161 $ 28,122 $ -- $ 340,838
Transfers between areas 3,422 23,123 4,934 (31,479) --
Total net sales 179,977 159,284 33,056 (31,479) 340,838
Profit from operations 6,071 9,768 4,542 (3,141) 17,240
Identifiable assets 86,592 101,131 12,280 24,842 224,845
<FN>
Net assets, including intercompany balances, of foreign subsidiaries and
affiliates were $77,939 (2000), $86,993 (1999), and $75,020 (1998) at each
respective year end.
</TABLE>
<PAGE>
NOTE Q: SUBSEQUENT EVENT
On April 24, 2000, the Company announced a buyout proposal from Peter Cherry,
Chairman and President of the Company, for the acquisition by Peter Cherry and
affiliated trusts and entities of all the outstanding common stock not now owned
by Mr. Cherry and his affiliates for $18.75 per share in cash. Mr. Cherry and
his affiliates beneficially owned approximately 5,500,000 shares or about 54% of
34
the common stock at the date of the announcement. The Board of Directors of the
Company has appointed a special committee of independent directors to consider
and respond to the proposal. The special committee has engaged independent
legal counsel and a financial advisor. Any transaction would be subject to
approvals by the special committee and the Board of Directors, shareholder
approval, the negotiation and execution of mutually satisfactory definitive
agreements and other customary conditions.
On May 23, 2000, the Company announced that it received a proposal from another
company for the acquisition of the Company for $26.00 per share in cash. The
special committee of the board of directors is studying the new proposal , which
is subject to various conditions including a due diligence review, the unanimous
recommendation of The Cherry Corporation Board and the acceptance of the tender
offer by the shareholders, including Peter Cherry and his affiliates.
There can be no assurance that any agreement relating to either of the proposals
will be reached or that any transaction will be consummated.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
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 2000 Annual Meeting of Stockholders.
Information concerning the executive officers is set forth after Item 4 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 2000 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 2000 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" and "Certain Transactions with Management" in the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders is incorporated
herein by reference.
35
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 I
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
On April 22, 1999, the Registrant filed a report on Form 8-K under item 5,
other events, to report amendments to its credit agreement and senior note
agreement.
On January 31, 2000, the Registrant filed a report on Form 8-K under item
5, other events. A press release dated January 27, 2000, announcing plans to
explore various alternatives with respect to its semiconductor operation, was
incorporated by reference.
36
<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 30, 2000 By /s/ Dan A. King
---------------------------- ----------------------------
Dan A. King
Vice President of Finance and
Administration, Treasurer and
Secretary
Pursuant to the requirements of the Securities Exchange 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 30, 2000:
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
----------------------------- and Administration,
Dan A. King Treasurer and Secretary
(principal financial officer)
By /s/Kevin G. Powers Corporate Controller and
----------------------------- Assistant Secretary
Kevin G. Powers (principal accounting officer)
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
37
<PAGE>
<TABLE>
THE CHERRY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED THE LAST DAY OF FEBRUARY 2000, 1999 AND 1998
(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:
2000 $ 1,659 $ 616 $ (94) $ 2,181
======== ====== ======= ========
1999 $ 1,371 $ 372 $ (84) $ 1,659
======== ====== ======= ========
1998 $ 1,404 $ 3 $ (36) $ 1,371
======== ====== ======= ========
<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.
The schedule above has been restated to exclude discontinued operations for all
periods reported.
</TABLE>
S-1
38
<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.
a. 1. First Amendment to Credit Agreement dated June 17, 1996*.
a. 2. Extension Agreement dated September 6, 1996*.
a. 3. Extension Agreement dated August 20, 1997*.
a. 4. Second Amendment to Credit Agreement dated November 13, 1998*.
b. 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.
b. 1. First Amendment to the Note Agreement and the Notes dated
February 15, 1999*.
* Incorporated by reference to Registrant's Form 8-K dated
April 19,1999.
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 1999.
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)
h. Stock Purchase Agreement for the sale of Cherry Semiconductor
Corporation, filed as Exhibit 2 to the Registrant's Form 8-K dated
April 18, 2000 is incorporated herein by reference.
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.
39
<PAGE>
THE CHERRY CORPORATION Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
STATE OR COUNTRY
NAME OF SUBSIDIARY/DIVISION OF ORGANIZATION
----------------------------------------------------------------
Cherry Electrical Products (1)
Pleasant Prairie, Wisconsin Not Applicable
Cherry Automotive (1)
Waukegan, Illinois Not Applicable
Cherry Semiconductor Corporation (2)
East Greenwich, Rhode Island State of Rhode Island
Cherry Semiconductor International, Inc. (2)
East Greenwich, Rhode Island State of Rhode Island
Cherry GmbH
Auerbach, Germany Federal Republic of Germany
Cherry Electrical Products Limited
Harpenden, England United Kingdom
Cherry SARL
Paris, France France
Cherry, spol. s.r.o.
Klasterec, 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 and Cherry Automotive are the only divisions of
The Cherry Corporation. The remaining companies listed above are
subsidiaries. All entities conduct business in the name indicated.
(2) On April 3, 2000 Cherry Semiconductor Corporation and its subsidiary were
sold to a third party.
40
<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 Company's previously filed
Registration Statements, File Nos. 2-93004 and 33-63881.
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
Chicago, Illinois
May 30, 2000
