ITEM 1. BUSINESS
GENERAL
The Cherry Corporation ("Cherry", "Company" or "Corporation") was incorporated in 1953 in the State of Illinois and reincorporated in the State of Delaware in 1978. The Company and its subsidiaries design, manufacture and sell over 3,000 types of proprietary and custom electrical, electronic and semiconductor components used by a broad range of original equipment manufacturers (OEM's) and distributors in the automotive, computer and consumer and commercial markets.
Cherry's executive offices are located 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 Semiconductor Corporation, Rhode Island; 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 Private Limited, respectively. The Company operates a branch technical support office in South Korea under the name Cherry Semiconductor International, Inc.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Refer to the Business Segment and Geographic Area Information contained in Item 8 of this Annual Report on Form 10-K.
NARRATIVE DESCRIPTION OF BUSINESS
Cherry has four 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 Semiconductors segment manufactures and sells custom, semi-custom and standard integrated circuits designed using Bipolar and BCDMOS technologies. The Company's semiconductor devices for automotive customers are used in power train controls, body electronics, vehicle control and safety, instrumentation and entertainment electronics. Semiconductor devices for computer customers provide power management solutions for personal computer motherboards, add-on cards and power supplies. The Company's integrated circuits also provide power management solutions for portable communication products and industrial equipment manufacturers.
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 keyboards include integrated magnetic-stripe readers, chip-card readers and/or bar code scanners.
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 50% of total sales while the Computer market and the Consumer and Commercial markets account for 26% and 24% of total sales, respectively, for the year ended February 28, 1999.
The Company's sales are made to Tier 1 and Tier 2 suppliers, original equipment manufacturers, and to independent distributors. In fiscal 1999, sales to the Company's five largest customers accounted for 41.3% of consolidated sales. Of these five largest customers, sales to General Motors and Ford were 15.7% and 10.9%, respectively.
Within the Company's Automotive Switches and Modules segment, three customers account for 63.3% of the segment sales and include General Motors and Ford mentioned above. Ford and General Motors are also major customers in the Semiconductors segment. In fiscal 1999, the Computer Keyboards segment has one customer that accounts for 22.2% of that segment's sales. One customer accounts for 12.3% 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.
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. The automotive backlog for Cherry Semiconductor Corporation is also limited to 16 weeks and represents authorized releases for production from automotive customers. Therefore, the Semiconductor Segment backlog reported below includes limited automotive orders. As a result of the above factors, the following figures should not be considered indicative of sales for an ensuing period.
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 1999, 1998 and 1997 the Company spent approximately $21.3 million, $17.8 million and $16.3 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 28, 1999, the Company employed 4,478 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.
ITEM 2.
ITEM 2. PROPERTIES
Cherry owns and leases manufacturing, warehousing and office space in 16 cities around the world. The Company owns its major facilities that are located in Illinois, Wisconsin, Rhode Island and Germany that comprise 345,000, 153,000, 208,000 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 facilities totaling 239,000 square feet, with approximately 83% used 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 40% Semiconductors 16% Computer Keyboards 23% Switches and Controls 21% ------- 100% =======
All facilities are in generally good condition and provide adequate and suitable space for the operations at each location.
The Company utilizes machinery and equipment necessary to conduct its operations. Substantially all 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.
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.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matters were submitted to stockholders during the fourth quarter of the fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages, business experience, and position and offices as of February 28, 1999.
Term as Business Experience During Name Age Officer the Past Five Years
Peter B. Cherry 51 25 Chairman of the Board since 1992 and President since 1982
Alfred S. Budnick 61 22 Vice President of the Company and President of Cherry Semiconductor Corporation since 1977.
Klaus D. Lauterbach 56 7 Vice President of the Company since June 1992; General Manager of Cherry GmbH since 1990; Assistant General Manager prior to 1990.
Dan A. King 49 11 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 39 3 Corporate Controller and Assistant Secretary since June 1995; Assistant Treasurer 1993-1995.
Robert G. Terwall 45 2 Vice President of the Company since June 1997; General Manager of Cherry Electrical Products Division since 1986.
Dale F. Reichhart 46 2 Vice President of the Company since September 1997; General Manager of Cherry Automotive Division since 1997; prior to 1997, Vice President of Research and Development and New Business Development at Huron Plastics.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Cherry Corporation common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbols CHERA and CHERB. As of May 7, 1999, there were approximately 900 holders of record of each class of common stock. 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:
ITEM 6.
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:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF 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:
FISCAL 1999 VS. FISCAL 1998
Sales for fiscal 1999 of $475.0 million established a new record and grew 5.1 percent over the prior year. Sales from our international operations grew 17.4 percent and accounted for just over 40 percent of our worldwide sales. Sales from domestic operations decreased 2 percent and accounted for just under 60 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 now 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 the General Motors strike which occurred last summer, but also as a result of new product introductions being outpaced slightly by programs which were due to expire.
Sales for the Semiconductors segment were $115.1, an increase of 3.5 percent over fiscal 1998. Approximately 70 percent of this segment's sales are to automotive customers where our products are used in such functions as engine control, ABS brake systems and instrument panel electronics. Sales to automotive customers decreased 3.5 percent largely as a result of the General Motors strike. Absent the strike, sales would have been relatively flat year over year. Sales of our power management products comprise the other 30 percent of this segment's sales. These circuits which we sell to the computer communications and power supply markets, grew 23.7 percent over last year's level.
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.
Gross profit margins increased to 29.0 percent from 28.1 percent. The primary factors are the increased utilization of our international manufacturing facilities coupled with cost reductions at all operations.
Consolidated operating expenses increased 9.4 percent to $107.4 million. Increased engineering spending resulted from the Company's efforts to introduce additional power management and sensor 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 $3.0 million increased 2.6 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 33.5 percent compared with 36.5 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.
FISCAL 1998 VS. FISCAL 1997
Sales during fiscal 1998 reached a record $452.1 million surpassing fiscal 1997's record of $439.6 million by 2.8 percent. Domestic sales increased 6.3 percent while foreign sales reflected a decrease of 2.7 percent. Underlying the decline in foreign sales was a 12 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 5.9 percent to $147.7 million and comprised approximately one-third of total sales. This increase was led by sales of our switches and switch assemblies, which grew $10.7 million to $141.5 million. Sales by our foreign operations grew 12.8 percent to $54.0 million.
The Semiconductors segment reported sales of $111.3 million, an increase of 11.5 percent over fiscal 1997. A large portion of this increase resulted from power management products, which represent the fastest growing family of products in this segment.
Sales for the Computer Keyboards segment totaled $98.2 million and decreased 8.1 percent from last year. Sales increased in unit volume, but much of this increase which occurred at our German operation was offset by the stronger dollar. Competitive pricing, particularly on standard keyboards, also served to offset some of the unit volume increase.
Sales for our Switches and Controls segment increased 1.6 percent to $94.9 million. Sales of our switch products, which account for approximately 80 percent of this segment's total, increased 4.2 percent to $75.9 million.
Gross profit margins improved to 28.1 percent of sales in fiscal 1998 from 27.1 percent last year. The two primary reasons for the improvement are the increased sales volume, which resulted in improved utilization of manufacturing capacity, particularly at our foreign and semiconductor operations, and the growth in higher margin products, particularly power management devices.
Operating expenses of $98.2 million increased 5.1 percent during fiscal 1998. As a percent of sales, operating expenses increased to 21.7 percent in fiscal 1998 from 21.2 percent last year. The primary cause was increased research and engineering expenses which increased $3.9 million to 7.3 percent of sales from 6.6 percent of sales in fiscal 1997. This spending is the result of increased efforts to develop power management devices at our semiconductor operation and the costs associated with new product launches and designs at our domestic automotive switch business. We are also continuing our engineering investments to develop a sensor product line. Distribution and administrative expenses increased in fiscal 1998 but remained stable as a percent of sales.
Other income was $1.2 million for fiscal 1998 compared with $2.8 million for fiscal 1997. A decrease in customer tooling income was largely responsible for this change. Also contributing to the decrease was the recognition in fiscal 1997 of deferred income on a completed keyboard program.
Net interest expense of $2.9 million decreased 23 percent from the $3.8 million reported for fiscal 1997. The decrease is primarily due to reduced average borrowings in fiscal 1998 resulting from the Company's positive cash flow. Interest rates were relatively stable in the U. S. and Germany, which is where the Company maintains its borrowings.
The effective tax rate for fiscal 1998 was 36.5 percent compared with 36 percent last year. The increase is primarily due to higher state taxes and slightly lower foreign tax credits. The higher state taxes result from a shift in our domestic earnings with an increased portion occurring in states with higher tax rates.
Consolidated net earnings were a record $17.4 million, up 9.4 percent from fiscal 1997's previous record of $15.9 million. Diluted earnings per share were $1.39 compared with $1.28 for fiscal 1997.
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 $48.8 million in fiscal 1999 compared with $48.1 million in fiscal 1998. 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 $48.7 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.
In December, 1998 the Company completed its Dutch tender offer for 2.3 million shares of stock at $15.50 per share. The total purchase cost of $36.6 million was financed with the Company's committed credit facility.
Largely as a result of the tender offer, the Company's debt increased to $95.1 million at February 28, 1999. The Company's debt-to-capital ratio, net of cash balances increased from 20.1 percent to 33.0 percent.
At February 28, 1999, the Company had unused lines of credit available of approximately $16 million for domestic operations and $26.7 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 2000 are expected to be at a level of 8 percent to 9 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.
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 28, 1999, the U.S. dollar equivalent of forward contracts outstanding approximated $15.9 million.
The economic conditions in Asia have had a limited impact on the Company to date. Less than 10 percent of the Company's sales are in that geographic region, coming primarily from customers whose products are exported to the U.S. and Europe. However, the Company does view this as a region of the world that should be targeted for future growth. Due to the economic uncertainties surrounding this region as well as the companies in this region, the Company will evaluate all potential opportunities carefully.
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 product 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 28, 1999 were:
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (March 1, 2000, for the Company). The Company is assessing the effect of SFAS 133 and currently believes it will not have a material effect on its earnings or financial position.
In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on the accounting treatment of costs related to software obtained or developed for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company has evaluated the requirements of SOP 98-1 and believes it will have no material impact on the Company's reported consolidated results of operations, financial position or cash flows.
In April 1998, the AICPA issued SOP 98-5, "Reporting on Costs of Start-Up Activities." SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires these costs to be expensed as incurred. SOP 98-5 is effective for years beginning after December 15, 1998. The company is in the process of evaluating the impact of the financial reporting requirements.
YEAR 2000 READINESS
The Company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 failures. Specifically, computational errors are a known risk with respect to dates after December 31, 1999. The Company continues to assess its computer equipment, business computer systems, manufacturing equipment and facilities to prepare for the year 2000. Additionally, customer and supplier relationships are being reviewed to assess and address their plans to become Year 2000 compliant. The Company is using a six-step approach to Year 2000 compliance suggested by the Automotive Industry Action Group: (1) planning and awareness; (2) inventory; (3) risk evaluation and prioritization; (4) remediation (repair, replace or retire); (5) testing; and (6) establishment of post implementation support and reviews, as required. Year 2000 project teams and leaders are organized at each of the Company's four primary operating entities, which manage their respective business computer systems, facilities, customers and suppliers under our decentralized organization structure. Project teams at each location include representatives from all functions across the respective entity. Project leaders provide periodic reports to the corporate headquarters. Steps (1) through (3) above have been completed by all project teams. Remediation (step 4) and acceptance testing (step 5) of critical business systems have been completed at three of the four locations with remaining areas scheduled for completion by June 30, 1999. The fourth location is installing new business software scheduled for completion by September 1, 1999, with remediation and acceptance testing of remaining critical areas targeted for completion by June 30, 1999. In case of unforeseen delays in completing this software conversion on time, repairs to make the existing business software Year 2000 compliant are part of a contingency plan at the fourth location. These repairs are also substantially completed.
While the Company's efforts to address Year 2000 issues will involve additional costs, the Company believes, based upon currently available information, that it will be able to manage the Year 2000 transition issues within its control without any material adverse effect on the Company's results of operations, cash flows and financial position.
Although the Company is committed to making its operations Year 2000 compliant, it is possible that the Company may be adversely affected by problems encountered by key customers and suppliers. The Company has initiated correspondence with all suppliers, service providers and financial institutions in an effort to determine and assess those parties' readiness for Year 2000. This involves an on-going process of review, evaluation and follow-up, with priority given to major or critical suppliers. Contingency plans, as needed, may develop from the results of our surveys and most likely will include alternative sourcing. The Company is not likely to develop contingency plans relating to its customers' compliance status. In most cases, our major customers are much larger entities with greater financial resources than the Company. Based upon correspondence from them, we believe they are diligently addressing their Year 2000 issues and will be compliant. However, should problems arise at our customers that would prevent sales to them, the Company would likely respond by taking action to reduce costs during the period of reduced demand. The Company cannot predict the likelihood or extent of a significant disruption in the business of its customers and suppliers or of the economy as a whole, either of which could have a material adverse effect on the Company.
ITEM 7A.
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Cherry Corporation:
We have audited the accompanying consolidated balance sheets of The Cherry Corporation (a Delaware corporation) and subsidiaries as of the last day of February, 1999 and 1998, 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, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Cherry Corporation and subsidiaries as of the last day of February, 1999 and 1998, and the results of their operations and cash flows for each of the three years ended the last day of February, 1999, in conformity with generally accepted accounting principles.
Our audit was made for purposes of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in Item 14(a) 2 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP - ------------------- Arthur Andersen LLP
Chicago, Illinois March 31, 1999
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 at the date of shipment.
INVESTMENT IN AFFILIATES The Company accounts for its investments in 50% owned affiliates in Japan and India by the equity method of accounting. Retained earnings at February 28, 1999 include $7,945 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 30% and 31% of the Company's inventories as of the last day of February 1999 and 1998, 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 $33,686, $29,786 and $27,907 for fiscal 1999, 1998 and 1997, respectively. Accelerated depreciation methods are generally used for tax purposes.
Expenditures for maintenance, repairs and renewals of minor items are charged to expense as incurred. Major renewals and improvements are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings for the period.
INCOME TAXES The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.
The Company has not recorded deferred income taxes applicable to certain undistributed earnings of foreign subsidiaries and affiliates that are indefinitely reinvested. Federal income taxes on distribution of these earnings, if any, would not be significant.
CURRENCY TRANSLATION Assets and liabilities of foreign operations are translated into U.S. dollars at year-end rates of exchange. Profit and loss items are translated at the average exchange rates prevailing during the year. Resulting translation adjustments are reported separately in Stockholders' Equity, net of interperiod tax allocations.
RESEARCH AND DEVELOPMENT Research and development ("R&D") costs are expensed as incurred. R&D expense was $21,318, $17,831 and $16,251 for fiscal 1999, 1998 and 1997, 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.
The Company has two classes of common stock: Class A, which is non-voting, and Class B, which has one vote per share. The Class A common could receive dividends without Class B receiving the same amount. However, Class B could not receive dividends without Class A receiving at least the same amount. The options outstanding at February 28, 1999 are on Class A shares (See Note K). The weighted average shares outstanding for Class A and Class B common stock for the year ending February 28, 1999 are 7,437,801 and 4,667,468 respectively. In the event dividends are declared on one or both classes of common stock, a two- class calculation of EPS will be presented. As there were no dividends declared or paid for any of the years presented, the EPS for each class of common stock is the same.
In December 1998, the Company concluded a "Dutch Auction" self-tender offer and acquired 1,771,911 Class A shares and 569,015 Class B shares at an aggregate cost of $36,647. The shares purchased are accounted for as treasury stock and may be used for general corporate purposes.
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.
RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to current year presentation.
NOTE B: NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. The Company has adopted SFAS No. 130 and has incorporated its requirements into this annual report.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted SFAS No. 131 and has provided the disclosures needed to conform to its requirements (See note O).
In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on the accounting treatment of costs related to software obtained or developed for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company has evaluated the requirements of SOP 98-1 and believes it will have no material impact on the Company's reported consolidated results of operations, financial position or cash flows.
In June 1998, the 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. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company is assessing the effect of SFAS No. 133 and currently believes it will not have a material effect on its earnings or financial position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on Costs of Start-Up Activities." SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires these costs to be expensed as incurred. SOP 98-5 is effective for years beginning after December 15, 1998. The company is in the process of evaluating the impact of the financial reporting requirements.
NOTE C: INCOME TAXES
The sources of earnings before income taxes are as follows:
Reconciliation of the differences between income taxes computed at federal statutory tax rates and the consolidated provisions for income taxes are as follows:
For income tax reporting at February 28, 1999, the Company has state tax credit carryforwards of approximately $1,344 that expire in the years 2003 through 2006. The carryforwards will be available to reduce future income tax liabilities.
In fiscal 1999, the Company's subsidiary in England remitted a dividend of $8,695 that resulted in a net tax benefit of $737.
The tax effects of the significant temporary differences that comprise the deferred tax liabilities and assets follows:
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.
NOTE D: SUPPLEMENTARY INCOME STATEMENT INFORMATION
NOTE E: INVENTORIES
NOTE F: DEBT
The following principal payments, exclusive of capitalized lease payments, are required during the next five fiscal years: 2000 - $1,737; 2001 - $1,648; 2002 - $846; 2003 - $43,852; 2004 - $5,858; thereafter - $22,705.
The Company has an unsecured, multicurrency revolving credit agreement for $65 million. The interest rate on this agreement is the prime rate or, depending upon the Company's financial performance, LIBOR plus .375% to .625%. The facility has a competitive bid option 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.
The Company has three uncommitted, unsecured credit facilities totaling $33 million. These facilities are utilized when the borrowing rates available under them are below those available under the committed facility. A provision in the multicurrency revolving credit agreement limits the Company's combined domestic borrowings under that facility and the uncommitted facilities to $65 million.
On July 28, 1995, the Company completed a $25 million long-term debt placement with an insurance company in the form of 6.99% Senior Notes, due July 15, 2007 with principal prepayments of $5 million required in years 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.
In conjunction with the construction of a new manufacturing facility in Wisconsin the Company obtained $1 million in financing from the State of Wisconsin and the local business development group. 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 28, 1999.
As of February 28, 1999, the Company had unused lines of credit available for general corporate purposes of approximately $16 million for U.S. operations and $26.7 million for foreign operations.
NOTE G: DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well- defined interest rate, foreign exchange and commodity price risks.
The Company selectively enters into forward contracts to hedge certain firm and anticipated purchase commitments denominated in foreign currency (principally German marks). Gains or losses related to qualifying hedges of foreign currency transactions are recognized in income when the hedged transaction occurs. Other foreign exchange transactions are marked-to-market on a current basis through income. The U. S. dollar equivalent of forward contracts outstanding on the last day of February 1999 and 1998 approximated $15.9 million and $5.1 million, respectively.
The Company also uses derivative contracts to reduce the impact of commodity price changes on the cost of its products. The Company entered into a collar agreement that effectively sets the 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. The Company also has a collar agreement that sets the minimum and maximum price per ounce on 25 thousand ounces of silver per month ranging from a minimum of $4.80 per ounce to a maximum of $5.96 per ounce for the period from July I, 1998 through June 30, 1999. Amounts paid or received under these agreements are recognized as an adjustment to the purchase price of the metal. No premium was paid for these contracts.
The Company uses variable rate credit lines to finance a portion of its working capital requirements. Borrowings under those credit lines fluctuate throughout the year. Interest rate cap agreements are used to reduce the potential impact of increases in interest rates on these borrowings. The Company is party to one separate interest rate cap agreement, which protects 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 1999 and 1998, unamortized premiums amounted to $84 and $164, respectively.
Counterparties to all of these financial instruments are major financial institutions. Credit loss from counterparty nonperformance is not anticipated.
NOTE H: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of the Company's financial instruments.
The carrying amounts shown above are included in the consolidated balance sheet.
The following methods and assumptions were used to estimate fair value of each class of financial instrument:
OTHER ASSETS, NET: The amounts reported relate to the interest rate caps reported in Note G. The carrying amount represents the unamortized premiums paid for the contracts. The fair value is based on its quoted market price as provided by the financial institutions that are counterparty to the caps.
CURRENCY AND COMMODITY CONTRACTS: The fair value of foreign currency and commodity contracts (used for hedging) is estimated by obtaining quotes from the financial institution 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.
NOTE H: LEASES
The Company leases automobiles, machinery and equipment, including computers, under noncancelable operating leases that expire over the next eighteen years. Renewal and escalation clauses are not significant. Rent expense was $4,379, $4,280 and $3,787 for fiscal 1999, 1998 and 1997, respectively.
Land, buildings and equipment include capitalized leases of $3,267 and $5,833 less accumulated amortization of $2,293 and $4,421 as of the last day of February 1999 and 1998, respectively.
Future minimum lease payments under capitalized and long-term noncancelable operating leases are as follows:
NOTE J: 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.
NOTE K: STOCK BASED COMPENSATION PLANS
STOCK OPTION PLANS
In June 1995, the stockholders approved the 1995 Stock Incentive Plan and the 1995 Nonemployee Director Stock Option Plan and reserved for distribution 900,000 and 100,000 shares of Class A common stock, respectively. The Stock Incentive Plan also has available for awards 133,560 shares of Class A 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 Class A common stock on the date the right is granted. Stock options and SARs are exercisable in installments but not prior to six months nor later than ten years after the grant date. Stock awards may be granted to participants of the plan at no cost to them. Stock awards will be subject to such terms, conditions, restrictions and/or limitations, if any, as deemed appropriate. No more than 180,000 shares may be issued as stock awards not based on performance goals during the term of the plan.
Under the terms of the 1995 Nonemployee Director Stock Option Plan, each nonemployee director in office on adjournment of the Company's annual meeting automatically receives a non-qualified stock option to purchase the whole number of shares of Class A common stock equal to the amount of the nonemployee director's annual retainer divided by the fair market value of a share of Class A common stock on that date. Stock options are exercisable in installments but not prior to twelve months nor later than ten years after the grant date.
The following table summarizes the transactions pursuant to the Company's stock option plans for the three-year period ended February 28, 1999:
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. Through December 31, 1996, the program was governed by the 1980 Employee Stock Purchase Plan. Under the plan, 35,292 shares of Class A common stock were issued at $9.26 per share during fiscal 1997.
In June 1996, the stockholders approved the 1996 Employee Stock Purchase Plan (1996 Plan) to replace the 1980 Plan, effective January 1, 1997. Under the 1996 Plan, an aggregate of 400,000 shares of Class A common stock may be sold plus 29,196 shares remaining under the 1980 Plan. The Compensation Committee of the Board of Directors administers the plan and has the authority to establish the annual purchase price and contribution levels within the limitations provided by the plan. For the initial plan year beginning January 1, 1997, the Compensation Committee approved 50,000 shares for issuance, set the purchase price at 95% and limited the maximum employee contribution to five thousand dollars. Under the plan, 19,516 and 17,966 shares were issued at $13.06 and $15.20 per share during fiscal 1999 and 1998, respectively. At February 28, 1999, 391,680 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:
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 1999, 1998 and 1997 was $9.38, $8.58 and $5.49, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted average assumptions used for grants:
NOTE L: EMPLOYEE BENEFIT PLANS
BONUS, DEFERRED COMPENSATION, PROFIT SHARING AND RETIREMENT PLANS
The Company and its operating entities have various bonus, deferred compensation, profit sharing and retirement plans. The Company's bonus plans cover qualified management employees. The payouts of these bonus plans are based on attainment of operating results and other key performance goals. The established Company profit sharing plan covers substantially all employees for the domestic operating entities and is qualified under Section 401(k) of the Internal Revenue Code. It allows for employee and employer contributions. Certain key foreign employees are eligible for a one-time, lump sum payment on retirement or involuntary termination, the amounts of which are accrued over the employee's estimated service. During fiscal 1999, 1998 and 1997, the expenses for these plans were $4,500, $4,952 and $4,630, respectively.
Effective January 1, 1996, the Company established a non-qualified, unfunded deferred compensation program. The program allows designated employees to elect to defer a portion of their annual incentives and base pay for periods of five years to retirement. Participants are provided the same investment options as for the separate 401(k) plan. Any distributions payable under the program are paid from the general assets of the Company. Amounts deferred by participants as of February 28, 1999 were not significant.
NOTE M: EARNINGS PER SHARE DISCLOSURE
Following is a reconciliation of the numerators and the denominators of the basic and diluted EPS computation.
NOTE N: OTHER COMPREHENSIVE INCOME
The income tax expense (benefit) allocated to each component of other comprehensive income follows:
NOTE O: SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION
The Company designs and manufactures a wide range of electrical, electronic and semiconductor components which it sells to original equipment manufacturers, Tier 1 suppliers and distributors through four business segments: Automotive Switches and Modules, Semiconductors, 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 Semiconductors X X X Computer Keyboards X Switches and Controls X X
Two Automotive Market customers individually accounted for 15.7% and 10.9% of consolidated net sales in fiscal 1999, 18.6% and 12.5% in fiscal 1998 and 18.4% and 12.9% in fiscal 1997.
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 fiscal 1999, 1998 and 1997, export sales from the Company's U.S. operations to unaffiliated customers were approximately 13.6%, 13.9% and 12.3% of consolidated sales, respectively. Export sales were to the following geographic areas:
In the following tables, intercompany sales between segments and geographic areas are made at prices approximating market and are eliminated from total net sales. Identifiable assets report only the assets used in the operation of that business segment or geographic area. All other assets are shown separately as corporate assets. Corporate assets include cash, other current and noncurrent assets and the Company's investment in unconsolidated affiliates.
ITEM 9.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
ITEM 10.
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 1999 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.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation under the caption "Compensation" in the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12.
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 1999 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Employment Contracts and Change of Control Agreements" and "Loan to Executive Officer" in the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS See Part II (a) 2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants See Part II
II. Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable, not required under the instructions, or the information is included in the financial statements or notes thereto.
Separate financial statements for the Registrant's unconsolidated fifty percent owned affiliates, accounted for by the equity method, have been omitted because the affiliates do not constitute significant subsidiaries.
(a) 3. EXHIBITS See Index to Exhibits
(b) REPORTS ON FORM 8-K
On December 21, 1998, the Registrant filed a report on Form 8-K under item 5, other events. A press release dated December 17, 1998, announcing third quarter earnings and the expectation of a greater than normal seasonal decline in fourth quarter results, was incorporated by reference.
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 26, 1999 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 20, 1999:
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/Alfred S. Budnick Vice President, President of ----------------------------- Cherry Semiconductor Corporation Alfred S. Budnick and Director
By /s/Charles W. Denny Director ----------------------------- Charles W. Denny
By /s/Peter A. Guglielmi Director ----------------------------- Peter A. Guglielmi
By /s/Thomas L. Martin, Jr. Director ----------------------------- Dr. Thomas L. Martin, Jr.
By /s/Robert B. McDermott Director ----------------------------- Robert B. McDermott
By /s/ W. Ed Tyler Director ----------------------------- W. Ed Tyler
By /s/ Henry J. West Director ----------------------------- Henry J. West
S-1
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)
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.
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 East Greenwich, Rhode Island State of Rhode Island
Cherry Semiconductor International, Inc. 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.
Consent of Independent Public Accountants Exhibit 23
As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into The Cherry Corporation's previously filed Registration Statements, File Nos. 2-93004 and 33-63881.
Arthur Andersen LLP ------------------- Arthur Andersen LLP
Chicago, Illinois May 26, 1999