(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______________ to _______________
Commission File Number:
1-4639
CTS CORPORATION
(Exact name of
registrant as specified in its charter)
| Indiana |
35-0225010 |
|||
| (State or other jurisdiction of
incorporation or organization) |
(IRS Employer
Identification Number) |
| 905 West Boulevard North, Elkhart, IN |
46514 |
|||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 574-293-7511
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.
Yes X No
Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 22, 2003: 34,150,145
| Page | |||
|---|---|---|---|
| PART I. | FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 | |
| Condensed Consolidated Statements of Earnings (Loss) | |||
| - For the Three Months ended March 30, 2003 and March 31, 2002 | 1 | ||
| Condensed Consolidated Balance Sheets | |||
| - As of March 30, 2003, and December 31, 2002 | 2 | ||
| Condensed Consolidated Statements of Cash Flows | |||
| - For the Three Months Ended March 30, 2003 and March 31, 2002 | 3 | ||
| Condensed Consolidated Statements of Comprehensive Earnings (Loss) | |||
| - For the Three Months Ended March 30, 2003 and March 31, 2002 | 4 | ||
| Notes to Condensed Consolidated Financial Statements | 5 | ||
| Item 2. | Management's Discussion and Analysis of | ||
| Financial Condition and Results of Operations | 11 | ||
| Item 3. | Quantitative and Qualitative Disclosure about Market Risk | 15 | |
| Item 4. | Controls and Procedures | 15 | |
| PART II. | OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 16 | |
| Item 6. | Exhibits and Reports on Form 8-K | 16 | |
| SIGNATURES | 17 | ||
| CERTIFICATIONS | 18 | ||
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - UNAUDITED
(In thousands, except per share amounts)
| Three Months Ended | ||||||||||
| March 30, 2003 | March 31, 2002 | |||||||||
Net sales |
$ | 105,769 | $ | 112,593 | ||||||
Costs and expenses: |
||||||||||
Cost of goods sold |
84,686 | 89,915 | ||||||||
Selling, general and administrative expenses |
12,848 | 15,317 | ||||||||
Research and development expenses |
5,641 | 7,133 | ||||||||
Operating earnings |
2,594 | 228 | ||||||||
Other (expense) income: |
||||||||||
Interest expense |
(1,972 | ) | (2,670 | ) | ||||||
Interest income |
49 | 82 | ||||||||
Other |
90 | (174 | ) | |||||||
Total other expense |
(1,833 | ) | (2,762 | ) | ||||||
Earnings (loss) before income taxes |
761 | (2,534 | ) | |||||||
Income tax expense (benefit) |
190 | (633 | ) | |||||||
Net earnings (loss) |
$ | 571 | $ | (1,901 | ) | |||||
Net earnings (loss) per share — Note I |
||||||||||
Basic |
$ | 0.02 | $ | (0.06 | ) | |||||
Diluted |
$ | 0.02 | $ | (0.06 | ) | |||||
Cash dividends declared per share |
$ | 0.03 | $ | 0.03 | ||||||
Average common shares outstanding: |
||||||||||
Basic |
34,020 | 31,802 | ||||||||
Diluted |
34,258 | 31,802 | ||||||||
See notes to condensed consolidated financial statements.
1
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements (Continued)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
| March 30, 2003 | December 31, 2002* | ||||||||||
| (UNAUDITED) | |||||||||||
ASSETS |
|||||||||||
Current Assets |
|||||||||||
Cash |
$ | 7,661 | $ | 9,225 | |||||||
Accounts receivable, less allowances (2003 -- $1,218; 2002 -- $1,694) |
59,783 | 63,802 | |||||||||
Inventories — Note C |
36,114 | 36,262 | |||||||||
Other current assets |
6,211 | 7,212 | |||||||||
Deferred income taxes |
35,997 | 35,833 | |||||||||
Total current assets |
145,766 | 152,334 | |||||||||
Property, plant and equipment, less accumulated depreciation (2003 -- $249,761; 2002 -- $251,430) |
142,913 | 148,632 | |||||||||
Other Assets |
|||||||||||
Prepaid pension asset |
123,392 | 120,277 | |||||||||
Intangible assets |
39,214 | 39,923 | |||||||||
Assets held for sale — Note E |
18,826 | 23,135 | |||||||||
Other |
5,496 | 5,731 | |||||||||
Total other assets |
186,928 | 189,066 | |||||||||
Total Assets |
$ | 475,607 | $ | 490,032 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
Current Liabilities |
|||||||||||
Current maturities of long-term debt — Note F |
$ | 18,200 | $ | 28,350 | |||||||
Accounts payable |
47,453 | 44,490 | |||||||||
Accrued liabilities |
55,224 | 61,716 | |||||||||
Total current liabilities |
120,877 | 134,556 | |||||||||
Long-term debt — Note F |
67,000 | 67,000 | |||||||||
Other long-term obligations |
11,505 | 11,501 | |||||||||
Deferred income taxes |
11,962 | 11,955 | |||||||||
Shareholders’ Equity |
|||||||||||
Preferred stock — authorized 25,000,000 shares without par value; none issued |
— | — | |||||||||
Common stock — authorized 75,000,000 shares without par value; |
|||||||||||
50,769,978 shares issued
at March 30, 2003 and |
|||||||||||
50,718,883 shares issued at December 31, 2002 |
241,442 | 241,393 | |||||||||
Additional contributed capital |
23,544 | 23,514 | |||||||||
Retained earnings |
254,622 | 255,085 | |||||||||
Accumulated other comprehensive loss |
(1,339 | ) | (835 | ) | |||||||
| 518,269 | 519,157 | ||||||||||
Cost of common stock held in treasury |
|||||||||||
(2003 -- 16,619,833 shares;
2002 --16,618,373 shares) |
(254,006 | ) | (254,137 | ) | |||||||
Total shareholders’ equity |
264,263 | 265,020 | |||||||||
Total Liabilities and Shareholders' Equity |
$ | 475,607 | $ | 490,032 | |||||||
|
*The balance sheet at December 31, 2002, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. |
|||||||||||
2
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements (Continued)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands of dollars)
| Three Months Ended | ||||||||||
| March 30, 2003 | March 31, 2002 | |||||||||
Cash flows from operating activities: |
||||||||||
Net earnings (loss) |
$ | 571 | $ | (1,901 | ) | |||||
Adjustments to reconcile net earnings (loss) |
||||||||||
to net cash provided by operating activities: |
||||||||||
Depreciation and amortization |
8,812 | 11,228 | ||||||||
Changes in assets and liabilities: |
||||||||||
Accounts receivable |
4,019 | 1,495 | ||||||||
Inventories |
148 | 6,428 | ||||||||
Other current assets |
1,002 | (485 | ) | |||||||
Prepaid pension asset |
(3,115 | ) | (3,607 | ) | ||||||
Accounts payable and accrued liabilities |
(3,540 | ) | (12,803 | ) | ||||||
Other |
302 | 341 | ||||||||
Total adjustments |
7,628 | 2,597 | ||||||||
Net cash provided by operations |
8,199 | 696 | ||||||||
Cash flows from investing activities: |
||||||||||
Capital expenditures |
(2,220 | ) | (4,673 | ) | ||||||
Proceeds from sales of assets |
3,892 | — | ||||||||
Other |
— | 135 | ||||||||
Net cash provided by (used in) investing activities |
1,672 | (4,538 | ) | |||||||
Cash flows from financing activities: |
||||||||||
Payments of long-term debt |
(10,150 | ) | (34,855 | ) | ||||||
Proceeds from issuance of long-term debt |
— | 1,050 | ||||||||
Net change in short-term borrowings |
— | 1,389 | ||||||||
Issuance of common stock |
302 | 31,609 | ||||||||
Dividends paid |
(1,025 | ) | (931 | ) | ||||||
Other |
(53 | ) | 108 | |||||||
Net cash used in financing activities |
(10,926 | ) | (1,630 | ) | ||||||
Effect of exchange rate on cash |
(509 | ) | (111 | ) | ||||||
Net decrease in cash |
(1,564 | ) | (5,583 | ) | ||||||
Cash and equivalents at beginning of year |
9,225 | 13,255 | ||||||||
Cash and equivalents at end of period |
$ | 7,661 | $ | 7,672 | ||||||
Supplemental cash flow information |
||||||||||
Cash paid during the period for: |
||||||||||
Interest |
$ | 360 | $ | 1,294 | ||||||
Income taxes--net |
$ | 1,424 | $ | 153 | ||||||
See notes to condensed consolidated financial statements.
3
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements (Continued)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - UNAUDITED
(In thousands of dollars)
| Three Months Ended | ||||||||||
| March 30, 2003 | March 31, 2002 | |||||||||
Net earnings (loss) |
$ | 571 | $ | (1,901 | ) | |||||
Other comprehensive earnings (loss): |
||||||||||
Cumulative translation adjustments |
(504 | ) | (410 | ) | ||||||
Deferred loss on forward contract |
— | (250 | ) | |||||||
Comprehensive earnings (loss) |
$ | 67 | $ | (2,561 | ) | |||||
See notes to condensed consolidated financial statements.
4
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements (Continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 30, 2003
NOTE A—Basis of Presentation
The accompanying condensed consolidated interim financial statements have been prepared by CTS Corporation (CTS or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The condensed consolidated interim financial statements should be read in conjunction with the financial statements, notes thereto and other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The accompanying unaudited condensed consolidated interim financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods presented. 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 and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
NOTE B—Stock-Based Compensation
CTS accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. CTS has adopted the disclosure requirements of the Financial Accounting Standards Board's (FASB) Financial Accounting Standard (FAS) No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Had compensation cost for CTS' fixed, stock-based compensation plans been determined based on the fair value method, as defined by FAS No. 123, "Accounting for Stock-Based Compensation," CTS' net earnings (loss) and net earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:
| Three Months Ended | |||||||||||
| March 30, 2003 | March 31, 2002 | ||||||||||
| ($ in thousands, except per share amounts) |
|||||||||||
Net earnings (loss), as reported |
$ | 571 | $ | (1,901 | ) | ||||||
Stock-based employee compensation cost, |
|||||||||||
net of tax, included in net earnings (loss) |
-- | -- | |||||||||
Stock-based employee compensation cost, |
|||||||||||
net of tax, if fair value based method were used |
(616 | ) | (717 | ) | |||||||
Pro forma net loss |
$ | (45 | ) | $ | (2,618 | ) | |||||
Net earnings (loss) per share-basic, as reported |
$ | 0.02 | $ | (0.06 | ) | ||||||
Pro forma net loss per share-basic |
-- | (0.08 | ) | ||||||||
Net earnings (loss) per share-diluted, as reported |
0.02 | (0.06 | ) | ||||||||
Pro forma net loss per share-diluted |
$ | -- | $ | (0.08 | ) | ||||||
5
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements (Continued)
NOTE C—Inventories
The components of inventory consist of the following:
| March 30, 2003 | December 31, 2002 | |||||||||
| ($ in thousands) | ||||||||||
Finished goods |
$ | 13,603 | $ | 13,859 | ||||||
Work-in-process |
7,870 | 8,346 | ||||||||
Raw materials |
14,641 | 14,057 | ||||||||
| $ | 36,114 | $ | 36,262 | |||||||
NOTE D—Restructuring and Impairment Charges
In the third quarter of 2002, CTS recorded $18.3 million of pre-tax
restructuring and impairment charges. The restructuring and impairment charges
were incurred in order to effect operational improvements and related
organizational realignments primarily in the Components and Sensors business
segment involving the relocation of certain manufacturing operations.
CTS completed substantially all of these restructuring actions by the end of 2002.
The restructuring charge of $5.0 million recorded in the third quarter of 2002 relates primarily to organizational realignment in the Components and Sensors business segment, and reductions in support staff for the design of new custom variations of certain product lines. Included in this amount is $4.6 million of severance costs associated with the separation of approximately 300 employees, substantially all of which have been severed as of March 30, 2003. Approximately 67% of the employees severed were salary and indirect employees and 33% were hourly production employees.
The following table displays the restructuring activity and restructuring reserve balances as of March 30, 2003 for actions initiated in 2002:
| Workforce | Other | |||||||||||
| Reductions | Exit Costs | Total | ||||||||||
| ($ in millions) | ||||||||||||
Third quarter of 2002 charge |
$ | 4.6 | $ | 0.4 | $ | 5.0 | ||||||
Items paid or utilized in 2002 |
(3.4 | ) | — | (3.4 | ) | |||||||
Reserve balance at
December 31, 2002 |
1.2 | 0.4 | 1.6 | |||||||||
Items paid or utilized in first quarter of 2003 |
(0.2 | ) | (0.3 | ) | ||||||||