Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(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 28, 2004
       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)

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 21, 2004:  36,073,941

    TABLE OF CONTENTS

i

Table of Contents

PART I  -  FINANCIAL INFORMATION

Item 1.   Financial Statements

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands, except per share amounts)

				Three Months Ended
				March 28, 2004				March 30, 2003
Net sales				$	122,147			$	105,769
Costs and expenses:
	Cost of goods sold				97,538				84,686
	Selling, general and administrative expenses				14,816				12,848
	Research and development expenses				4,884				5,641
		Operating earnings			4,909				2,594
Other (expense) income:
	Interest expense				(1,533	)			(1,972	)
	Interest income				102				49
	Other				(118	)			90
		Total other expense			(1,549	)			(1,833	)
		Earnings before income taxes			3,360				761
Income tax expense					840				190
		Net earnings		$	2,520			$	571
Net earnings per share — Note J
	Basic			$	0.07			$	0.02
	Diluted			$	0.07			$	0.02
Cash dividends declared per share				$	0.03			$	0.03
Average common shares outstanding:
	Basic				35,957				34,020
	Diluted				36,243				34,258

See notes to condensed consolidated financial statements.

1

Table of Contents

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)

					March 28, 2004				December 31, 2003*
					(UNAUDITED)
ASSETS
Current Assets
	Cash and cash equivalents				$	32,861			$	25,346
	Accounts receivable, less allowances (2004 — $1,640; 2003 — $1,585)					83,663				72,290
	Inventories — Note C					38,676				31,925
	Other current assets					7,065				6,697
	Deferred income taxes					28,530				28,508
			Total current assets			190,795				164,766
Property, plant and equipment, less accumulated depreciation (2004 — $275,133; 2003 — $261,838)						118,148				122,481
Other Assets
	Prepaid pension asset — Note G					135,387				132,960
	Intangible assets					36,880				37,456
	Assets held for sale — Note D					16,683				17,583
	Other					6,968				7,004
			Total other assets			195,918				195,003
Total Assets					$	504,861			$	482,250
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable				$	59,120			$	52,252
	Accrued liabilities — Note D					51,670				43,437
			Total current liabilities			110,790				95,689
Long-term debt — Note F						81,200				75,880
Other long-term obligations						11,101				11,133
Deferred income taxes						5,379				5,357
Shareholders’ Equity
	Preferred stock — authorized 25,000,000 shares without par value; none issued					—				—
	Common stock — authorized 75,000,000 shares without par value; 52,639,667 shares issued at March 28, 2004 and 52,632,088 shares issued at December 31, 2003					263,048				262,748
	Additional contributed capital					21,613				21,520
	Retained earnings					264,864				263,430
	Accumulated other comprehensive earnings					529				151
						550,054				547,849
Cost of common stock held in treasury (2004 — 16,565,926 shares; 2003 — 16,565,558 shares)						(253,663	)			(253,658	)
			Total shareholders’ equity			296,391				294,191
Total Liabilities and Shareholders’ Equity					$	504,861			$	482,250
*The balance sheet at December 31, 2003, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements.

2

Table of Contents

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands of dollars)

				Three Months Ended
				March 28, 2004				March 30, 2003
Cash flows from operating activities:
	Net earnings			$	2,520			$	571
	Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
		Depreciation and amortization			7,260				8,812
		Changes in assets and liabilities:
		Accounts receivable			(11,373	)			4,019
		Inventories			(6,751	)			148
		Other current assets			(369	)			1,002
		Prepaid pension asset			(2,427	)			(3,115	)
		Accounts payable and accrued liabilities			3,778				(3,540	)
		Other			622				302
		Total adjustments			(9,260	)			7,628
		Net cash provided by (used in) operations			(6,740	)			8,199
Cash flows from investing activities:
	Capital expenditures				(1,980	)			(2,220	)
	Proceeds and deposits on asset sales				11,869				3,892
		Net cash provided by investing activities			9,889				1,672
Cash flows from financing activities:
	Payments of long-term debt				(25,935	)			(10,150	)
	Proceeds from issuance of long-term debt				31,255				—
	Dividends paid				(1,169	)			(1,025	)
	Other				(49	)			249
		Net cash provided by (used in) financing activities			4,102				(10,926	)
Effect of exchange rate on cash and cash equivalents					264				(509	)
Net increase (decrease) in cash and cash equivalents					7,515				(1,564	)
Cash and cash equivalents at beginning of year					25,346				9,225
Cash and cash equivalents at end of period				$	32,861			$	7,661
Supplemental cash flow information
Cash paid during the period for:
	Interest			$	234			$	360
	Income taxes—net			$	2,312			$	1,424

See notes to condensed consolidated financial statements.

3

Table of Contents

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - UNAUDITED
(In thousands of dollars)

				Three Months Ended
				March 28, 2004				March 30, 2003
Net earnings				$	2,520			$	571
Other comprehensive earnings (loss):
	Cumulative translation adjustment				347				(504	)
	Deferred gain on forward contracts				31				—
Comprehensive earnings				$	2,898			$	67

See notes to condensed consolidated financial statements.

4

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 28, 2004

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 unaudited 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, 2003.

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 Employee Compensation

CTS accounts for stock-based employee 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 employee 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 and net earnings per share would have been adjusted to the pro forma amounts indicated below:

				Three Months Ended
				March 28, 2004				March 30, 2003
($ in thousands, except per share amounts)
Net earnings, as reported				$	2,520			$	571
Add:    Stock-based employee compensation cost, net of tax, included in net earnings					—				—
Deduct:    Stock-based employee compensation cost, net of tax, if fair value based method were used					(288	)			(381	)
Proforma net earnings				$	2,232			$	190
Net earnings per share-basic, as reported				$	0.07			$	0.02
Proforma net earnings per share-basic					0.06				0.01
Net earnings per share-diluted, as reported					0.07				0.02
Proforma net earnings per share-diluted				$	0.06			$	0.01

5

Table of Contents

NOTE C—Inventories

Inventory consist of the following:

				March 28, 2004				December 31, 2003
($ in thousands)
Finished goods				$	10,076			$	8,047
Work-in-process					6,792				7,779
Raw materials					21,808				16,099
	Total inventories			$	38,676			$	31,925

Note D—Assets Held for Sale

Assets held for sale at March 28, 2004 are comprised of facilities, primarily the Longtan, Taiwan building and other machinery and equipment that has been removed from service and is to be disposed of pursuant to the Company’s restructuring activities.  The assets are held by the Components and Sensors business segment.  These assets are recorded at amounts not in excess of what management currently expects to receive upon sale, less cost of disposal. The Company routinely monitors the estimated value of all assets held for sale and records adjustments to these values as necessary. The amounts the Company will ultimately realize are dependent on numerous factors, some of which are beyond management’s ability to control, and could differ materially from the amounts currently recorded.

During the first quarter of 2004, CTS entered into an agreement to sell its Longtan, Taiwan facility. As of March 28, 2004, CTS had received cash deposits totaling $11.7 million. Included in CTS’ March 28, 2004 accrued liability balance is $11.7 million relating to these deposits. Refer also to Note K, “Subsequent Event.”

Note E—Financial Instruments

In the first quarter of 2004, CTS entered into a series of forward exchange contracts to manage its risk to fluctuations in foreign currency exchange rates between the Euro and the United Kingdom Pound. These contracts, which expire monthly in 2004, are designed to hedge anticipated foreign currency transactions. In accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” these forward contracts for forecasted transactions are designated as cash flow hedges and recorded as assets or liabilities on the balance sheet at fair value. Changes in the contracts’ fair values, which totaled $31,000 at March 28, 2004, are recognized in accumulated other comprehensive income until they are recognized in earnings at the time the forecasted transaction occurs.

Note F—Long-Term Debt

CTS has a credit agreement containing a $55 million senior, secured revolving credit facility that had an outstanding balance of $16.2 million at March 28, 2004. The credit agreement categorized this debt as senior to CTS’ $25 million convertible debentures. The debt is collateralized by substantially all U.S. assets and a pledge of 65% of the capital stock of certain non-U.S. subsidiaries. Interest rates on these borrowings fluctuate based upon LIBOR. CTS pays a commitment fee on the undrawn portion of the credit agreement. The commitment fee varies based on performance under certain financial covenants and is currently 0.375 percent per annum. The credit agreement requires, among other things, that CTS comply with a minimum fixed charge coverage, a maximum leverage ratio and a minimum tangible net worth. Failure of CTS to comply with these covenants could reduce the borrowing availability under the credit agreement. Additionally, the credit agreement limits the amounts allowed for dividends, capital expenditures and acquisitions. The credit agreement expires in July 2006.

During the first quarter of 2004, CTS paid $2 million of the industrial revenue bonds that are due in 2013. The remaining outstanding industrial revenue bonds balance of $40 million had a weighted-average interest rate of 7.5% at March 28, 2004.

6

Table of Contents

NOTE G—Retirement Plans

Net pension (income) / postretirement expense for the three months ended March 28, 2004 and March 30, 2003 includes the following components: