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CTS CORPORATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
1998
FORM 10-K
ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended December 31, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction of (IRS Employer Identifi-
incorporation or organization) cation Number)
905 West Boulevard North, Elkhart, Indiana 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 219-293-7511
Web site address: http://www.ctscorp.com
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant has: (1) 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
There were 13,650,435 shares of Common Stock, without par value, outstanding on
February 22, 1999. The aggregate market value of the voting stock held by
non-affiliates of CTS Corporation was approximately $607.8 million on February
22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 1999 Proxy Statement to be filed for the
annual meeting of shareholders to be held on April 30, 1999,
incorporated by reference in Part 3.
(2) Certain portions of the CTS Corporation Form 10-K for the 1995
fiscal year ended December 31, 1995, incorporated by reference
in Part 4.
(3) Portions of the CTS Corporation Form 8-K filed with the
Commission September 2, 1998 incorporated by reference in
Part 4.
(4) Portions of the CTS Corporation Form 14D-1 filed with the
Commission May 16, 1997 incorporated by reference in Part 4.
(5) Portions of the CTS Corporation Form 10-Q for the quarter
ended June 29, 1997 filed with the Commission on August 12,
1997, incorporated by reference in Part 4.
SEE THE EXHIBIT INDEX -- PAGES 20 - 21
PART 1
Item 1
Business News and Information
CTS IS A 100 YEAR OLD COMPANY MOVING INTO THE NEXT CENTURY
CTS Corporation was established in 1896 as Chicago Telephone Supply, a provider
of high-quality telephone products. The technology was soon adapted to the
emerging radio industry, to which CTS became a major supplier of quality
components. Today, CTS is a recognized leader in the design and manufacture of
electronic components and electronic assemblies.
CTS designs, manufactures, assembles and sells a broad line of passive
electronic components and electronic assemblies, serving the electronic needs of
original equipment manufacturers worldwide in the computer equipment,
automotive, communications equipment and other markets. Manufacturing
operations, sales representatives and distributors are located throughout the
United States and in many countries worldwide to work closely with customers.
CTS' growth has been worldwide. The major elements contributing to the
sustained growth are:
* customer focused, market driven new product development enabled by
existing and new technologies,
* high volume manufacturing to consistent standards of quality and
reliability, cost effectiveness and delivery and
* state-of-the-art manufacturing technologies and processes.
On December 22, 1998, CTS signed a definitive agreement to acquire the
Component Products Division (CPD) of Motorola, Inc. CPD will be wholly-owned
by CTS and operate under the name CTS Wireless Components, Inc. CPD
manufactures ceramics, quartz, oscillators, lead zirconate titanate and
surface acoustic wave components, primarily for the wireless communications
industry.
During 1998, CTS finalized its plan for integration and disposal of the
Dynamics Corporation of America (DCA) businesses acquired on October 16,
1997. Prior to acquisition by CTS, DCA owned 44% of CTS' common stock and
seven separate businesses. Except for DCA's frequency and heat sink
businesses, which have been integrated into CTS' complementary operations,
all other DCA businesses are reflected in CTS' financial results as
discontinued operations (including the Waring Division which was sold in May,
1998.)
BUSINESS SEGMENTS AND PRODUCTS BY MAJOR MARKET
CTS' operations comprise two reportable business segments, the manufacturing
of electronic components and electronic assemblies. Electronic components are
products which perform the basic level electronic function for a given
product family for use in customer assemblies. Electronic components consist
principally of automotive sensors used in commercial or consumer vehicles,
frequency control devices such as crystals and clocks, loudspeakers, resistor
networks, switches and variable resistors. CTS' electronic assemblies are
assemblies of electronic or electronic and mechanical products which, apart
from the assembly, may themselves be marketed as separate stand-alone
products. Such assembly represents a completed, higher- level functional
product to be used in customer end products or assemblies. These products
consist principally of flex cable assemblies used in the disk drive market,
hybrid microcircuits used in the healthcare market, cursor controls for
computers and interconnect products such as backpanels and connectors used in
the telecommunications industry.
Within the two business segments, products are also identified by market. CTS
products are principally sold into four primary original equipment
manufacturing (OEM) markets including computer equipment, automotive,
communications equipment and other markets. Other markets include OEMs for
consumer electronics, instruments and controls, and defense and aerospace
equipment.
Electronic components sales as a percent of consolidated sales were 67% of
sales for 1998, 61% for 1997 and 67% for 1996. Electronic assemblies sales as
a percent of consolidated sales were 33% of sales for 1998, 39% for 1997 and
33% for 1996. The following table breaks down the percentages by segment into
each segment's major markets:
Electronic Components Electronic Assemblies
Markets 1998 1997 1996 1998 1997 1996
- ------- ---- ---- ---- ---- ---- ----
Computer Equipment 9% 8% 11% 23% 25% 14%
Automotive 32% 31% 34% - - -
Communications Equipment 17% 12% 11% 6% 8% 10%
Other 9% 10% 11% 4% 6% 9%
Segment as a % of
Consolidated 67% 61% 67% 33% 39% 33%
Sales to unaffiliated customers, operating earnings and identifiable assets,
by geographic area, are contained in "Note I - Business Segments" appearing
herein the financial statements as noted in the index appearing under Item
14(a)(1) and (2).
The following table identifies major products by their business segment and
markets. Many products are sold into several (OEM) markets.
Product Computer Automotive Communications Other
Description Equipment Market Equipment Markets
Market Market
------ ------
Electronic Components:
DIP/Rotary Switches o o o
Automotive Sensors o
Frequency Control Devices o o o
(Crystals and Oscillators)
Loudspeakers o o
Potentiometers and Trimmers o o o o
Resistor Networks o o o o
Thermal Dissipators o o o
Electronic Assemblies:
Cursor Controls o
Flex Cable Assemblies o
Hybrid Microcircuits o o
Interconnect Systems, Backpanels o o o
MARKETING AND DISTRIBUTION
CTS sales engineers and manufacturers' representatives sell CTS electronic
components and electronic assemblies to original equipment manufacturers. CTS
maintains sales offices in Elkhart, Indiana; Southfield, Michigan; Hong Kong;
Taiwan and Japan in addition to several business unit locations. Various
regions of the United States are serviced by sales engineers working at
independent locations.
Approximately half of the sales in 1998 were attributable to coverage by CTS
sales engineers. CTS sales engineers generally service the largest customers
with application specific products. The engineers work closely with major
customers in designing products to meet or exceed customer requirements.
CTS utilizes the services of independent sales representatives and
distributors in the United States and other countries for customers not
serviced directly by CTS sales engineers. Sales representatives receive
commissions from CTS. During 1998, approximately 43% of net sales were
attributable to coverage by sales representatives. Additionally, independent
distributors purchase products from CTS for resale to customers. In 1998,
independent distributors and/or dealers accounted for approximately 6% of net
sales.
RAW MATERIALS
* Raw materials used in many CTS products include steel, copper,
brass, aluminum, certain precious metals, resistive and conductive
inks, passive electronic components and semiconductors.
* Ceramic materials are used in resistor networks and hybrid
microcircuits.
* Synthetic quartz is used in frequency control devices.
* Molding compounds are used in automotive sensors, DIP/rotary switches
and loudspeakers.
These raw materials are purchased from several vendors, and except for
certain semiconductors, CTS does not believe that it is dependent on one or
on a very few vendors. In 1998, all of these materials were available in
adequate quantities to meet CTS' production demands.
CTS does not currently anticipate any raw material shortages which would slow
production. However, the lead times between the placement of orders for
certain raw materials and actual delivery to CTS may vary, and occasionally
might require the Company to order raw materials in quantities and at prices
less than optimal to compensate for the variability of lead times for
delivery.
Precious metal prices may have a significant effect on the cost and selling
price of many CTS products, particularly some switches, interconnect
products, resistor networks and hybrid microcircuits. CTS reduced the
precious metals content of several products in 1998, and will continue the
program in 1999 when consistent with customer specifications.
WORKING CAPITAL
CTS does not usually buy inventories or manufacture products without actual
or reasonably anticipated customer orders, except for some standard,
off-the-shelf distributor products. CTS is not generally required to carry
significant amounts of inventories in anticipation of rapid delivery
requirements because most customer orders are custom built. CTS has entered
into "just-in-time" arrangements with certain major customers in order to
meet their delivery requirements.
CTS carries raw materials, including certain semiconductors, work-in-process
and finished goods inventories which are unique to a particular customer(s),
and in the event of reductions or cancellations of orders, some inventories
may not be useable or returnable to vendors for credit. CTS generally imposes
charges for the reduction or cancellation of orders by customers, and these
charges are usually sufficient to cover the financial exposure of CTS to
inventories which are unique to a customer. CTS does not customarily grant
special return or payment privileges to customers, although CTS' distributor
program permits certain returns or adjustments. CTS' working capital
requirements are generally cyclical but not seasonal.
Working capital requirements are generally dependent on the overall business
level. During 1998, working capital decreased to $36.2 million, primarily due
to the decrease in cash. Cash declined as a result of the repurchase of 1.8
million CTS common stock shares for treasury, partially offset by proceeds
from the sale of the Waring Products Division. Cash of various non-U.S.
subsidiaries was held in U.S.-denominated cash equivalents at December 31,
1998. Cash, except for approximately $1.8 million which would be due in
foreign withholding taxes, is generally available to the Company.
PATENTS, TRADEMARKS AND LICENSES
CTS maintains a program of obtaining and protecting U.S. and non-U.S. patents
and trademarks. CTS believes that the success of its business is not
materially dependent on the existence or duration of any patent, group of
patents or trademarks.
CTS licenses the right to manufacture several electronic products to
companies in the United States and non- U.S. countries. In 1998, license and
royalty income was less than 1% of net sales. CTS believes that the success
of its business is not materially dependent upon any licensing arrangement
where CTS is either the licensor or licensee.
MAJOR CUSTOMERS
CTS' 15 largest customers represented about 66%, 67% and 62% of net sales in
1998, 1997 and 1996, respectively. Sales of electronic components to General
Motors Corporation represented 12% to 15% of CTS' sales in each of the last
three years. Sales of electronic assemblies to Compaq Computer Corporation
represented 12% of CTS' net sales in two of the last three years. Sales of
electronic assemblies to Seagate Technology, Inc. represented 11% of CTS' net
sales in one of the last three years.
BACKLOG OF ORDERS
Backlog of orders may not provide an accurate indication of present or future
business levels for CTS. For many electronic components and electronic
assemblies the period between receipt of orders and expected delivery is
relatively short. Large orders from major customers may constitute backlog
over an extended period of time. Production scheduling and delivery for such
orders could be changed or canceled by the customer on relatively short
notice. At December 31, 1998, CTS' backlog of orders was $90 million compared
to $91 million at December 31, 1997. The backlog of orders at the end of 1998
will generally be filled during the 1999 fiscal year.
GOVERNMENT CONTRACTS
CTS estimates that about 3% of its net sales are associated with purchases by
the U.S. Government or non- U.S. governments, principally for defense and
aerospace applications. Because most CTS products procured through government
contractors and subcontractors are for military end uses, the level of defense
and aerospace market sales by CTS is dependent upon government budgeting and
funding of programs utilizing electronic systems. The Ellis and Watts and
Fermont businesses, which are both discontinued operations, do have
significant government contracts. The sale of these discontinued businesses
may not relieve CTS of all liabilities associated with its government
contracts.
CTS is usually subject to contract provisions permitting termination of the
contract, usually with penalties payable by the government, maintenance of
specified accounting procedures, limitations on and renegotiations of
profits, priority production scheduling and possible penalties or fines
against CTS for late delivery or substandard quality. Such contract
provisions have not previously resulted in material uncertainties or
disruptions for CTS.
COMPETITION
CTS competes with many domestic and non-U.S. manufacturers principally on the
basis of product features, price, technology, quality, reliability, delivery
and service. Most CTS product lines encounter significant competition. The
number of significant competitors varies from product line to product line.
No one competes with CTS in every product line, but many competitors are
larger and more diversified than CTS. Some competitors are divisions or
affiliates of customers. CTS is subject to competitive risks which are the
nature of the electronics industry including shorter product life cycles and
technical obsolescence.
Some customers have reduced or plan to reduce the number of suppliers while
increasing the volume of purchases. Most customers are demanding higher
quality, reliability and delivery standards from CTS as well as competitors.
These trends create opportunities for CTS, but also increase the risk of loss
of business to competitors.
The Company believes that it competes most successfully in custom products
manufactured to meet specific applications of major original equipment
manufacturers.
CTS believes that it has an advantage over certain competitors:
* The ability to apply a broad range of technologies and
materials capabilities to develop products for the special requirements
of customers.
* The capability to sell a broad range of products manufactured
to consistent standards of quality and delivery.
* CTS is one of the largest manufacturers of automotive throttle position
sensors in the world.
NON-U.S. REVENUES AND RISKS
In 1998 approximately 40% of net sales to unaffiliated customers were
attributable to non-U.S. operations. This is unchanged from 1997. In 1998,
approximately 28% of total CTS assets are non-U.S. A substantial portion of
these assets, other than cash and equivalents, cannot readily be liquidated.
CTS believes that the business risks to its non-U.S. operations, though
substantial, are normal risks for non-U.S. businesses, including
expropriation, currency controls and changes in currency exchange rates and
government regulations. Southeast Asia is currently experiencing currency,
economic and political instability. CTS has manufacturing facilities in
Taiwan and Singapore, but the majority of their sales are to Europe and the
United States, which Management believes minimizes any potential risk to the
Compny.
Information about revenue from sales to unaffiliated customers, operating
earnings and identifiable assets, by geographic area, is contained in "Note I -
Business Segments" appearing herein the financial statements as noted in the
index appearing under Item 14(a)(1) and (2).
RESEARCH AND DEVELOPMENT ACTIVITIES
In 1998, 1997 and 1996, CTS spent $13.4, $13.1 and $10.7 million,
respectively, for research and development. Most CTS research and development
activities relate to developing new products and technologies, improving
product flow and adding product value to meet the current and future needs of
its customers. CTS'engineers and technicians apply engineering techniques such
as computer aided design and computer aided manufacturing to develop and
produce prototypes. CTS provides its customers with full systems support to
ensure product quality and reliability through all phases of design, launch
and production manufacturing to meet or exceed customer requirements. The 1998
efforts were particularly devoted to the automotive products in North America
and Europe. Many such research and development activities are for the benefit
of one or a limited number of customers or potential customers. The Company
expenses all research and development costs as incurred. Design and
development costs may be paid or shared by the customer.
ENVIRONMENTAL PROTECTION LAWS
In complying with federal, state and local environmental protection laws, CTS
continues to make additional modifications to manufacturing processes. Such
modifications have not materially affected the capital expenditures, earnings
or competitive position of CTS.
The manufacturing process of certain current and past products create
hazardous waste by-products as currently defined by federal and state laws
and regulations. The Company has been notified by the U.S. Environmental
Protection Agency, state environmental agencies and, in some cases, generator
groups, that it is or may be a Potentially Responsible Party (PRP) regarding
hazardous waste remediation at several non- CTS sites. The factual
circumstances of each site are different. Management believes that its role
as a PRP with respect to these sites, even in the aggregate, will not have a
material adverse effect on the Company's business or financial condition,
based on the following:
(1) the Company's status as a de minimis party;
(2) the large number of other PRPs identified;
(3) the identification and participation of many larger PRPs who are
financially viable;
(4) defenses concerning the nature and limited quantities of materials
sent by the Company to certain of the sites; and
(5) the Company's experience to-date in relation to the determination of
its allocable share.
In addition to these non-CTS sites, the Company has an ongoing practice of
providing reserves for probable remediation activities at certain of its
manufacturing locations and for claims and proceedings against CTS with
respect to other environmental matters. In the opinion of Management, based
upon presently available information, either adequate provision for probable
costs has been made, or the ultimate costs resulting will not materially
affect the consolidated financial position or results of operations of CTS.
There are claims against CTS with respect to environmental matters which the
Company contests. Management believes that either adequate provision for
potential costs has been made, or the potential costs would not materially
affect the consolidated financial position or results of operations of CTS.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
CTS is addressing the issues associated with the programming code in existing
computer systems and other equipment which may be affected by the rollover of
the two-digit year value to 00 in the year 2000. Systems that do not properly
recognize such dates could generate erroneous information or cause a system
to fail. The Year 2000 issue creates risk for CTS from unforeseen problems in
its own systems and from worldwide third parties with whom CTS transacts
business. CTS believes that its products are not "time and date" sensitive.
CTS has formed a Company-wide Year 2000 Readiness Project to identify and
resolve Year 2000 issues. This program includes the inventory of financial,
manufacturing, design and other internal systems, hardware, equipment and
embedded chips in industrial control instruments, and the assessment,
remediation and testing of the systems. All systems were inventoried,
reviewed and assessed in 1998, and the majority of systems which were not
Year 2000 ready were remedied or replaced and tested in 1998. The project is
approximately 85% completed and the remaining remediation of systems is
expected to be completed by the end of the second quarter of 1999. Acceptance
testing and certification of these systems are projected for completion by
the third quarter of 1999. A task force, comprised of members from operating
units and executive management, meets regularly and tracks the progress of
the program, prioritizes all the potential risks and develops plans to
eliminate or reduce risks.
CTS also faces risk to the extent that suppliers of products, services and
systems purchased by CTS and others with whom CTS transacts business on a
worldwide basis do not comply with Year 2000 requirements. As part of the
program, Year 2000 Readiness Surveys have been sent to significant service
providers, vendors, suppliers, customers and governmental entities that are
believed to be critical to business operations. CTS is currently in the
process of evaluating responses and sending follow-up requests to the
estimated 20% that have not responded. While Management believes that it will
be able to qualify alternative suppliers as needed, until all supplier and
customer survey responses have been received and evaluated, the Company
cannot fully evaluate the extent of potential problems and the costs
associated with corrective actions. A contingency plan is being evaluated and
reviewed, and will not be formally established until the third quarter of
1999 when the evaluation of suppliers and the remaining remediation of
systems and testing is completed. CTS is unable to determine what effect the
failure of systems due to Year 2000 issues by CTS or its suppliers or
customers may have, but any significant failures could have an adverse
material effect on CTS' results of operations and financial condition.
The cost to complete the program is estimated at $2 million for the costs of
outside consultants, software and hardware applications. There has been $1
million spent to date as of December 31, 1998 with the remainder projected to
be spent in 1999. CTS has not tracked the internal costs incurred for all of
the hours spent on the project.
EMPLOYEES
CTS employed 4,012 persons at December 31, 1998, and approximately 46% of
these persons were employed outside the United States at the end of 1998.
Approximately 700 CTS employees in the United States were covered by
collective bargaining agreements as of December 31, 1998. There are two
continuing operations with collective bargaining agreements, one will expire
in 2003 and the other will expire in 2005. There are two discontinued
operations with collective bargaining agreements which will expire in 2000.
Item 2
Properties
CTS has manufacturing facilities, administrative, research and development
and sales offices in many locations. The manufacturing properties are listed
and identified with a representative product. The other facilities are shown
along with the primary activity. Each property's relative size is shown in
square footage, and each location is identified as to whether it is leased or
owned.
Square Owned/
Manufacturing Facility Footage Leased Representative Product
Berne, Indiana 249,000 Owned Resistor Networks/Systems
Burbank, California 37,000 Leased Thermal Dissipators
Burbank, California 21,000 Owned Thermal Dissipators
Carlisle, Pennsylvania 94,000 Leased Frequency Control Devices
Dongguan, China 23,000 Leased DIPS, Potentiometers & Trimmers
Elkhart, Indiana 412,000 Owned Sensors
Glasgow, Scotland 75,000 Owned Interconnect Systems,
Glasgow, Scotland 20,000 Leased Backpanels and Sensors
Hudson, New Hampshire 38,000 Leased Interconnect Systems
Kaohsiung, Taiwan 133,000 Owned DIPS, Potentiometers & Trimmers
Matamoros, Mexico 51,000 Owned Loudspeakers
Sandwich, Illinois 94,000 Owned Frequency Control Devices
Singapore 159,000 Owned Frequency Control Devices
Streetsville, Ontario, Canada 112,000 Owned Sensors
West Lafayette, Indiana 106,000 Owned Hybrid Microcircuits
Total Manufacturing 1,624,000
(Properties Continued) Square Owned/
Other Facilities Footage Leased Primary Activity
- ---------------- ------- ------ ----------------
Baldwin, Wisconsin 39,000 Owned Storage Facility
Bangkok, Thailand 53,000 Owned Leased Through April, 1999
Brownsville, Texas 85,000 Owned Warehousing Facility
Elkhart, Indiana 90,000 Owned Administrative Offices & Research
Greenwich, Connecticut 8,000 Leased Offices
Kowloon, Hong Kong 650 Leased Sales Office
New Hartford, Connecticut 212,000 Owned Leased Property
Southfield, Michigan 1,500 Leased Sales Office
Winsted, Connecticut 55,000 Owned Storage Facility
Yokohama, Japan 1,400 Leased Sales Office
Taipei, Taiwan 1,250 Leased Sales Office
Discontinued Operations
Carson, California 76,000 Leased Anemostat West Operations
Batavia, Ohio 148,000 Owned Ellis & Watts Operations
Bridgeport, Connecticut 97,000 Owned Fermont Operations
Scranton, Pennsylvania 270,000 Owned Anemostat East Operations
CTS regularly assesses the adequacy of its manufacturing facilities for
manufacturing capacity, available labor and location to its markets and major
customers. CTS also reviews the operating costs of its facilities and may
from time to time relocate or move a portion of its manufacturing activities
in order to reduce operating costs and improve asset utilization and cash
flow. CTS is currently marketing its discontinued properties.
Item 3
Legal Proceedings
Contested claims involving various matters, including environmental claims
brought by governmental agencies, are being litigated by CTS, both in legal
and administrative forums. CTS is subject to normal litigation which results
from the ordinary conduct of its business operations, however, Management is
not aware of any significant pending litigation.
Item 4
Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1998, no matter was submitted to a vote of
security holders of the Company.
PART 2
Item 5
Stock and Dividend Information
The principal market for CTS common stock is the New York Stock Exchange.
Quarterly market high and low trading prices for CTS Common Stock for each
quarter of the past two years and the amount of dividends declared during the
previous two years are contained in "Shareholder Information," appearing
herein. On December 31, 1998, there were approximately 1,379 holders of record
of CTS common stock.
CTS intends to continue its policy of considering dividends on a quarterly
basis. The declaration of a dividend and the amount of any such dividend is
subject to earnings, anticipated working capital, capital expenditures, other
investment requirements, the financial condition of CTS and any other factors
considered relevant by the Board of Directors.
Item 6
Five-Year Financial Summary
A summary of selected financial data for CTS for each of the previous five
years is contained in the "Five-Year Summary," appearing herein the financial
statements as noted in the index appearing under Item 14(a)(1) and (2).
Certain divestitures and closures of businesses do affect the comparability
of information contained in the "Five-Year Summary."
Item 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1996-1998
Information about liquidity, capital resources and results of operations, for
the three previous fiscal years, is contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations (1996- 1998),"
appearing herein the financial statements as noted in the index appearing
under Item 14(a)(1) and (2).
Item 8
Financial Statements and Supplementary Data
Consolidated financial statements, meeting the requirements of Regulation S-X,
and the Report of Independent Accountants, are contained in the CTS
Corporation 1998 Annual Report, incorporated herein. Quarterly per share
financial data is provided in "Shareholder Information," under the
subheadings, "Per Share Data," appearing herein the financial statements as
noted in the index appearing under Item 14(a)(1) and (2).
Item 9
Changes in Auditors or Disagreements
With Accountants on Accounting and Financial Disclosure
There were no disagreements or changes.
PART 3
Item 10
Directors and Executive Officers
Information responsive to Items 401(a) and 401(e) of Regulation S-K
pertaining to directors of CTS is contained in the 1999 Proxy Statement, page
7, under the caption "Election of Directors" to be filed with the Securities
and Exchange Commission, and is incorporated herein by reference.
Information responsive to Item 405 of Regulation S-K pertaining to compliance
with Section 16(a) of the Securities Exchange Act of 1934 is contained in the
1999 Proxy Statement, page 13, under the caption "Directors & Officers' Stock
Ownership", to be filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
The individuals in the following list were elected as executive officers of
CTS at the annual meeting of the Board of Directors on April 26, 1998, except
for George T. Newhart, elected Vice President and Corporate Controller
effective on June 26, 1998, Timothy J. Cunningham, elected Vice President
Finance and Chief Financial Officer effective on October 5, 1998, Philip G.
Semprevio, elected Group Vice President effective on November 16, 1998,
George A. Harding, elected Group Vice President effective on December 18,
1998, and Jeannine M. Davis, elected Senior Vice President and General
Counsel, effective on December 18, 1998. They are expected to serve as
executive officers until the next annual meeting of the Board of Directors,
scheduled on April 30, 1999, at which time the election of officers will be
considered again by the Board of Directors.
List Of Officers
Name Age Position and Offices
Joseph P. Walker 60 Chairman, President
and Chief Executive Officer
George A. Harding 52 Group Vice President
William J. Kaska 57 Group Vice President
Philip G. Semprevio 48 Group Vice President
Jeannine M. Davis 50 Senior Vice President, Secretary
and General Counsel
Timothy J. Cunningham 45 Vice President Finance
and Chief Financial Officer
James L. Cummins 43 Vice President Human Resources
James N. Hufford 59 Vice President Research,
Development and Engineering
George T. Newhart 56 Vice President and Corporate Controller
Donald R. Schroeder 50 Vice President Sales and Marketing
Gary N. Hoipkemier 44 Treasurer
Brief History of Officers
Joseph P. Walker has served as Chairman of the Board, President and Chief
Executive Officer of CTS since 1988.
George A. Harding was elected as Group Vice President effective December 18,
1998. Mr. Harding served as Vice President and General Manager for the CTS
Microelectronics business unit from 1996 to 1998, and for the CTS Resistor
Products business unit from 1993 to 1996. Prior to joining CTS, Mr. Harding
was Operations Manager and General Manager of Dale Electronics, subsidiary of
Vishay Intertechnology.
William J. Kaska has served as Group Vice President since 1997. Prior to his
appointment, he served as Vice President and General Manager of CTS
Automotive Products.
Philip G. Semprevio was elected as Group Vice President effective November
16, 1998. Prior to his appointment, he served as President, Justrite
Manufacturing Company, LLC, a subsidiary of Federal Signal Corporation. Mr.
Semprevio worked for CTS as Vice President and General Manager of the
Electrocomponents business unit from 1990-1994.
Jeannine M. Davis was elected Senior Vice President, Secretary and General
Counsel effective on December 18, 1998. Previously she served as Vice
President, Secretary and General Counsel since 1988.
Timothy J. Cunningham was elected as Vice President Finance and Chief
Financial Officer effective October 5, 1998. Prior to joining CTS, Mr.
Cunningham was Vice President of Finance for Moore Document Solutions a $1.2
billion division of Moore Corporation, Ltd.
(Officer History Continued)
James L. Cummins has served as Vice President Human Resources since 1994. For
the three years prior to this appointment, he served as Director, Human
Resources, CTS Corporation.
James N. Hufford has served as Vice President Research, Development and
Engineering since 1995. During the four years prior to this appointment, Mr.
Hufford served as Manager and then Director of Corporate Research,
Development and Engineering for CTS.
George T. Newhart was elected Vice President and Corporate Controller
effective on June 26, 1998. From 1989 until this appointment Mr. Newhart
served as Corporate Controller.
Donald R. Schroeder has served as Vice President Sales and Marketing since
1995. During the six years prior to this appointment, Mr. Schroeder served as
Business Development Manager for innovative and new technology for the CTS
Microelectronics business unit.
Gary N. Hoipkemier has served as Treasurer since 1989.
Item 11
Director and Executive Compensation
Information responsive to Item 402 of Regulation S-K pertaining to management
remuneration is contained in the 1999 Proxy Statement in the captions
"Director Compensation," page 9 and "Executive Compensation," pages 14 - 18,
to be filed with the Securities and Exchange Commission, and is incorporated
herein by reference.
Item 12
Directors and Officers' Stock Ownership
Information responsive to Item 403 of Regulation S-K pertaining to security
ownership of certain beneficial owners and management is contained in the
1999 Proxy Statement in the caption "Directors & Officers' Stock Ownership,"
pages 13 - 14, to be filed with the Securities and Exchange Commission, and
is incorporated herein by reference.
Item 13
Certain Relationships and Related Transactions
Mr. Profusek is a Partner and Head of the Merger Department of the law firm
of Jones, Day, Reavis & Pogue, a law firm which CTS has retained for specific
legal services and litigation, on a case by case basis, for over five years.
PART 4
Item 14
Exhibits, Financial Statement Schedules and Reports on Form 8-K The list of
financial statements and schedules required by Item 14(a)(1) and (2) is
contained herein.
(a) (3) Exhibits
(3)(a) Amended and Restated Articles of Incorporation, (incorporated by reference to Exhibit 5
to the Company's current Report on Form 8-K, filed with the Commission on September
2, 1998).
(3)(b) Bylaws, (Incorporated by reference to Exhibit 4 to
the Company's current Report on Form 8-K, filed with
the Commission on September 2, 1998).
(10)(a) Employment Agreement, dated as of May 9, 1997, between the Company and Joseph P.
Walker (incorporated by reference to Exhibit (c)(2) to the Schedule 14D-1 filed with the
Commission on May 16, 1997).
(10)(b) Prototype officers and directors' indemnification agreement (incorporated by reference to
Exhibit (10) (g) to the Company's Annual Report on Form 10-K for 1995 filed with the
Commission on March 21, 1996.)
(10)(c) CTS Corporation 1986 Stock Option Plan, approved by the shareholders on May 30,
1986, as amended and restated on May 9, 1997, (incorporated by reference to Exhibit
10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29,
1997 filed with the Commission on August 12, 1997.)
(10)(d) CTS Corporation 1998 Restricted Stock and Cash Bonus Plan approved by
the shareholders on April 28, 1989, as amended and restated on May 9, 1997,
(incorporated by reference to Exhibit 10(e) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1997 filed with the Commission on
August 12, 1997.
(10)(e) CTS Corporation 1996 Stock Option Plan, approved by the shareholders on April 26,
1996, as amended and restated on May 9, 1997, (incorporated by reference to Exhibit
10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29,
1997 filed with the Commission on August 12, 1997.)
(10) (f) Asset Sale Agreement dated December 22, 1998 and Earnout Exhibit thereto between
CTS Wireless Components, Inc. and Motorola, Inc. underwhich CTS Wireless Components, Inc.
will acquire the assets of Motorola's Components Products Division.
(10) (g) Shareholders Agreement, dated as of July 17, 1997, among the Company, Sub, WHX Corporation
("WHX") and SB Acquisition Corp., a subsidiary of WHX (incorporated by reference to Exhibit ( c ) (7)
to the Schedule 13-D).
(21) Subsidiaries filed herewith.
(23) Consent of PricewaterhouseCoopers to incorporation by reference on Form 10-K for the fiscal year
1998 to Registration Statement 33-27749 on Form S-8 and Registration Statement 333-5730 on Form S-8.
(Part 4, Item 14 Continued)
(b) Reports on Form 8-K
Announcement of a Shareholder Rights Plan and related Amendments to the
Articles of Incorporation and Bylaws, filed September 2, 1998.
Announcement of the signing of the Definitive Asset Sale Agreement with
Motorola, Inc. under which CTS Corporation will acquire the assets of
Motorola's Components Products Division, filed September 16, 1998.
Indemnification Undertaking
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statements on
Form S-8 Nos. 33-27749 (filed March 23, 1989) and 333-5730 (filed October 3,
1996):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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.
Date By_______________________________
Timothy J. Cunningham,
Vice President Finance and
Chief Financial Officer
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 and in the capacities and on the dates indicated.
Date By______________________________
Lawrence J. Ciancia, Director
Date By______________________________
Thomas G. Cody, Director
Date By______________________________
Gerald H. Frieling, Jr., Director
Date By______________________________
Andrew Lozyniak, Director
Date By______________________________
Robert A. Profusek, Director
Date By______________________________
Joseph P. Walker, Director
Date By______________________________
Jeannine M. Davis,
Senior Vice President, Secretary
and General Counsel
Date By______________________________
George T. Newhart,
Vice President and Controller
and principal accounting officer
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. Date By
/S/Timothy J. Cunningham Timothy J. Cunningham, Vice President Finance and
Chief Financial Officer
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 and in the capacities and on the dates indicated.
Date By /S/ Lawrence J. Ciancia
Lawrence J. Ciancia,
Director
Date By /S/ Thomas G. Cody
Thomas G. Cody,
Director
Date By /S/ Gerald H. Frieling, Jr.
Gerald H. Frieling, Jr.,
Director
Date By /S/ Andrew Lozyniak
Andrew Lozyniak,
Director
Date By /S/ Robert A. Profusek
Robert A. Profusek,
Director
Date By /S/ Joseph P. Walker
Joseph P. Walker,
Director
Date By /S/ Jeannine M. Davis
Jeannine M. Davis,
Senior Vice President, Secretary
and General Counsel
Date By /S/ George T. Newhart
George T. Newhart,
Vice President and Controller
and principal accounting officer
FINANCIAL STATEMENTS ON FORM 10-K
ITEM 14(a) (1) AND (2) AND ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1998
CTS CORPORATION AND SUBSIDIARIES
ELKHART, INDIANA
FORM 10-K - ITEM 14(a) (1) AND (2) AND ITEM 14 (d)
CTS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of CTS Corporation and
subsidiaries to be included in the annual report of the registrant to its
shareholders for the year ended December 31, 1998, are referenced in Item 8 and
incorporated herein:
Consolidated balance sheets - December 31, 1998, and
December 31, 1997
Consolidated statements of earnings - Years ended December 31, 1998,
December 31, 1997, and December 31, 1996
Consolidated statements of shareholders' equity - Years ended December
31, 1998, December 31, 1997, and December 31, 1996
Consolidated statements of cash flows - Years ended December 31,1998,
December 31, 1997, and December 31, 1996
Notes to consolidated financial statements
The following consolidated financial statement schedules of CTS Corporation
and subsidiaries, are included in item 14(d):
Schedule II - Valuation and qualifying accounts Reference Page S-3
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are inapplicable, not required or the information is included in
the consolidated financial statements or notes thereto.
S-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of CTS Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)(1) and (2) on page S-1 present fairly, in all
material respects, the financial position of CTS Corporation and its
subsidiaries at December 31, 1998, and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principals. 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 of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by Management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 28, 1999
S-2
CTS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
Additions (Reductions)
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Classification Period Expenses Accounts Deductions(1) End of Period
Year ended December 31, 1998:
Allowance for $ 692 $(79) $0 $61 $ 552
doubtful receivables
Year ended December 31, 1997
Allowance for
doubtful receivables $622 $ 74 $0 $ 4 $ 692
Year ended December 31, 1996:
Allowance for
doubtful receivables $774 $239 $0 $391 $ 622
(1) Uncollectible accounts written off.
S-3
Financial Highlights
(In thousands except per share data)
For the Year 1998 1997 1996
- ------------ ---- ---- ----
Net sales $ 370,441 $ 390,602 $ 321,297
Net earnings 37,474 22,813 21,170
Average common shares outstanding -- diluted 14,614 15,976 15,766
Per share data:
Net earnings -- diluted -- Note M $ 2.56 $ 1.43 $ 1.34
Dividends declared .24 .24 .23
Capital expenditures 21,330 22,180 17,210
At Year-End
- -----------
Working capital $ 36,206 $ 65,756 $ 86,810
Long-term debt(including current maturities) 56,000 61,206 13,428
Shareholders' equity 123,839 147,496 166,232
Equity (book value) per outstanding share 9.09 9.72 10.61
SHAREHOLDER INFORMATION
(In thousands of dollars except per share data)
Quarterly Results of Operations
(Unaudited)
Earnings Earnings
from from
Net Gross Operating Continuing Discontinued Net
Sales Earnings Earnings Operations Operations Earnings
----- -------- -------- ---------- ---------- --------
1998
1st quarter $ 94,041 $ 26,367 $10,323 $ 7,378 $ 1,334 $ 8,712
2nd quarter 99,293 31,219 13,379 8,900 766 9,666
3rd quarter 83,777 26,341 11,543 7,804 394 8,198
4th quarter 93,330 30,670 14,363 9,991 907 10,898
$370,441 $114,597 $49,608 $34,073 $ 3,401 $37,474
1997
1st quarter $ 91,269 $ 25,291 $10,493 $ 6,954 $ 0 $ 6,954
2nd quarter 107,482 28,353 13,236 8,458 0 8,458
3rd quarter 89,980 25,162 11,624 7,683 0 7,683
4th quarter 101,871 31,711 (2,380)* 98* (380) (282)*
$390,602 $110,517 $32,973 $ 23,193 $ (380) $ 22,813
Per Share Data
(Unaudited)
Dividends Earnings from Earnings from
Declared Continuing Operations Discontinued Operations Net earnings
-------- --------------------- ----------------------- ------------
High (a) Low (a) Basic Diluted Basic Diluted Basic Diluted
1998
1st quarter $34.88 $27.25 $ 0.06 $ 0.50 $ 0.47 $ 0.09 $ 0.09 $ 0.59 $ 0.56
2nd quarter 38.00 27.63 0.06 0.63 0.61 0.06 0.05 0.69 0.66
3rd quarter 32.88 26.44 0.06 0.57 0.55 0.03 0.03 0.60 0.58
4th quarter 43.88 23.63 0.06 0.73 0.70 0.06 0.06 0.79 0.76
$ 0.24 $ 2.43 $ 2.33 $ 0.24 $ 0.23 $ 2.67 $ 2.56
1997
1st quarter $17.00 $13.58 $ 0.06 $ 0.45 $ 0.44 $ 0 $ 0 $ 0.45 $ 0.44
2nd quarter 23.42 17.13 0.06 0.54 0.53 0 0 0.54 0.53
3rd quarter 30.92 22.85 0.06 0.49 0.48 0 0 0.49 0.48
4th quarter 37.25 28.31 0.06 0* 0* (0.02) (0.02) (0.02)* (0.02)*
$ 0.24 $ 1.48 $ 1.45 $ (0.02) $(0.02) $ 1.46 $ 1.43
(a)The market price range of CTS Corporation common stock on the New York
Stock Exchange for each of the quarters during the last two years.
*The fourth quarter of 1997 results include a one-time, transaction-related
compensation charge of $16.2 million, or $10.5 million after tax ($0.65 a
diluted share).
Five-Year Summary
(In thousands of dollars except per share data)
% of % of % of % of % of
1998 Sales 1997 Sales 1996 Sales 1995 Sales 1994 Sales
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
---- ----- ---- ----- ---- ----- ---- -----
Summary of Operations
Net sales $370,441 100.0 $390,602 100.0 $321,297 100.0 $300,157 100.0 $268,707 100.0
Cost of goods sold 255,844 69.1 280,085 71.7 233,801 72.8 225,353 75.1 205,640 76.5
Selling, general and administrative
expenses 51,602 13.9 48,213 12.4 43,333 13.5 39,312 13.1 36,175 13.5
Transaction-related compensation
charge 0 0 16,200 4.1 0 0 0 0 0 0
Research and development expenses 13,387 3.6 13,131 3.4 10,743 3.3 8,004 2.7 6,208 2.3
Operating earnings 49,608 13.4 32,973 8.4 33,420 10.4 27,488 9.1 20,684 7.7
Other(expense) income--net (167) (0.1) 2,757 0.7 182 0.1 196 0.1 803 0.3
Earnings before income taxes 49,441 13.3 35,730 9.1 33,602 10.5 27,684 9.2 21,487 8.0
Income taxes 15,368 4.1 12,537 3.2 12,432 3.9 10,520 3.5 7,520 2.8
Earnings from continuing operations 34,073 9.2 23,193 5.9 21,170 6.6 17,164 5.7 13,967 5.2
Discontinued Operations:
Net earnings (loss) from discontinued
operations 3,401 0.9 (380) (0.1) 0 0 0 0 0 0
Net earnings 37,474 10.1 22,813 5.8 21,170 6.6 17,164 5.7 13,967 5.2
Retained earnings--beginning of year 163,169 144,112 126,546 112,506 100,868
Dividends declared (3,358) (3,756) (3,604) (3,124) (2,329)
Retained earnings--end of year $197,285 $163,169 $144,112 $126,546 $112,506
Earnings per share:
Basic:
Continuing operations $2.43 $1.48 $1.35 $1.10 $0.90
Discontinued operations 0.24 (0.02) 0 0 0
Net earnings per share $2.67 $1.46 $1.35 $1.10 $0.90
Diluted:
Continuing operations $2.33 $1.45 $1.34 $1.10 $0.90
Discontinued operations 0.23 (0.02) 0 0 0
Net earnings per share $2.56 $1.43 $1.34 $1.10 $0.90
Average basic shares outstanding 14,014 15,624 15,668 15,602 15,511
Average diluted shares outstanding 14,614 15,976 15,766 15,656 15,544
Cash dividends per share $.24 $.24 $.23 $.20 $.15
Capital expenditures 21,330 22,180 17,210 11,181 13,401
Depreciation and amortization 19,155 16,016 12,491 11,683 11,236
Financial Position at Year-End
Current assets $118,583 $146,747 $138,201 $126,113 $110,667
Current liabilities 82,377 80,991 51,391 50,962 44,792
Current ratio 1.4 to 1 1.8 to 1 2.7 to 1 2.5 to 1 2.5 to 1
Working capital $36,206 $65,756 $86,810 $75,151 $65,875
Inventories 33,322 34,683 38,761 38,885 41,456
Property, plant and equipment--net 67,186 66,511 56,103 50,696 50,777
Total assets 293,189 318,196 249,372 227,127 206,826
Short-term notes payable 0 0 0 6,685 7,436
Long-term debt 42,000 56,000 11,214 13,385 15,578
Shareholders' equity 123,839 147,496 166,232 146,253 131,855
Common shares outstanding (in thousands) 13,621 15,178 15,675 15,652 15,536
Equity (book value) per share $9.09 $9.72 $10.61 $9.34 $8.49
Other Data
Stock price range $43.88-$23.63 $37.25-$13.58 $15.67-$12.00 $12.58-$9.13 $10.33-$6.50
Average number of employees 4,105 3,954 3,815 4,007 4,056
Number of shareholders at year-end 1,379 1,404 986 1,062 1,136
Consolidated Statements of Earnings
(In thousands of dollars except per share amounts)
Year Ended
----------
December 31 December 31 December 31
1998 1997 1996
---- ---- ----
Net sales $ 370,441 $ 390,602 $ 321,297
Costs and expenses:
Cost of goods sold 255,844 280,085 233,801
Selling, general and administrative expenses 51,602 48,213 43,333
Transaction-related compensation charge -- Note F 0 16,200 0
Research and development expenses 13,387 13,131 10,743
Operating earnings 49,608 32,973 33,420
Other (expense) income:
Interest expense (2,194) (2,478) (1,449)
Interest income 1,141 2,397 1,881
Other 886 2,838 (250)
Total other (expense) income (167) 2,757 182
Earnings before income taxes 49,441 35,730 33,602
Income taxes -- Note H 15,368 12,537 12,432
Earnings from continuing operations 34,073 23,193 21,170
Discontinued operations:
Earnings (loss) from discontinued operations, net of
income tax charge (benefit) of $2,267 in 1998 and ($253)
in 1997 -- Note C 3,401 (380) 0
Net earnings $ 37,474 $ 22,813 $ 21,170
Earnings per share -- Note M
Basic:
Continuing operations $ 2.43 $ 1.48 $ 1.35
Discontinued operations 0.24 (0.02) 0
Net earnings per share $ 2.67 $ 1.46 $ 1.35
Diluted:
Continuing operations $ 2.33 $ 1.45 $ 1.34
Discontinued operatio 0.23 (0.02) -
Net earnings per share $ 2.56 $ 1.43 $ 1.34
The accompanying notes are an integral part of the
consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(In thousands of dollars)
Accumulated
Other Additional
Common Retained Comprehensive Comprehensive Contributed Treasury
Stock Earnings Earnings Earnings Capital Stock Total
Balances at December 31, 1995 $ 34,138 $126,546 $ (645) $ (783) $(13,003) $146,253
Net earnings 21,170 $21,170 21,170
Cumulative translation adjustment
(net of tax of $747) 2,018 2,018 2,018
-----------
Comprehensive earnings $23,188
===========
Cash dividends of $0.23 per share (3,604) (3,604)
Nonemployee Directors' stock retirement plan 17 17
Issued 4,500 shares on restricted stock and
cash bonus plan - net 23 (70) 47
Issued 18,900 shares on exercise of stock
options (51) 197 146
Acquired 219 shares traded on options -- net 3 (3)
Stock compensation 27 100 127
Deferred compensation recognized 236 236
Acquired 9,600 shares for treasury stock --Note K (131) (131)
Balances at December 31, 1996 34,140 144,112 1,373 (600) (12,793) 166,232
Net earnings 22,813 $22,813 22,813
Cumulative translation adjustment
(net of tax benefit of $238) (679) (679) (679)
-----------
Comprehensive earnings $22,134
===========
Cash dividends of $0.24 per share (3,756) (3,756)
Nonemployee Directors' stock retirement plan 205 205
Issued 6,051 shares on restricted stock and
cash bonus plan -- net 135 (224) 89
Issued 107,141 shares on exercise
of stock options -- net 273 558 831
Stock compensation 19 12 31
Transaction-related compensation charge 16,200 16,200
Deferred compensation recognized 241 241
Acquired 7,241,823 shares for treasury
stock -- Note K (206,849) (206,849)
Issued 6,629,580 shares in connection with
the merger 152,227 152,227
Balances at December 31, 1997 186,794 163,169 694 15,822 (218,983) 147,496
Net earnings 37,474 $37,474 37,474
Cumulative translation adjustment
(net of tax of $36) 112 112 112
-----------
Comprehensive earnings $37,586
===========
Cash dividends of $0.24 per share (3,358) (3,358)
Nonemployee Directors' stock retirement plan 54 54
Returned 5,100 shares to treasury on default of
restricted stock and cash bonus plan --
net (9) 57 (48)
Issued 83,221 shares on exercise
of stock options -- net 503 (167) 336
Stock options acquired -- Note F (5,273) (5,273)
Deferred compensation recognized 212 212
Acquired 1,767,514 shares for treasury
stock -- Note K (56,273) (56,273)
Issued 133,221 shares to former DCA
shareholders 3,059 3,059
Balances at December 31, 1998 $190,347 $197,285 $806 $10,872 $(275,471) $123,839
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Balance Sheets
(In thousands of dollars)
December 31 December 31
ASSETS 1998 1997
Current Assets
Cash and equivalents $ 16,273 $39,847
Accounts receivable, less allowances (1998 -- $552; 1997 -- $692) 47,043 51,314
Inventories
Finished goods 9,289 6,257
Work-in-process 10,396 13,295
Raw materials 13,637 15,131
Total inventories 33,322 34,683
Other current assets 5,553 5,030
Deferred income taxes -- Note H 16,392 15,873
Total current assets 118,583 146,747
Property, Plant and Equipment
Buildings and land 43,113 43,560
Machinery and equipment 160,784 152,998
Total property, plant and equipment 203,897 196,558
Less accumulated depreciation 136,711 130,047
Net property, plant and quipment 67,186 66,511
Other Assets
Prepaid pension expense -- Note G 69,074 61,738
Investment in discontinued operations -- Note C 35,123 37,117
Other 3,223 6,083
Total other assets 107,420 104,938
Total Assets $293,189 $318,196
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt -- Note E $ 14,000 $ 5,206
Accounts payable 17,412 22,593
Accrued salaries, wages and vacation 11,181 9,449
Accrued taxes other than income 1,651 1,607
Income taxes payable 10,229 13,517
Other accrued liabilities -- Note L 27,904 28,619
Total current liabilities 82,377 80,991
Long-term Debt -- Note E 42,000 56,000
Other Long-term Obligations -- Note E 13,568 7,450
Deferred Income Taxes -- Note H 27,145 21,950
Postretirement Benefits -- Note G 4,260 4,309
Contingencies -- Note L 0 0
Shareholders' Equity
Preferred stock -- authorized 25,000,000 shares without par value;
none issued - Note J
Common stock -- authorized 75,000,000 shares without par value;
issued 24,183,894 - Note J 190,347 186,794
Additional contributed capital 10,872 15,822
Retained earnings 197,285 163,169
Cumulative translation adjustment 806 694
399,310 366,479
Less cost of common stock held in treasury (1998 -- 10,562,449 shares;
1997 -- 8,873,056 shares) -- Note K 275,471 218,983
Total shareholders' equity 123,839 147,496
Total Liabilities and Shareholders' Equity $293,189 $318,196
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year Ended
December 31 December 31 December 31
----------- ----------- -----------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings $37,474 $22,813 $21,170
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Net (earnings) losses from discontinued operations (3,401) 380 0
Depreciation and amortization 19,155 16,016 12,491
Deferred income taxes 6,176 (1,462) 3,201
Transaction-related compensation charge -- Note F 0 16,200 0
Other (523) 708 (160)
Changes in assets and liabilities net of effects from purchase of DCA:
Accounts receivable 4,271 (1,029) (2,247)
Inventories 1,924 8,782 124
Prepaid pension asset (7,336) (6,199) (5,413)
Accounts payable and accrued liabilities (7,548) 1,583 4,943
Income taxes payable (4,088) 2,764 1,955
Other (392) (1,427) (961)
Total adjustments 8,238 36,316 13,933
Net cash provided by continuing operations 45,712 59,129 35,103
Net cash provided by (used in)discontinued operations 6,659 (485) 0
Net cash provided by operating activities 52,371 58,644 35,103
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment, net 21,591 2,973 822
Capital expenditures (21,330) (22,180) (17,210)
Payment for purchase of DCA, net of cash acquired -- Note B (6,416) (71,353) 0
Net cash used in investing activities (6,155) (90,560) (16,388)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 0 50,000 0
Payments of long-term obligations (5,206) (8,707) (2,208)
Decrease in notes payable 0 0 (6,685)
Dividends paid (3,421) (3,768) (3,446)
Purchases of treasury stock (56,273) (10,121) (131)
Stock options acquired (5,273) 0 0
Other 288 (106) 146
Net cash (used in) provided by financing activities (69,885) 27,298 (12,324)
Effect of exchange rate changes on cash 95 (492) 1,295
Net (decrease) increase in cash (23,574) (5,110) 7,686
Cash and equivalents at beginning of year 39,847 44,957 37,271
Cash and equivalents at end of year $16,273 $ 39,847 $44,957
Supplemental cash flow information
Cash paid during the year for:
Interest $ 4,685 $ 2,649 $ 1,467
Income taxes -- net 17,218 10,646 7,276
Noncash investing and financing activities
Common stock issued in connection with the purchase of DCA $3,059 $152,227 0
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of CTS and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition: Revenues from product sales are recognized at the time
of shipment to the customer.
Cash Equivalents: CTS considers all highly liquid investments with a maturity
of three months or less from the purchase date to be cash equivalents.
Inventories: Inventories are stated at the lower of cost or market. Cost is
principally determined using the first-in, first-out method.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed over the estimated useful lives of the assets
principally on the straight-line method. Useful lives for buildings and
improvements range from 10 to 45 years, and average lives are approximately
16 years. For machinery and equipment useful lives range from three to eight
years. Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, any related gain or loss is credited or charged
to other income and expense, respectively.
CTS assesses the recoverability of long-lived assets including goodwill and
other intangible assets whenever adverse events or changes in circumstances
or business climate indicate that an impairment may have occurred. If the
future cash flows (undiscounted and without interest) expected to result from
the use of the related assets are less than the carrying value of such
assets, an impairment has been incurred and a loss is recognized to reduce
the carrying value of the long-lived assets, including goodwill.
Retirement Plans: CTS has various defined benefit and defined contribution
retirement plans covering a majority of its employees. CTS' policy is to
annually fund the defined benefit pension plans at or above the minimum
required under the Employee Retirement Income Security Act of 1974.
Research and Development: Research and development costs consist of
expenditures incurred during the course of planned search and investigation
aimed at discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products or
production processes, and the implementation of such through design, testing
of product alternatives or construction of prototypes. CTS expenses all
research and development costs as incurred.
NOTE A - Summary of Significant Accounting Policies (continued)
Income Taxes: CTS provides deferred income taxes for transactions reported in
different periods for financial reporting and income tax return purposes
pursuant to the requirements of FASB Statement No. 109, "Accounting for
Income Taxes."
Translation of Foreign Currencies: The financial statements of all of CTS'
non-U.S. subsidiaries, except the United Kingdom subsidiary, are remeasured
into U.S. dollars using the U.S. dollar as the functional currency with all
remeasurement adjustments included in the determination of net earnings. The
assets and liabilities of the Company's United Kingdom subsidiary are
translated into U.S. dollars principally at the current exchange rate at
period end, with resulting translation adjustments made directly to the
"Cumulative translation adjustment" component of shareholders' equity.
Statements of earnings accounts are translated at the average rates during
the period.
Financial Instruments: CTS' financial instruments consist primarily of cash,
cash equivalents, trade receivables and payables, and obligations under notes
payable and long-term debt. In accordance with the requirements of FASB
Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
the Company is providing the following fair value estimates and information
regarding valuation methodologies. The carrying value for cash and cash
equivalents, and trade receivables and payables approximates fair value based
on the short-term maturities of these instruments. The carrying value for all
long-term debt outstanding at December 31, 1998, and 1997 approximates fair
value where fair value is based on market prices for the same or similar debt
and maturities.
Concentration of Credit Risk: CTS sells its products to customers primarily
in the computer equipment, automotive, communications equipment, and
instruments and controls industries, primarily in North America, Europe and
the Pacific Rim. CTS performs ongoing credit evaluations of its customers to
minimize credit risk. CTS generally does not require collateral. At December
31, 1998, and 1997, CTS had no significant concentrations of credit risk.
Stock-Based Compensation: FASB Statement No. 123, "Accounting for Stock-Based
Compensation" encourages, but does not require, companies to record
compensation cost for stock-based compensation at fair value. CTS has chosen
to continue to account 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.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of CTS' stock at the date of the grant
over the amount that must be paid to acquire the stock. See Note F for the
required pro forma net income and earnings per share disclosures required by
FASB Statement No. 123.
NOTE A - Summary of Significant Accounting Policies (continued)
Earnings Per Share: Basic and diluted earnings per common share are reported
in conformity with FASB Statement No.128, "Earnings per Share." All prior
period earnings per share (EPS) data presented have been restated to comply
with FASB Statement No. 128 and also to reflect the 3-for-1 stock split
during 1997(Note J). Basic earnings per share exclude any dilution and is
computed by dividing net earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock resulted in the issuance
of common stock that shared in the earnings of CTS. Diluted earnings per
share is computed by dividing net earnings by the weighted-average number of
common shares outstanding during the period plus the incremental shares that
would have been outstanding upon the assumed exercise of dilutive stock
options. Refer to Note M - Earnings Per Share, for the reconciliation of the
numerator and denominator of the basic and diluted EPS computations.
Comprehensive Earnings: CTS reports comprehensive earnings in accordance with
FASB Statement No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive earnings and its
components in general- purpose financial statements.
The components of comprehensive earnings for CTS include foreign translation
adjustments and net earnings. These components can be found within the
Statements of Shareholders' Equity in the columns titled "Comprehensive
Earnings" and "Accumulated Other Comprehensive Earnings."
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 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 reporting period. Actual results could differ from those
estimates.
Reclassifications: Certain reclassifications have been made for the years
presented in the financial statements to conform to the classifications
adopted in 1998.
NOTES TO CONSOLIDATED STATEMENTS
NOTE B - Pending Acquisition/Acquisition
On December 22, 1998, CTS Wireless Components, Inc. signed an asset sale
agreement to acquire the Component Products Division (CPD) of Motorola, Inc.
CTS Wireless Components, Inc. will be wholly-owned by CTS. CPD manufactures
ceramics, quartz, oscillators, lead zirconate titanate and surface acoustic
wave components, primarily for the wireless communications industry.
CTS will pay Motorola $94 million at the closing and assume approximately $51
million of Motorola obligations. In addition, CTS may be obligated to pay up
to an additional $105 million over five years depending upon increased sales
and profitability of CPD. CTS expects to finance a substantial portion of the
purchase price through bank borrowings.
The acquisition will be accounted for as a purchase. Accordingly, the
purchase price will be allocated to the underlying assets and liabilities
based upon their estimated fair values at the date of the acquisition. The
transaction is expected to be completed in the first quarter of 1999, subject
to financing and customary closing conditions.
On October 16, 1997, CTS acquired all of the outstanding common stock of
Dynamics Corporation of America ("DCA"),including the reacquisition of CTS
shares held by DCA. DCA was a diversified manufacturer of commercial and
industrial products.
The purchase price was comprised of cash of $77,769,000, utilizing cash on
hand and borrowings, and issuance of 6,762,801 shares of CTS' common stock
with a value of $155,286,000. The total cost of the acquisition, including
actual transaction-related costs and liabilities assumed, was $250,236,000.
The DCA acquisition was accounted for as a purchase and, accordingly, the
operating results of DCA are included in CTS' consolidated financial
statements since the date of acquisition.
The following unaudited pro forma consolidated results of operations for the
year ended December 31, 1997, assumes the DCA acquisition occurred on January
1, 1997:
Pro Forma Information - Unaudited:
(In millions except per share data)
1997
----
Net sales $423.3
Net earnings 38.8
Diluted earnings per share 2.43
NOTE B - Pending Acquisition/Acquisition (continued)
The unaudited pro forma consolidated results have been adjusted to exclude
equity earnings in CTS, merger-related transaction costs and discontinued
operations. The pro forma results are not necessarily indicative of CTS'
operating results that would have occurred had the acquisition of DCA been
consummated as of such date, or of results which may occur in the future.
NOTE C - Discontinued Operations
During 1998, CTS finalized a plan to sell all of the businesses of Dynamics
Corporation of America not strategic to the Company's core business segments
of electronic components and electronic assemblies. These non-core businesses
are recorded as discontinued operations for all periods presented in the
consolidated financial statements. During 1998, CTS completed the sale of the
Waring Products Division resulting in gross proceeds of approximately $21.8
million.
CTS is currently soliciting buyers or negotiating the sale of the remaining
non-strategic DCA businesses, all of which are expected to be sold by the end
of 1999. CTS does not expect that the sales of the remaining businesses will
result in a loss. The investment in discontinued operations included in the
balance sheet at December 31, 1998, is primarily comprised of accounts
receivable, inventory, fixed assets and accounts payable. Operating results
for discontinued operations, including an allocation of interest expense and
excluding any allocation of corporate expenses, are as follows:
(In thousands)
Discontinued Operations 1998 1997
Net Sales $102,984 $24,549
Earnings before income taxes $ 5,668 $ (633)
Provision for income taxes 2,267 (253)
Total discontinued operations,
net of income taxes $ 3,401 $ (380)
Note D - Short-term Borrowings
CTS has unsecured lines of credit arrangements of $13,951,000 at December 31,
1998. These arrangements are generally subject to annual renewal and
renegotiation, and may be withdrawn at the banks' option. There were minimal
borrowings against these lines during 1998 and 1997.
NOTE E- Long-term Debt and Other Long-term Obligations
Long-term debt and other long-term obligations were comprised of the following:
(In thousands)
1998 1997
---- ----
Long-term debt:
Term loan at 8.4%, due in annual
installments through 1999 $ 9,000 $11,000
Term loan at 6.1% (1998) and 6.4%
(1997), due in quarterly
installments through 2003 47,000 50,000
Other - 206
56,000 61,206
Less current maturities 14,000 5,206
Total long-term debt $ 42,000 $56,000
Other long-term obligations:
DCA employee termination benefits,
payable ratably through 2007 $ 9,356 $ -
Untendered shares of DCA 3,735 6,794
Other 477 656
Total other long-term obligations $ 13,568 $ 7,450
CTS has a $9,000,000 term loan with four banks payable in 1999.
CTS also has a $47,000,000 term loan with four banks which
matures as follows: 1999 - $5,000,000; 2000 - $10,000,000; 2001
- - $10,000,000; 2002 - $10,000,000 and 2003 - $12,000,000.
CTS has an unsecured revolving credit agreement totaling $75,000,000 with
four banks, which expires in 2003. Interest rates on these borrowings
fluctuate based upon LIBOR plus 0.50 percent per annum, with adjustments
based on the ratio of CTS' consolidated total indebtedness to consolidated
earnings before interest, taxes, depreciation and amortization (EBITDA). The
Company pays a commitment fee that varies based on performance under certain
financial covenants applicable to the undrawn portion of the revolving credit
agreement. Currently, that fee is 0.175 percent per annum. The credit
agreement and term loans require, among other things, that the Company
maintain a minimum tangible net worth, a minimum fixed charge coverage ratio
and a minimum leverage ratio.
NOTE F- Stock Plans
At December 31, 1998, CTS has four stock-based compensation plans, which are
described below. CTS applies APB Opinion No. 25 and related Interpretations
in accounting for its plans. With the exception of the 1997
transaction-related option grant, compensation cost is normally not
recognized for its fixed stock option grants as they are granted at fair
market value at the grant dates, while compensation expense has been
recognized for its compensatory plans. Had compensation cost for CTS' two
fixed stock-based compensation plans been determined based on the fair value
based method, as defined in FASB Statement No. 123, CTS' net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
(In thousands except per share amounts)
1998 1997 1996
Net earnings As reported $37,474 $22,813 $21,170
Pro forma $37,206 $21,360 $20,936
Net earnings
per share- As reported $2.56 $1.43 $1.34
diluted Pro forma $2.55 $1.34 $1.32
The pro forma information presented above includes the effect of the
difference between the intrinsic value compensation charge calculated under
APB Opinion No. 25 and the fair value amount calculated under FASB Statement
No.123.
The effects of applying FASB Statement No. 123 in the above pro forma
disclosures are not indicative of future amounts as they do not include the
effects of awards granted prior to 1995, some of which would have had income
statement effects in 1996, 1997 and 1998 due to the fixed stock option awards
generally vesting 25% per year over a four-year period.
The weighted-average fair value of each option grant (which is amortized over
the option vesting period for purposes of determining the pro forma impact)
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
1998, 1997, and 1995: dividend yield of 0.85%, 0.70% and 1.63%, respectively;
expected volatility of 30.49%, 19.93% and 19.93%, respectively; risk-free
interest rate of 5.30%, 5.80% and 5.62%, respectively; and expected life of
4.2, 4.3 and 2.0 years, respectively.
CTS' two fixed stock option plans, approved by the shareholders, provide for
grants of incentive stock options or nonqualified stock options to officers
and key employees. Under the 1986 Stock Option Plan which expired in 1995,
CTS could grant options to its officers and key employees for up to 900,000
shares of common stock. Of the 900,000 shares, approximately 300,000 shares
were granted.
NOTE F Stock Plans (continued)
Under the 1996 Stock Option Plan, CTS may grant options to its officers and
key employees for up to 600,000 shares of common stock. Under this Plan, options
are granted at the fair market value on the grant date and are exercisable
generally in cumulative annual installments over a maximum ten-year period,
commencing at least one year from the date of grant. Upon the exercise of stock
options, payment may be made using cash, shares of the Company's common stock or
a combination thereof subject to certain restrictions as described in the plan
document.
During 1997, CTS granted 1,200,000 options to certain officers and Board
members. These options were fully vested and are exercisable over a ten-year
period terminating May 8, 2007. Based on the value of CTS shares on the date of
the merger and the option price of $20.83 per share, a $16,200,000 before tax,
$10,530,000 after tax, or $0.65 a diluted share, charge to expense was
recorded. During 1998, the Company acquired 450,000 of these options at a cost
of $5,273,000. The actual tax benefit to be realized will depend on the amounts
calculated upon exercise of the remaining options. Of the 1,200,000 options
granted, 750,000 remain to be exercised at December 31, 1998.
NOTE F- Stock Plans (continued)
A summary of the status of CTS' fixed stock option plans as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates, is
presented below:
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at begin-
ning of year 1,490,542 $18.96 412,575 $10.70 458,775 $10.61
Granted 140,500 28.17 1,200,000 20.83 - -
Exercised (108,625) 10.89 (115,583) 9.46 (18,900) 7.85
Acquired (450,000) 20.83 - - - -
Expired or canceled (3,313) 20.17 (6,450) 10.40 (27,300) 11.16
Outstanding at end
of year 1,069,104 $20.09 1,490,542 $18.96 412,575 $10.70
Options exercisable
at year-end 884,854 1,361,692 154,275
Weighted-average fair
value of options
granted during the
year $8.51 $15.19 -
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/98 Life (Years) Price at 12/31/98 Price
$ 8.250 47,854 0.50 $ 8.25 47,854 $ 8.25
$10.420 -
12.458 132,750 1.91 12.34 87,000 12.31
$20.833 -
23.625 755,000 8.40 20.85 750,000 20.83
$28.000 -
33.000 133,500 4.56 28.34 - -
Under the 1986 Stock Option Plan, options to purchase a total of 55,354 shares
were outstanding as of December 31, 1998. At December 31, 1998, 54,154 of these
shares were exercisable.
NOTE F- Stock Plans (continued)
Under the 1996 Stock Option Plan, options to purchase a total of 263,750
shares were outstanding as of December 31, 1998. At December 31, 1998, 80,700
of these shares were exercisable.
CTS has a discretionary Restricted Stock and Cash Bonus Plan (Plan) which
reserves 1,200,000 shares of the Company's common stock for sale, at market
price or below, or award to key employees. Shares sold or awarded are subject
to restrictions against transfer and repurchase rights of CTS. In general,
restrictions lapse at the rate of 20% per year beginning one year from the
award or sale. In addition, the Plan provides for a cash bonus to the
participant equal to the fair market value of the shares on the dates
restrictions lapse, in the case of an award, or the excess of the fair market
value over the original purchase price if the shares were purchased. The
total bonus paid to any participant during the restricted period is limited
to twice the fair market value of the shares on the date of award or sale.
Under the Plan, during 1998, no shares were awarded, leaving 1,010,700 shares
available for award or sale at December 31, 1998. Under the Plan, in 1997 and
1996, 21,000 and 4,500 shares were awarded, respectively. In addition to the
shares issued and the amortization of deferred compensation included in the
Consolidated Statements of Shareholders' Equity, CTS accrued $371,000,
$427,000 and $408,000 for additional compensation payable under the
provisions of the Plan in 1998, 1997 and 1996, respectively.
CTS has a Stock Retirement Plan for Nonemployee Directors. This retirement
plan provides for a portion of the total compensation payable to Nonemployee
Directors to be deferred and paid in CTS stock. Under this plan, the amount
of the actual dollar compensation was $54,300, $205,100 and $17,100 in 1998,
1997 and 1996, respectively.
NOTE G - Employee Retirement Plans
Defined benefit plans
CTS has a number of noncontributory defined benefit pension plans (Plans)
covering approximately 39% of its employees. Plans covering salaried
employees provide pension benefits that are based on the employees'
compensation prior to retirement. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service.
CTS provides other postretirement benefits consisting of life insurance
programs for retired employees. A majority o