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 April 1, 2007
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
Transition Period from _______________ to _______________
Commission
File Number: 1-4639
CTS
CORPORATION
(Exact
name of registrant as specified in its charter)
|
Indiana
|
|
35-0225010
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification Number)
|
|
|
905
West Boulevard North, Elkhart, IN
|
|
46514
|
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: 574-293-7511
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act.
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of May 29, 2007: 35,884,265.
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Page
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FINANCIAL
INFORMATION
|
|
|
|
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|
|
Item
1.
|
|
|
|
|
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|
|
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3
|
|
-
For the
Three Months ended April 1, 2007 and April 2, 2006
|
|
|
|
|
|
|
|
4
|
|
-
As of
April 1, 2007, and December 31, 2006
|
|
|
|
|
|
|
|
5
|
|
-
For the Three Months Ended April 1, 2007 and April 2, 2006
|
|
|
|
|
|
|
|
6
|
|
-
For the Three Months Ended April 1, 2007 and April 2,
2006
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Item
2.
|
|
17
|
|
|
|
|
|
Item
3.
|
|
24
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|
|
|
|
|
Item
4.
|
|
24
|
|
|
|
|
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
|
26
|
|
|
|
|
|
Item
1A.
|
|
26
|
|
|
|
|
|
Item
6.
|
|
26
|
|
|
|
|
|
|
27
|
(In
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
163,258
|
|
|
$ |
150,493
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
132,920
|
|
|
|
120,452
|
|
Selling,
general, and administrative expenses
|
|
|
21,241
|
|
|
|
16,886
|
|
Research
and development expenses
|
|
|
4,120
|
|
|
|
4,092
|
|
Loss/(gain)
on sales of assets
|
|
|
29
|
|
|
|
(496 |
) |
Restructuring
charge
|
|
|
—
|
|
|
|
1,962
|
|
Operating
earnings
|
|
|
4,948
|
|
|
|
7,597
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(691 |
) |
|
|
(1,111 |
) |
Interest
income
|
|
|
479
|
|
|
|
125
|
|
Other
|
|
|
386
|
|
|
|
3
|
|
Total
other expense
|
|
|
174
|
|
|
|
(983 |
) |
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
|
5,122
|
|
|
|
6,614
|
|
Income
tax expense - Note J
|
|
|
1,076
|
|
|
|
1,574
|
|
Net
earnings
|
|
$ |
4,046
|
|
|
$ |
5,040
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share - Note H
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.11
|
|
|
$ |
0.14
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.11
|
|
|
$ |
0.13
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per share
|
|
$ |
0.03
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,824
|
|
|
|
35,821
|
|
Diluted
|
|
|
40,410
|
|
|
|
40,234
|
|
See
notes
to condensed consolidated financial statements.
(In
thousands of dollars)
|
|
April
1,
2007
|
|
|
December
31, 2006*
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
36,364
|
|
|
$
|
38,630
|
|
Accounts
receivable, less allowances (2007 - $2,182; 2006 - $2,139)
|
|
|
101,671
|
|
|
|
106,012
|
|
Inventories,
net - Note C
|
|
|
71,763
|
|
|
|
60,543
|
|
Other
current assets
|
|
|
23,495
|
|
|
|
22,435
|
|
Total
current assets
|
|
|
233,293
|
|
|
|
227,620
|
|
Property,
plant and equipment, less accumulated depreciation (2007 -
$263,577; 2006 - $259,548)
|
|
|
94,082
|
|
|
|
96,468
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Prepaid
pension asset - Note E
|
|
|
102,899
|
|
|
|
100,666
|
|
Goodwill
|
|
|
24,657
|
|
|
|
24,657
|
|
Other
intangible assets
|
|
|
38,359
|
|
|
|
39,154
|
|
Deferred
income taxes – Note J
|
|
|
33,298
|
|
|
|
37,401
|
|
Other
|
|
|
1,858
|
|
|
|
1,867
|
|
Total
other assets
|
|
|
201,071
|
|
|
|
203,745
|
|
Total
Assets
|
|
$
|
528,446
|
|
|
$
|
527,833
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
3,513
|
|
|
$
|
5,425
|
|
Current
portion of long-term debt – Note D
|
|
|
—
|
|
|
|
186
|
|
Accounts
payable
|
|
|
76,168
|
|
|
|
78,205
|
|
Accrued
liabilities
|
|
|
42,501
|
|
|
|
41,865
|
|
Total
current liabilities
|
|
|
122,182
|
|
|
|
125,681
|
|
Long-term
debt - Note D
|
|
|
60,000
|
|
|
|
60,635
|
|
Other
long-term obligations
|
|
|
22,668
|
|
|
|
22,494
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock - authorized 25,000,000 shares without par value; none
issued
|
|
|
—
|
|
|
|
—
|
|
Common
stock - authorized 75,000,000 shares without par value; 53,766,073
shares
issued at
April 1, 2007 and 53,718,801 shares issued at
December 31,
2006
|
|
|
277,123
|
|
|
|
276,553
|
|
Additional
contributed capital
|
|
|
28,304
|
|
|
|
27,899
|
|
Retained
earnings
|
|
|
318,340
|
|
|
|
315,370
|
|
Accumulated
other comprehensive loss
|
|
|
(30,622
|
)
|
|
|
(31,283
|
)
|
|
|
|
593,145
|
|
|
|
588,539
|
|
Cost
of common stock held in treasury (2007 - 17,897,708 shares
and 2006 - 17,717,657 shares)
|
|
|
(269,549
|
)
|
|
|
(269,516
|
)
|
Total
shareholders’ equity
|
|
|
323,596
|
|
|
|
319,023
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
528,446
|
|
|
$
|
527,833
|
|
*The
balance sheet at December 31, 2006, has been derived from the audited
financial statements at that date.
See
notes to condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
(In
thousands of dollars)
|
|
Three
Months Ended
|
|
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
4,046
|
|
|
$
|
5,040
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,772
|
|
|
|
6,687
|
|
Equity-based
compensation – Note B
|
|
|
1,094
|
|
|
|
865
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,341
|
|
|
|
(3,216
|
)
|
Inventories
|
|
|
(11,220
|
)
|
|
|
(366
|
)
|
Other
current assets
|
|
|
(980
|
)
|
|
|
(2,906
|
)
|
Prepaid
pension asset
|
|
|
(2,233
|
)
|
|
|
(1,197
|
)
|
Accounts
payable and accrued liabilities
|
|
|
2,642
|
|
|
|
(1,825
|
)
|
Other
|
|
|
656
|
|
|
|
(453
|
)
|
Total
adjustments
|
|
|
72
|
|
|
|
(2,411
|
)
|
Net
cash provided by operating activities
|
|
|
4,118
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(2,687
|
)
|
|
|
(2,479
|
)
|
Proceeds
from sales of assets
|
|
|
36
|
|
|
|
513
|
|
Net
cash used in investing activities
|
|
|
(2,651
|
)
|
|
|
(1,966
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Payments
of long-term debt
|
|
|
(857
|
)
|
|
|
(34,165
|
)
|
Proceeds
from borrowings of long-term debt
|
|
|
—
|
|
|
|
34,040
|
|
Increase
(decrease) in short-term notes payable
|
|
|
(1,912
|
)
|
|
|
825
|
|
Dividends
paid
|
|
|
(1,076
|
)
|
|
|
(1,076
|
)
|
Other
|
|
|
36
|
|
|
|
39
|
|
Net
cash used in financing activities
|
|
|
(3,809
|
)
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
76
|
|
|
|
282
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(2,266
|
)
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
38,630
|
|
|
|
12,029
|
|
Cash
and cash equivalents at end of period
|
|
$
|
36,364
|
|
|
$
|
12,637
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
228
|
|
|
$
|
559
|
|
Income
taxes—net
|
|
$
|
162
|
|
|
$
|
1,360
|
|
See
notes
to condensed consolidated financial statements.
CTS
CORPORATION AND SUBSIDIARIES
(In
thousands of dollars)
|
|
Three
Months Ended
|
|
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
Net
earnings
|
|
$
|
4,046
|
|
|
$
|
5,040
|
|
Other
comprehensive earnings:
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
|
|
1
|
|
|
|
535
|
|
Amortization of
retirement benefit adjustments (net of tax)
|
|
|
660
|
|
|
|
—
|
|
Comprehensive
earnings
|
|
$
|
4,707
|
|
|
$
|
5,575
|
|
See
notes
to condensed consolidated financial statements.
April
1, 2007
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,
2006.
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 - Equity-Based Compensation
Effective
January 1, 2006, CTS adopted the provisions of the Financial Accounting
Standards Board’s (FASB) Financial Accounting Standard (FAS) No. 123(R),
“Share-Based Payment.” FAS No. 123(R) requires that CTS recognize
expense related to the fair value of equity-based compensation awards in
the
Unaudited Condensed Consolidated Statement of Earnings.
At
April
1, 2007, CTS had five equity-based compensation plans: the 1988
Restricted Stock and Cash Bonus Plan (1988 Plan), the 1996 Stock Option Plan
(1996 Plan), the 2001 Stock Option Plan (2001 Plan), the Nonemployee Directors’
Stock Retirement Plan (Directors’ Plan), and the 2004 Omnibus Long-Term
Incentive Plan (2004 Plan). As of December 2004, additional grants
can only be made under the 2004 Plan. CTS believes that equity based
awards align the interest of employees with those of its
shareholders.
The
2004
Plan, and previously the 1996 Plan and 2001 Plan, provides for grants of
incentive stock options or nonqualified stock options to officers, key
employees, and nonemployee members of CTS’ board of directors. In
addition, the 2004 Plan allows for grants of stock appreciation rights,
restricted stock, restricted stock units, performance shares, performance
units,
and other stock awards.
The
following table summarizes the compensation expense included in the Unaudited
Condensed Consolidated Statement of Earnings for the three months ended April
1,
2007 and April 2, 2006 relating to these plans:
($
in thousands)
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
Stock
options (1)
|
|
$ |
178
|
|
|
$ |
223
|
|
Restricted
stock units
|
|
|
875
|
|
|
|
581
|
|
Restricted
stock
|
|
|
41
|
|
|
|
61
|
|
Total
|
|
$ |
1,094
|
|
|
$ |
865
|
|
(1)
|
Stock
option expense includes $5 and $14 in the quarters ending April
1, 2007
and April 2, 2006, respectively, related to non-employee director
stock
options.
|
_______________________
The
following table summarizes the status of these plans as of April 1,
2007:
|
|
2004
Plan
|
|
|
2001
Plan
|
|
|
1996
Plan
|
|
Awards
originally available
|
|
|
6,500,000
|
|
|
|
2,000,000
|
|
|
|
1,200,000
|
|
Stock
options outstanding
|
|
|
323,300
|
|
|
|
879,388
|
|
|
|
296,550
|
|
Restricted
stock units outstanding
|
|
|
574,961
|
|
|
|
—
|
|
|
|
—
|
|
Awards
exercisable
|
|
|
122,188
|
|
|
|
818,188
|
|
|
|
283,950
|
|
Awards
available for grant
|
|
|
5,426,447
|
|
|
|
—
|
|
|
|
—
|
|
Stock
Options
Stock
options are exercisable in cumulative annual installments over a maximum
10-year
period, commencing at least one year from the date of
grant. Stock options are generally granted with an exercise
price equal to the market price of the Company’s stock on the date of
grant. The stock options generally vest over four years and have a
10-year contractual life. The awards generally contain provisions to
either accelerate vesting or allow vesting to continue on schedule upon
retirement if certain service and age requirements are met. The
awards also provide for accelerated vesting if there is a change in control
event.
The
Company estimates the fair value of the stock option on the grant date using
the
Black-Scholes option-pricing model and assumptions for expected price
volatility, option term, risk-free interest rate, and dividend
yield. Expected price volatilities are based on historical
volatilities of the Company’s stock. The expected option term is
derived from historical data on exercise behavior. The dividend yield
is based on historical dividend payments. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
A
summary
of the status of stock options as of April 1, 2007 and April 2, 2006, and
changes during the three-month periods then ended, is presented
below:
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
|
Options
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted-Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
|
|
1,526,863
|
|
|
$ |
15.88
|
|
|
|
1,567,499
|
|
|
$ |
15.93
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(9,150 |
) |
|
|
8.59
|
|
|
|
(16,000 |
) |
|
|
8.54
|
|
Expired
|
|
|
(7,625 |
) |
|
|
37.32
|
|
|
|
(20,475 |
) |
|
|
26.93
|
|
Forfeited
|
|
|
(10,850 |
) |
|
|
11.66
|
|
|
|
(7,050 |
) |
|
|
9.31
|
|
Outstanding
at end of period
|
|
|
1,499,238
|
|
|
$ |
15.85
|
|
|
|
1,523,974
|
|
|
$ |
15.89
|
|
Exercisable
at end of period
|
|
|
1,187,488
|
|
|
$ |
16.96
|
|
|
|
1,061,481
|
|
|
$ |
18.38
|
|
The
total
intrinsic value of share options exercised during the quarters ended April
1,
2007 and April 2, 2006 was $54,600 and $65,000, respectively.
A
summary
of the weighted-average remaining contractual term and aggregate intrinsic
value
of options outstanding and exercisable at April 1, 2007 is presented
below:
|
Weighted-average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
Options
outstanding
|
5.5
years
|
|
$ |
3,776
|
|
Options
exercisable
|
4.9
years
|
|
|
3,082
|
|
A
summary
of the nonvested stock options as of April 1, 2007 and April 2, 2006, and
changes during the three-month periods then ended, is presented
below:
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
|
Options
|
|
|
Weighted-average
Grant-Date
Fair
Value
|
|
|
Options
|
|
|
Weighted-average
Grant-Date
Fair
Value
|
|
Nonvested
at beginning of year
|
|
|
340,900
|
|
|
$ |
6.11
|
|
|
|
488,943
|
|
|
$ |
6.94
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(18,300 |
) |
|
|
4.96
|
|
|
|
(19,400 |
) |
|
|
4.62
|
|
Forfeited
|
|
|
(10,850 |
) |
|
|
6.95
|
|
|
|
(7,050 |
) |
|
|
4.64
|
|
Nonvested
at end of period (1)
|
|
|
311,750
|
|
|
$ |
6.15
|
|
|
|
462,493
|
|
|
$ |
7.06
|
|
(1)
Based on
historical experience CTS currently expects approximately 310,000 of these
options to vest.
__________________________
The
total
fair value of shares vested during the quarters ended April 1, 2007 and April
2,
2006 was $91,000 and $90,000, respectively. As of April 1, 2007,
there was $472,000 of unrecognized compensation cost related to nonvested
stock
options. That cost is expected to be recognized over a
weighted-average period of 1.3 years. CTS recognizes expense on a
straight-line basis over the requisite service period for each separately
vesting portion of the award as if the award was, in substance, multiple
awards.
The
following table summarizes information about stock options outstanding at
April
1, 2007:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
Range
of
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Exercise
|
|
|
Outstanding
|
|
|
Contractual
of
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
Prices
|
|
|
at
4/1/07
|
|
|
Life
(Years)
|
|
|
Price
|
|
|
At
4/1/07
|
|
|
Price
|
|
$ |
7.70
– 11.11
|
|
|
|
849,513
|
|
|
|
6.4
|
|
|
$ |
9.39
|
|
|
|
632,863
|
|
|
$ |
8.95
|
|
|
13.68
– 16.24
|
|
|
|
234,300
|
|
|
|
6.6
|
|
|
|
14.11
|
|
|
|
139,200
|
|
|
|
14.36
|
|
|
23.00
– 33.63
|
|
|
|
314,175
|
|
|
|
3.8
|
|
|
|
24.53
|
|
|
|
314,175
|
|
|
|
24.53
|
|
|
35.97
– 50.00
|
|
|
|
100,750
|
|
|
|
3.5
|
|
|
|
46.94
|
|
|
|
100,750
|
|
|
|
46.94
|
|
|
56.94
– 79.25
|
|
|
|
500
|
|
|
|
2.7
|
|
|
|
79.25
|
|
|
|
500
|
|
|
|
79.25
|
|
Service-Based
Restricted Stock Units
Service-based
restricted stock units (RSUs) entitle the holder to receive one share of
common
stock for each unit when the unit vests. RSUs are issued to officers
and key employees as compensation. Generally, the RSUs vest over a
five-year period. A summary of the status of RSUs as of April 1, 2007
and April 2, 2006, and changes during the three-month periods then ended
is
presented below:
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
|
RSUs
|
|
|
Weighted-average
Grant-Date
Fair
Value
|
|
|
RSUs
|
|
|
Weighted-average
Grant-Date
Fair
Value
|
|
Outstanding
at beginning of year
|
|
|
658,138
|
|
|
|
12.21
|
|
|
|
525,898
|
|
|
$ |
11.49
|
|
Granted
|
|
|
1,500
|
|
|
|
15.65
|
|
|
|
20,000
|
|
|
|
12.26
|
|
Converted
|
|
|
(56,377 |
) |
|
|
13.48
|
|
|
|
(12,310 |
) |
|
|
12.27
|
|
Forfeited
|
|
|
(28,300 |
) |
|
|
12.25
|
|
|
|
(13,460 |
) |
|
|
11.25
|
|
Outstanding
at end of period
|
|
|
574,961
|
|
|
|
12.35
|
|
|
|
520,128
|
|
|
$ |
11.51
|
|
Weighted-average
remaining contractual
life
|
|
4.3
years
|
|
|
|
|
|
|
4.9
years
|
|
|
|
|
|
As
of
April 1, 2007, there was $3.3 million of unrecognized compensation cost related
to nonvested RSUs. That cost is expected to be recognized over a
weighted-average period of 1.6 years. CTS recognizes expense on a
straight-line basis over the requisite service period for each separately
vesting portion of the award as if the award was, in substance, multiple
awards.
Performance-Based
Restricted Stock Units
During
the first quarter of 2007, CTS established performance-based restricted stock
unit awards for certain executives. Executives will receive between
0% to 200% of their target awards based on achievement of year-over-year
sales
growth and free cash flow performance goals for fiscal year
2007. Restricted stock unit awards will be made in 2008 following a
determination of the extent to which performance goals were
achieved. Performance-based restricted stock units will cliff vest
and convert one-for-one to CTS common stock three years after the end of
the
2007 fiscal year. CTS intends to review its assumptions about
the level of performance goal achievement on a quarterly basis and to adjust
the
related compensation expense accordingly. CTS recorded compensation
expense of $45,000 related to performance-based restricted stock units during
the first quarter of 2007.
Restricted
Stock and Cash Bonus Plan
CTS’
1988
Plan originally reserved 2,400,000 shares of CTS’ common stock for sale at
market price, or award, to key employees. Under the 1988 Plan, 28,866
shares of Restricted Stock were outstanding as of April 1,
2007. 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 grant
date. In addition, the 1988 Plan provides for a cash bonus to the
participant equal to the fair market value of shares on the dates restrictions
lapse, in the case of an award. 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. As of April 1, 2007, there
was
$144,000 of total unrecognized compensation cost related to nonvested Restricted
Stock. That cost is expected to be recognized over a weighted-average
period of 1.3 years. CTS recognizes expense on a straight-line basis
over the requisite service period for each separately vesting portion of
the
award as if the award was, in substance, multiple awards.
Stock
Retirement Plan
The
Directors’ Plan provides for a portion of the total compensation payable to
nonemployee directors to be deferred and paid in CTS stock. The
Directors Plan was frozen effective December 1, 2004. All future
grants will be from the 2004 Plan.
NOTE
C - Inventories
Inventories
consist of the following:
($
in thousands)
|
|
April
1,
2007
|
|
|
December
31, 2006
|
|
Finished
goods
|
|
$ |
14,871
|
|
|
$ |
12,336
|
|
Work-in-process
|
|
|
16,767
|
|
|
|
15,059
|
|
Raw
materials
|
|
|
40,125
|
|
|
|
33,148
|
|
Total
inventories
|
|
$ |
71,763
|
|
|
$ |
60,543
|
|
NOTE
D – Debt
Long-term
debt was comprised of the following:
($
in thousands)
|
|
April
1,
2007
|
|
|
December
31, 2006
|
|
Revolving
credit agreement due in 2011
|
|
$ |
—
|
|
|
$ |
—
|
|
Convertible,
senior subordinated debentures at a weighted-average interest rate
of
2.125%,
due in 2024
|
|
|
60,000
|
|
|
|
60,000
|
|
Term
loan, weighted-average interest rate of 8.0% (2007) and 7.3% (2006),
due
in 2011
|
|
|
—
|
|
|
|
821
|
|
|
|
|
60,000
|
|
|
|
60,821
|
|
Less
current maturities
|
|
|
—
|
|
|
|
186
|
|
Total
long-term debt
|
|
$ |
60,000
|
|
|
$ |
60,635
|
|
On
June
27, 2006, CTS entered into a new $100 million, unsecured revolving credit
agreement. Under the terms of the new revolving credit agreement, CTS
can expand the credit facility to $150 million. There were no amounts
outstanding under the new revolving credit agreement at April 1,
2007. Interest rates on the new revolving credit agreement fluctuate
based upon LIBOR and the Company’s quarterly total leverage
ratio. CTS pays a commitment fee on the undrawn portion of the new
revolving credit agreement. The commitment fee varies based on the
quarterly leverage ratio and was 0.15 percent per annum at April 1,
2007. The new revolving credit agreement requires, among other
things, that CTS comply with a maximum total leverage ratio and a minimum
fixed
charge coverage ratio. Failure of CTS to comply with these covenants
could reduce the borrowing availability under the new revolving credit
agreement. CTS was in compliance with all debt covenants at April 1,
2007.
The
revolving credit agreement requires CTS to deliver quarterly financial
statements, annual financial statements, auditors certifications and compliance
certificates within a specified number of days after the end of a quarter
and
year-end. Due to the accounting investigation described in Note B
"Restatement of the Consolidated Financial Statements" in CTS' Annual Report
on
Form 10-K filed on May 15, 2007, the company and its lenders entered into
an
agreement under which the lenders agreed to waive these dates until June
30,
2007. Additionally, the new revolving agreement contains restrictions
limiting CTS’ ability to: dispose of assets; incur certain additional debt;
repay other debt or amend subordinated debt instruments; create liens on
assets;
make investments, loans or advances; make acquisitions or engage in mergers
or
consolidations; engage in certain transactions with CTS’ subsidiaries and
affiliates; and the amounts allowed for stock repurchases and dividend
payments. The new revolving credit agreement expires in June
2011. The former $75 million revolving credit agreement was
terminated in connection with the execution of the new revolving credit
agreement.
CTS
has
$60 million convertible senior subordinated debentures (2.125% Debentures).
These unsecured debentures bear interest at an annual rate of 2.125%, payable
semiannually on May 1 and November 1 of each year through the maturity date
of
May 1, 2024. The 2.125% Debentures are convertible, under certain circumstances,
into CTS common stock at a conversion price of $15.00 per share (which is
equivalent to an initial conversion rate of approximately 66.6667 shares
per
$1,000 principal amount of the notes). Upon conversion of the 2.125% Debentures,
in lieu of delivering common stock, the Company may, at its discretion, deliver
cash or a combination of cash and common stock.
The
conversion price of the 2.125% Debentures will be adjusted if CTS completes
certain transactions, including: distribution of shares as a dividend to
substantially all shareholders; subdivision, combination or reclassification
of
its common stock; distribution of stock purchase warrants to substantially
all
shareholders; distribution of cash, stock or property to shareholders in
excess
of $0.03 per share; or purchase of its common stock pursuant to a
tender offer or exchange offer under certain circumstances.
Holders
may convert the 2.125% Debentures at any time during a conversion period
if the
closing price of CTS common stock is more than 120% of the conversion price
($18.00 per share) for at least 20 of the 30 consecutive trading days
immediately preceding the first trading day of the conversion period. The
conversion periods begin on February 15, May 15, August 15, and November
15 of
each year. Holders may also convert the notes if certain corporate transactions
occur. As of April 1, 2007, none of the conditions for conversion of the
2.125%
million Debentures were satisfied.
CTS
may,
at its option, redeem all or a portion of the 2.125% Debentures for cash
at any
time on or after May 1, 2009, at a redemption price equal to the principal
amount of the notes plus any accrued and unpaid interest at the redemption
date.
Holders may require CTS to purchase for cash all or part of their notes on
May
1, 2009, 2014, and 2019, or upon the occurrence of certain events, at 100%
of
the principal amount of the notes plus accrued and unpaid interest up to,
but
not including, the date of purchase.
As
of
December 31, 2006, the Company also had an $0.8 million (denominated in Thailand
Baht) outstanding term loan that was assumed in connection with the acquisition
of SMTEK. This loan was secured by machinery and equipment at the
Thailand manufacturing facility and was repaid by CTS in March
2007.
NOTE
E - Retirement Plans
Effective
December 31, 2006, CTS adopted all of the provisions of FAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R).” FAS No.
158 requires employers to: a) recognize the funded status of a benefit
plan—measured as the difference between plan assets at fair value and the
benefit obligation—in its statement of financial position, b) recognize as a
component of other comprehensive income, net of tax, the gains or losses
and
prior service costs or credits that arise during the period but are not
recognized as components of net periodic benefit cost pursuant to FAS No.
87,
“Employers’ Accounting for Pensions,” or FAS No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” c) measure defined
benefit plan assets and obligations as of the date of the employer’s fiscal
year-end statement of financial position, and d) disclose in the notes to
financial statements additional information about certain effects on net
periodic benefit cost for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and
transition asset or obligation. As required by the standard, CTS has applied
these FAS No. 158 requirements prospectively.
Net
pension (income) / postretirement expense for the three months ended April
1,
2007 and April 2, 2006 includes the following components:
|
|
Pension
Plans
|
|
|
Other
Postretirement
Benefit
Plans
|
|
($
in thousands)
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
Service
cost
|
|
$ |
1,211
|
|
|
$ |
1,276
|
|
|
$ |
6
|
|
|
$ |
4
|
|
Interest
cost
|
|
|
2,996
|
|
|
|
3,012
|
|
|
|
83
|
|
|
|
75
|
|
Expected
return on plan assets 1
|
|
|
(6,338 |
) |
|
|
(6,175 |
) |
|
|
—
|
|
|
|
—
|
|
Amortization
of prior service cost
|
|
|
225
|
|
|
|
134
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
of gain/loss
|
|
|
839
|
|
|
|
644
|
|
|
|
—
|
|
|
|
—
|
|
Curtailment
loss
|
|
|
—
|
|
|
|
325
|
|
|
|
—
|
|
|
|
(81 |
) |
(Income)/expense,
net
|
|
$ |
(1,067 |
) |
|
$ |
(784 |
) |
|
$ |
89
|
|
|
$ |
(2 |
) |
1 Expected
return on plan assets is net of expected investment expenses and certain
administrative expenses.
_____________________
In
the
first quarter of 2006, CTS recognized a pension plan curtailment loss of
approximately $0.3 million and another postretirement benefit plan curtailment
gain of approximately $0.1 million due to reduced employment
levels. Also, effective April 1, 2006, CTS closed one of its U.S.
defined benefit plans to new participants.
NOTE
F - Segments
FAS
No. 131, “Disclosures about Segments of an Enterprise and Related
Information,” requires companies to provide certain information about their
operating segments. CTS has two reportable segments: 1) Electronics
Manufacturing Services (EMS) and 2) Components and Sensors.
EMS
includes the higher level assembly of electronic and mechanical components
into
a finished subassembly or assembly performed under a contract manufacturing
agreement with an OEM or other contract manufacturer. Additionally,
for some customers, CTS provides full turnkey manufacturing and completion
including design, bill-of-material management, logistics, and
repair.
Components
and sensors are products which perform specific electronic functions for
a given
product family and are intended for use in customer assemblies. Components
and sensors consist principally of automotive sensors and actuators used
in
commercial or consumer vehicles; electronic components used in communications
infrastructure and computer markets; terminators, including ClearONE™
terminators, used in computer and other high speed applications, switches,
resistor networks, and potentiometers used to serve multiple
markets.
The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies in the Company’s annual report
on Form 10-K. Management evaluates performance based upon segment
operating earnings before restructuring and related charges, interest expense,
other non-operating income, and income tax expense.
Summarized
financial information concerning CTS’ reportable segments is shown in the
following table:
($
in thousands)
|
|
EMS
|
|
|
Components
and Sensors
|
|
|
Total
|
|
First
Quarter of 2007
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
93,726
|
|
|
$ |
69,532
|
|
|
$ |
163,258
|
|
Segment
operating earnings
|
|
|
3
|
|
|
|
4,945
|
|
|
|
4,948
|
|
Total
assets
|
|
|
170,179
|
|
|
|
358,267
|
|
|
|
528,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter of 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
82,865
|
|
|
$ |
67,628
|
|
|
$ |
150,493
|
|
Segment
operating earnings
|
|
|
(781 |
) |
|
|
10,499
|
|
|
|
9,718
|
|
Total
assets
|
|
|
154,041
|
|
|
|
384,227
|
|
|
|
538,268
|
|
Reconciling
information between reportable segments’ operating earnings and CTS’
consolidated pre-tax income is shown in the following table:
($
in thousands)
|
|
First
Quarter
2007
|
|
|
First
Quarter
2006
|
|
Total
segment operating earnings
|
|
$ |
4,948
|
|
|
$ |
9,718
|
|
Restructuring
and related charges - Components and Sensors
|
|
|
—
|
|
|
|
(2,121 |
) |
Interest
expense
|
|
|
(691 |
) |
|
|
(1,111 |
) |
Interest
income
|
|
|
479
|
|
|
|
125
|
|
Other
income
|
|
|
386
|
|
|
|
3
|
|
Earnings
before income taxes
|
|
$ |
5,122
|
|
|
$ |
6,614
|
|
NOTE
G -Contingencies
Certain
processes in the manufacture of CTS’ current and past products create hazardous
waste by-products as currently defined by federal and state laws and
regulations. CTS 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. In addition to these non-CTS
sites, CTS 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
relating to all such matters, either adequate provision for probable costs
has
been made, or the ultimate costs resulting will not materially affect the
consolidated financial position, results of operations, or cash flows of
CTS.
Certain
claims are pending against CTS with respect to matters arising out of the
ordinary conduct of its business. For all claims, in the opinion of
management, based upon presently available information, either adequate
provision for anticipated costs has been made or the ultimate anticipated
costs
resulting will not materially affect CTS’ consolidated financial position,
results of operations or cash flows.
NOTE
H - Earnings Per Share
FAS
No. 128, “Earnings per Share,” requires companies to provide a
reconciliation of the numerator and denominator of the basic and diluted
earnings per share (EPS) computations. The calculations below provide net
earnings, average common shares outstanding, and the resultant earnings per
share for both basic and diluted EPS for the quarters ending April 1, 2007
and
April 2, 2006.
($
in thousands, except per share amounts)
|
|
Net
Earnings (Numerator)
|
|
|
Shares
(in
thousands) (Denominator)
|
|
|
Per
Share Amount
|
|
First
Quarter 2007
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
4,046
|
|
|
|
35,824
|
|
|
$
|
0.11
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debt
|
|
|
251
|
|
|
|
4,000
|
|
|
|
|
|
Equity-based
compensation plans
|
|
|
—
|
|
|
|
586
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
4,297
|
|
|
|
40,410
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
5,040
|
|
|
|
35,821
|
|
|
$ |
0.14
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debt
|
|
|
241
|
|
|
|
4,000
|
|
|
|
|
|
Equity-based
compensation plans
|
|
|
|
|
|
|
413
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
5,281
|
|
|
|
40,234
|
|
|
$ |
0.13
|
|
The
following table shows the potentially dilutive securities which have been
excluded from the first quarter 2007 and 2006 dilutive earnings per share
calculation because they are either anti-dilutive, or the exercise price
exceeds
the average market price.
|
|
Three
Months Ended
|
|
(Number
of shares in thousands)
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
Stock
options where the assumed proceeds exceed the average market price
of
common shares during the period
|
|
|
550
|
|
|
|
834
|
|
Securities
related to the 6.5% convertible debentures
|
|
|
—
|
|
|
|
274
|
|
NOTE
I – Leases
CTS
incurred approximately $1.5 million and $1.3 million of rent expense in the
quarters ending April 1, 2007 and April 2, 2006, respectively. The
future minimum lease payments under the Company’s operating leases are $4.2
million for the remainder of 2007, $4.6 million in 2008, $4.3 million in
2009,
$3.0 million in 2010, $2.3 million in 2011, and $2.7 million
thereafter.
NOTE
J – Income Taxes
On
January 1, 2007, the Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes”
(FIN 48). FIN 48 clarifies the accounting for uncertainty
in income tax positions recognized in accordance with FAS No. 109,
“Accounting for Income Taxes.” FIN 48 requires that an enterprise must
determine whether it is more-likely-than-not that a tax position will be
sustained upon examination, including resolution of any related appeals
or
litigation processes, based on the technical merits of the position. A
tax
position that meets the more-likely-than-not threshold is then measured
to
determine the amount of benefit to recognize in the financial
statements.
At
the
date of adoption, CTS had approximately $4.3 million of unrecognized tax
benefits, which, if recognized, would affect the effective tax
rate. Of this amount, approximately $3.6 million was reclassified
from current tax liabilities to a reduction of the long-term deferred tax
asset
in accordance with the provisions of FIN 48. The remaining $0.7
million was reclassified from current tax liabilities to long term deferred
tax
liabilities. Adoption of this interpretation had no other impact on
the Company’s condensed consolidated financial statements. For the
three months ended April 1, 2007, CTS did not have a change to its total
unrecognized tax benefits of $4.3 million. These benefits are not
expected to be realized within the next twelve
months.
CTS’
continuing practice is to recognize interest and/or penalties related to
income
tax matters as income tax expense. As of April 1, 2007, there were no
significant amounts accrued for interest and/or penalties related to uncertain
income tax positions.
The
Company’s tax years are subject to examination for all U.S. jurisdictions from
2003 through 2006. The international tax statutes vary widely and the
tax years subject to examination range from 2001 through 2006. Taxing
authorities also have the ability to review prior tax years to the extent
of net
operating losses and tax credit carryforwards and apply these changes to
open
tax years. CTS does not anticipate any significant changes in the unrecognized
tax benefits within the next twelve months as the result of examinations
or
lapse of statutes of limitation.
The
provisions for income taxes for the first quarter of 2007 were calculated
using
an estimated full year rate of 21.0% compared to 23.8% for the first quarter
of
2006 and an actual effective rate of 21.1% for the full year
2006. The reduction in the effective tax rate between first quarter
2006 and first quarter 2007 was attributable to a higher percentage of foreign
earnings on lower taxed jurisdictions relative to total foreign
earnings.
NOTE
K – New Accounting Pronouncements
EITF
06-03 “How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross Versus
Net Presentation)”
In
June
2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue
No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross Versus
Net Presentation)” (EITF 06-03). EITF 06-03 provides that the
presentation of taxes assessed by a governmental authority that is directly
imposed on a revenue-producing transaction between a seller and a customer
on
either a gross basis (included in revenue and costs) or on a net basis (excluded
from revenues) is an accounting policy decision that should be
disclosed. The previsions of EITF 06-3 are effective for CTS as of
January 1, 2007. CTS classifies sales taxes on a net basis in its
consolidated financial statements.
FAS
No. 157 “Fair Value Measurements”
In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements”(FAS No.
157). FAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP),
and
expands disclosures about fair value measurements. FAS No. 157 applies under
other accounting pronouncements that require or permit fair value measurements,
and accordingly, does not require any new fair value measurements. FAS No.
157
is effective for CTS beginning January 1, 2008. CTS is currently reviewing
the provisions of FAS No. 157, but does not expect it to have a material
impact
on its consolidated financial statements.
FAS
No. 159 “The Fair Value Option for Financial Assets and Financial
Liabilities”
In
February 2007, the FASB issued Financial Accounting Standard No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (FAS No.
159). FAS No. 159 provides the option to report certain financial
assets and liabilities at fair value, with the intent to mitigate volatility
in
financial reporting that can occur when related assets and liabilities are
recorded on different bases. This statement is effective for CTS
beginning January 1, 2008. CTS does not expect FAS No. 159 to have a
material impact on its consolidated financial statements.
Overview
CTS
is a
global manufacturer of components and sensors used primarily in the automotive,
communications, and computer markets. The Company also provides electronic
manufacturing solutions, including design and supply chain management functions,
primarily serving the communications, computer, industrial, medical and defense
and aerospace markets under contract arrangements with the original equipment
manufacturers (OEMs). Sales and marketing are accomplished through
CTS sales engineers, independent manufacturer’s representatives, and
distributors. Sales are reported through two segments, Electronics Manufacturing
Services (EMS) and Components and Sensors.
In
the
first quarter of 2007, sales of EMS and Components and Sensors segments
represented 57.4% and 42.6% of CTS’ total sales respectively, compared to 55.1%
and 44.9% respectively in the first quarter of 2006.
As
discussed in more detail throughout the Management's Discussion and
Analysis:
·
|
Sales
increased by $12.8 million, or 8.5%, in the first quarter of 2007
from the
first quarter of 2006. Sales in the EMS segment increased by
13.1% compared to the first quarter of 2006, while sales in the
Components
and Sensors segment increased by 2.8% versus the first quarter
of
2006.
|
·
|
Gross
margins, as a percent of sales, were 18.6% and 20.0% in the first
quarter
of 2007 and 2006, respectively. Gross margins decreased due to
an unfavorable change in the segment sales mix versus the first
quarter of 2006 as the EMS segment, which inherently generates
a lower
gross margin, increased to 57.4% of total sales in first quarter
of 2007
compared to 55.1% of total sales in the same period of 2006. In
addition, higher sales of lower margin products in the Components
and
Sensor Segment affected the gross margins adversely. Royalty income
was also lower year-over-year.
|
·
|
Selling,
general and administrative, and research and development expenses
were
15.5% of total sales in the first quarter of 2007 compared to 13.9%
of
total sales in the first quarter of 2006. Growth in the percent
of sales is primarily related to two factors. First quarter
2007 included approximately $1.3 million of legal and accounting
fees
associated with the recent accounting investigation (refer to Note
B,
“Restatement of the Consolidated Financial Statements” in CTS’ Annual
Report on Form 10-K filed May 15, 2007), while first quarter 2006
included
approximately $1.5 million for a favorable insurance claim settlement,
which had the effect of reducing general and administrative
expenses.
|
·
|
Income
taxes for the first quarter of 2007 were calculated using an estimated
full-year rate of 21.0% compared to 23.8% for the first quarter
of 2006
and an actual effective rate of 21.1% for the full year
2006.
|
·
|
Net
earnings were $4.0 million, or $0.11 per diluted share, in the
first
quarter of 2007 compared with $5.0 million, or $0.13 per diluted
share, in
the first quarter of 2006.
|
·
|
First
quarter 2007 earnings per diluted share were adversely impacted
by
approximately $0.02 per share of legal and accounting fees associated
with
the recent accounting investigation. First quarter 2006 diluted
earnings per share were $0.13, including restructuring and related
costs
of $0.04 per share for the consolidation of the Berne, Indiana
operation. First quarter 2006 results benefited from a $0.03
per share favorable insurance claim settlement and approximately
$0.02 per
share from higher royalty income.
|
Critical
Accounting Policies
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses the Company’s unaudited condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and the disclosure
of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting
period.
Management
believes that judgment and estimates related to the following critical
accounting policies could materially affect its consolidated financial
statements.
§
|
Estimating
inventory valuation, the allowance for the doubtful accounts, and
other
accrued liabilities
|
§
|
Valuation
of long-lived and intangible assets, and depreciation/amortization
periods
|
§
|
Equity-based
compensation
|
In
the
first quarter of 2007, there were no changes in the above critical accounting
policies.
Results
of Operations
Comparison
of First Quarter 2007 and First Quarter 2006
Segment
Discussion
Refer
to
Note F, “Segments,” for a description of the Company’s segments.
The
following table highlights the segment results for the three-month periods
ending April 1, 2007 and April 2, 2006:
($
in thousands)
|
|
Components
& Sensors
|
|
|
EMS
|
|
|
Consolidated
Total
|
|
First
Quarter 2007
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
69,532
|
|
|
$ |
93,726
|
|
|
$ |
163,258
|
|
Segment
operating earnings
|
|
|
4,945
|
|
|
|
3
|
|
|
|
4,948
|
|
%
of sales
|
|
|
7.1 |
% |
|
|
0.0 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
67,628
|
|
|
$ |
82,865
|
|
|
$ |
150,493
|
|
Segment
operating earnings
|
|
|
10,499
|
|
|
|
(781 |
) |
|
|
9,718
|
|
%
of sales
|
|
|
15.5 |
% |
|
|
(0.9 |
)% |
|
|
6.5 |
% |
Sales
in
the Components and Sensors segment increased $1.9 million, or approximately
2.8%
from the first quarter of 2006, attributed primarily to higher automotive
component demand partially offset by a decrease in electronic component
sales.
The
Components and Sensors segment operating earnings were $4.9 million in the
first
quarter of 2007 versus $10.5 million in the first quarter of
2006. Despite the favorable impact of higher sales, segment operating
earnings decreased $5.6 million. Approximately half of the decrease
resulted from several unusual items in the first quarter of
2006. First quarter 2006 included higher than normal royalty payments
of $0.7 million, gains on sales of assets of $0.5 million and a favorable
insurance claim of $1.5 million. The remaining unfavorable earnings
change resulted from less favorable product mix and higher operating expenses,
including the incremental legal and accounting fees and increased severance
costs.
The
EMS
segment recorded a sales increase of $10.9 million, or 13.1%, in the first
quarter of 2007 versus the first quarter of 2006. The increase in
sales was attributable primarily to higher sales into the defense and aerospace,
communications, and industrial markets, partially offset by continuing lower
sales into the computer market.
The
EMS
segment operating earnings, at breakeven, improved $0.8 million primarily
due to
better gross margins resulting from higher sales volume and more favorable
product mix, partially offset by incremental legal and accounting fees incurred
in the first quarter of 2007.
Total
Company Discussion
The
following table highlights changes in significant components of the unaudited
condensed consolidated statements of earnings for the three-month periods
ended
April 1, 2007 and April 2, 2006:
|
|
Three
months ended
|
|
|
|
|
($
in thousands, except net earnings per share)
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
Increase
(Decrease)
|
|
Net
sales
|
|
$
|
163,258
|
|
|
$
|
150,493
|
|
|
$
|
12,765
|
|
Restructuring-related
costs
|
|
|
-
|
|
|
|
159
|
|
|
|
(159
|
)
|
%
of net sales
|
|
|
-
|
%
|
|
|
0.1
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
30,338
|
|
|
|
30,041
|
|
|
|
297
|
|
%
of net sales
|
|
|
18.6
|
%
|
|
|
20.0
|
%
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
21,240
|
|
|
|
16,886
|
|
|
|
4,354
|
|
%
of net sales
|
|
|
13.0
|
%
|
|
|
10.9
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
4,120
|
|
|
|
4,092
|
|
|
|
28
|
|
%
of net sales
|
|
|
2.5
|
%
|
|
|
2.7
|
%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/Loss
on asset sales
|
|
|
29
|
|
|
|
(496)
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charge
|
|
|
-
|
|
|
|
1,962
|
|
|
|
(1,962
|
)
|
%
of net sales
|
|
|
-
|
%
|
|
|
1.3
|
%
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
|
4,948
|
|
|
|
7,597
|
|
|
|
(2,649
|
)
|
%
of net sales
|
|
|
3.0
|
%
|
|
|
5.0
|
%
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
1,076
|
|
|
|
1,574
|
|
|
|
(498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
4,046
|
|
|
|
5,040
|
|
|
|
(994
|
)
|
%
of net sales
|
|
|
2.5
|
%
|
|
|
3.3
|
%
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share - diluted
|
|
$
|
0.11
|
|
|
|
0.13
|
|
|
$
|
(0.02
|
)
|
First
quarter sales of $163.3 million increased $12.8 million, or 8.5%, from the
first
quarter of 2006. The increase was attributable primarily to higher
sales of $10.9 million from the EMS segment. The Components and
Sensors segment sales increased $1.9 million from strong automotive new product
demand, partially offset by lower electronic component demand.
Gross
margin as a percent of sales was 18.6% in the first quarter of 2007 compared
to
20.0% the first quarter of 2006 due to unfavorable segment sales mix, lower
royalties and less favorable product mix. The Components and Sensors
segment decreased to 42.6% of total sales in the first quarter of 2007 compared
to 44.9% of total sales in the same period of 2006. The gross margin
decrease was partially offset by higher sales volumes.
Selling,
general and administrative expenses were $21.2 million, or 13.0% of sales,
in
the first quarter of 2007 versus $16.9 million, or 11.2% of sales in the
first
quarter of 2006. Growth in the percent of sales is primarily related
to two factors. First quarter 2007 included approximately $1.3
million of legal and accounting fees associated with the recent accounting
investigation, while first quarter 2006 included approximately $1.5 million
for
a favorable insurance claim settlement. Research and development
expenses were $4.1 million, or 2.5% of sales in the first quarter of 2007
versus
$4.1 million, or 2.7% of sales in the first quarter of 2006. Research
and development expenditures in the EMS segment are typically much lower
than in
the Components and Sensors segment. Significant ongoing research and
development activities continue in Components and Sensors to support expanded
application and new product development.
Operating
earnings were $4.9 million in the first quarter of 2007 compared to $7.6
million
in the first quarter of 2006. The decrease in operating
earnings was primarily attributable to higher selling, general and
administrative expenses as described above, partially offset by lower
restructuring and related costs of $2.1 million.
Income
taxes for the first quarter of 2007 were calculated using an estimated full-year
rate of 21.0% compared to 23.8% for the first quarter of 2006 and an actual
effective rate of 21.1% for the full year 2006.
Net
earnings were $4.0 million, or $0.11 per diluted share, in the first quarter
of
2007 compared to $5.0 million, or $0.13 per diluted share, in the first quarter
of 2006.
Outlook
Based
on
the first quarter results and the outlook for the remainder of the year,
CTS
expects full-year 2007 sales to grow by 5% - 8% over 2006. Full-year
diluted earnings per share are expected to be in a range of $0.71 to
$0.75.
Liquidity
and Capital Resources
Overview
Cash
and
cash equivalents were $36.4 million at April 1, 2007 compared to $38.6 million
at December 31, 2006. Total debt on April 1, 2007 was $63.5 million,
lower than $66.2 million at the end of 2006. Total debt as a
percentage of total capitalization was 16.4% at the end of the first quarter
of
2007, compared with 17.2% at the end of 2006.
Working
capital increased $9.2 million in the first quarter of 2007 versus year-end
2006, primarily driven by the following:
·
|
Inventory
increased by $11.2 million in part attributable to a planned build-ahead
for a certain customer program. This customer had prepaid $7.0
million, which is held in a customer deposit account, and has been
used to
offset approximately $4.5 million of inventory
costs.
|
·
|
Accounts
payable decreased by $2.0 million.
|
Working
capital increases were partially offset
by:
|
·
|
Accounts
receivable decreased by $4.3
million.
|
·
|
Accrued
liabilities increased by $0.6
million.
|
Cash
Flow
Operating
Activities
Net
cash
provided by operating activities was $4.1 million for the first quarter of
2007.
Components of net cash provided by operating activities include net
earnings of $4.0 million, depreciation and amortization expense of $5.8 million
and equity-based compensation of $1.1 million, offset by unfavorable changes
in
assets and liabilities of $6.8 million. The unfavorable changes in
assets and liabilities were primarily due to increased inventory of $11.2
million and an increase in prepaid pension asset of $2.2 million, partially
offset by decreased accounts receivable of $4.3 million and increased accounts
payable and accrued liabilities of $2.6 million.
Net
cash
provided by operating activities was $2.6 million for the first quarter of
2006.
Components of net cash provided by operating activities included net
earnings of $5.0 million, depreciation and amortization expense of $6.7 million
and equity-based compensation of $0.9 million, partially offset by unfavorable
changes in assets and liabilities of $10.0 million. The unfavorable
changes in assets and liabilities were primarily due to increased accounts
receivables of $3.2 million, an increase in other current assets of $2.9
million, an increase in prepaid pension asset of $1.2 million and a decrease
in
accounts payable and accrued liabilities of $1.8 million.
Total
free cash flow in the first quarter of 2007 was $1.4 million compared to
free
cash flow in the first quarter of 2006 of $0.1 million.
Free
cash
flow is a non-GAAP financial measure that CTS defines as net cash provided
by
operations less capital expenditures. The most comparable GAAP
measure is net cash provided by operations. CTS' management uses free
cash flow to evaluate financial performance and in strategic planning,
specifically, for investing and financing decisions. CTS' management
believes that free cash flow is a useful measure because it indicates the
ability of a business operation to fund its own required capital
investments. CTS' management believes that the non-GAAP measure free
cash flow is useful to investors because it reflects the performance of its
overall operations more accurately than net cash provided by operations and
because it provides investors with the same results that management uses
as the
basis for making decisions about the business. Free cash flow is not
an indicator of residual cash available for discretionary spending, because
it
does not take into account mandatory debt service or other non-discretionary
spending requirements which are not deducted in the calculation of free cash
flow. CTS' management takes these limitations into account when using
free cash flow to make investing and financing decisions.
The
following table summarizes free cash flow for CTS:
|
|
Three
Months Ended
|
|
($
in millions)
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
Net
cash provided by operations
|
|
$ |
4.1
|
|
|
$ |
2.6
|
|
Capital
expenditures
|
|
|
(2.7 |
) |
|
|
(2.5 |
) |
Free
cash flow
|
|
$ |
1.4
|
|
|
$ |
0.1
|
|
Net
cash
used in investing activities was $2.7 million for the first quarter of 2007,
primarily for capital expenditures.
Net
cash
used in investing activities was $2.0 million for the first quarter of 2006,
including $2.5 million used for capital expenditures partially offset by
$0.5
million in proceeds for sale of assets.
Net
cash
used in financing activities for the first quarter of 2007 was $3.8 million,
consisting primarily of $2.8 million in decreased short-term and long-term
debt
and $1.1 million in dividend payments.
Net
cash
used in financing activities for the first quarter of 2006 was $0.3 million,
consisting primarily of $1.1 million in dividend payments partially offset
by
$0.8 million in increased short-term notes payable.
Capital
Resources
Refer
to
Note D, “Debt,” for further discussion.
On
June
27, 2006, CTS entered into a new $100 million, unsecured revolving credit
agreement. Under the terms of the new revolving credit agreement, CTS
can expand the credit facility to $150 million. There were no amounts
outstanding under the new revolving credit agreement at April 1,
2007. Interest rates on the new revolving credit agreement fluctuate
based upon LIBOR and the Company’s quarterly total leverage
ratio. CTS pays a commitment fee on the undrawn portion of the new
revolving credit agreement. The commitment fee varies based on the
quarterly leverage ratio and was 0.15 percent per annum at April 1,
2007. The new revolving credit agreement requires, among other
things, that CTS comply with a maximum total leverage ratio and a minimum
fixed charge coverage ratio. Failure of CTS to comply with these covenants
could reduce the borrowing availability under the new revolving credit
agreement. CTS was in compliance with all debt covenants at April 1,
2007. Additionally, the new revolving agreement contains restrictions
limiting CTS' ability to: dispose of assets; incur certain additional debt;
repay other debt or amend subordinated debt instruments; create liens on
assets;
make investments, loans or advances; make acquisitions or engage in mergers
or
consolidations; engage in certain transactions with CTS' subsidiaries and
affiliates, and limiting the amounts allowed for stock repurchases and dividend
payments. The new revolving credit agreement expires in June
2011. The former $75 million revolving credit agreement was
terminated in connection with the execution of the new revolving credit
agreement.
As
described in Note B to the Consolidated Financial Statements in CTS’ Annual
Report on Form 10-K filed May 15, 2007, the Company commenced an investigation
of accounting misstatements at its Moorpark, California manufacturing location
in February 2007. As a result, the Company was unable to file
its 2006 Annual Report on Form 10-K on time and was unable to file its quarterly
report on Form 10-Q for the first quarter of 2007 within the time required
by
Securities and Exchange Commission regulations. Accordingly, on March
13, 2007, the Company and its lenders entered into an agreement under which
the
lenders agreed to waive, until June 30, 2007, the requirements under the
new
credit agreement that CTS deliver quarterly financial statements, annual
financial statements, auditor certifications and compliance certificates
with
respect to the quarter ending April 1, 2007 and the year ended December 31,
2006.
CTS
believes cash flows from operating activities and available borrowings under
its
revolving credit agreement will be adequate to fund its working capital and
capital expenditure requirements. CTS may choose to pursue additional
equity and/or debt financing to fund acquisitions and/or to reduce its overall
interest expense or improve its capital structure.
In
November 2005, CTS’ Board of Directors authorized a program to repurchase up to
one million shares of common stock. The authorization expires June
30, 2007. Reacquired shares will be used to support equity-based compensation
programs and for other corporate purposes. During 2006, CTS
repurchased 170,600 shares at a total cost of $2.3
million. During the first quarter of 2007 no shares were
repurchased. At April 1, 2007 and December 31, 2006, CTS was
authorized to repurchase approximately 690,000 additional shares.
On
December 14, 1999, CTS’ shelf registration statement on Form S-3 was declared
effective by the Securities and Exchange Commission. CTS could initially
offer up to $500.0 million in any combination of debt securities, common
stock,
preferred stock or warrants under the registration statement. During the
first three months of 2007, CTS did not issue any securities under this
registration statement. As of April 1, 2007, CTS could offer up to $435.1
million of additional debt and/or equity securities under this registration
statement. On May 9, 2007, CTS filed a post-effective amendment on
Form S-1 to deregister all of the securities remaining unsold under the
registration statement.
New
Accounting Pronouncements
EITF
06-03 “How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross Versus
Net Presentation)”
In
June
2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue
No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross Versus
Net Presentation)” (EITF 06-03). EITF 06-03 provides that the
presentation of taxes assessed by a governmental authority that is directly
imposed on a revenue-producing transaction between a seller and a customer
on
either a gross basis (included in revenue and costs) or on a net basis (excluded
from revenues) is an accounting policy decision that should be
disclosed. The previsions of EITF 06-3 are effective for CTS as of
January 1, 2007. CTS classifies sales taxes on a net basis in its
consolidated financial statements.
FAS
No. 157 “Fair Value Measurements”
In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements”(FAS No.
157). FAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP),
and
expands disclosures about fair value measurements. FAS No. 157 applies under
other accounting pronouncements that require or permit fair value measurements,
and accordingly, does not require any new fair value measurements. FAS No.
157
is effective for CTS beginning January 1, 2008. CTS is currently reviewing
the
provisions of FAS No. 157, but does not expect it to have a material impact
on
its consolidated financial statements.
FAS
No. 159 “The Fair Value Option for Financial Assets and Financial
Liabilities”
In
February 2007, the FASB issued Financial Accounting Standard No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (FAS No.
159). FAS No. 159 provides the option to report certain financial
assets and liabilities at fair value, with the intent to mitigate volatility
in
financial reporting that can occur when related assets and liabilities are
recorded on different bases. This statement is effective for CTS
beginning January 1, 2008. CTS does not expect FAS No. 159 to have a
material impact on its consolidated financial statements.
*****
Forward-Looking
Statements
This
document contains statements that are, or may be deemed to be, forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of
1995. These forward-looking statements include, but are not limited
to, any financial or other guidance, statements that reflect our current
expectations concerning future results and events, and any other statements
that
are not based solely on historical fact. Forward-looking statements
are based on management’s expectations, certain assumptions and currently
available information. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date
hereof. These forward-looking statements are made subject to certain
risks, uncertainties and other factors, which could cause our actual results,
performance or achievements to differ materially from those presented in
the
forward-looking statements. For more detailed information on the
risks and uncertainties associated with CTS’ business, see our reports filed
with the SEC. Examples of factors that may affect future operating
results and financial condition include, but are not limited to: rapid
technological change; general market conditions in the automotive,
communications, and computer industries, as well as conditions in the
industrial, defense & aerospace, and medical markets; reliance on key
customers; the ability to protect our intellectual property; pricing pressures
and demand for our products; and risks associated with our international
operations, including trade and tariff barriers, exchange rates and political
and geopolitical risks; and the impact of the accounting misstatements at
its
Moorpark and Santa Clara, California locations. CTS undertakes no
obligation to publicly update its forward-looking statements to reflect new
information or events or circumstances that arise after the date hereof,
including market or industry changes.
There
have been no other material changes in CTS’ market risk since December 31,
2006.
CTS’
management is responsible for establishing and maintaining effective disclosure
controls and procedures, as such term is defined in Exchange Act Rule
13a-15(e).
In
February 2007, CTS announced that it was investigating incorrect accounting
entries at its Moorpark, California manufacturing location and that its
financial statements for the first three quarters of 2006 should not be relied
upon. The investigation determined that incorrect entries transferred
significant costs from income statement accounts, primarily cost of goods
sold,
to balance sheet accounts, primarily accounts payable, beginning in 2005
and
continuing through 2006. For more information on these matters,
please refer to Item 1A, Risk Factors; Item 9A Controls and Procedures; Note
B
to the consolidated financial statements, “Restatement of the Consolidated
Financial Statements”; and Management 's Report on Internal Control over
Financial Reporting in CTS’ 2006 Annual Report on Form 10-K filed May 15,
2007. Management determined that the effect of the misstatements on
CTS' 2006 consolidated financial statements was material and accordingly
amendments to CTS’ 2006 Quarterly Reports on Form 10-Q/A restating CTS'
condensed consolidated financial statements for each of the first three quarters
of 2006 were filed contemporaneously with CTS’ 2006 Annual Report on Form 10-K.
In addition, as a result of the incorrect entries discussed above CTS restated
its consolidated financial statements for the year ended December 31, 2005
in
its 2006 Annual Report on Form 10-K.
In
its assessment of internal control
over financial reporting for the year ended December 31, 2006, CTS' management
concluded that a material weakness existed in CTS' internal control over
financial reporting. The
following control deficiencies, on a combined basis, resulted in the material
weakness related to the Moorpark and Santa Clara, California manufacturing
locations:
·
|
Monitoring
and accountability over the operating effectiveness of controls
including
effective operation of designed controls over reconciliations,
journal
entry approval and oversight.
|
·
|
Ability
to set-up fictitious vendors and ability to make payments to vendors
without appropriate support and
approval.
|
·
|
Lack
of effectiveness of the internal audit function to obtain an understanding
of process and controls at the Moorpark and Santa Clara, California
locations.
|
Prior
to
identifying the material weakness described above, CTS’ management had taken
actions to strengthen the Moorpark and Santa Clara accounting
organization by replacing the Moorpark plant controller and adding a Santa
Clara
plant controller. Since identifying the material weakness, CTS has
implemented the following changes to strengthen its internal control over
financial reporting:
·
|
Increased
review and approval of all manual journal entries by the entity
controllers.
|
·
|
Increased
review and approval of all account reconciliation activities by
the entity
controllers.
|
·
|
Added
a senior Corporate accountant to provide additional review and
oversight
of all key accounting processes globally, including manual journal
entries
and key account reconciliations.
|
·
|
Increased
internal audit resources and revised internal audit programs to
increase
the scope and frequency of audits.
|
·
|
Standardized
and strengthened the account reconciliation process at both Moorpark
and
Santa Clara.
|
·
|
Completed
a review of all Moorpark and Santa Clara
vendors.
|
·
|
Removed
the controllers’ ability to set-up vendors and make payments through the
financial information system.
|
Management
believes these actions have strengthened the internal control environment
at
both Moorpark and Santa Clara and that these actions will remediate the material
weakness described above. These internal control enhancements will be
tested throughout the year to confirm that they are operating
effectively.
In
addition, CTS intends to implement the following changes over the course
of 2007
to further strengthen its internal control environment:
·
|
Further
enhance the Moorpark and Santa Clara reporting system documentation
and
user training.
|
·
|
Continue
to strengthen operating policies, including policies around pricing
adjustments, customer returns and vendor disputes at all CTS
locations.
|
·
|
Institute
additional operational monitoring reports to review and track early
warning signs e.g. short payments, premium freight and customer
rejects at
all CTS locations.
|
·
|
Further
enhance and document CTS’ annual vendor certification process at all CTS
locations.
|
·
|
Standardize
and strengthen the account reconciliation process at all CTS
locations.
|
As
of
April 1, 2007 CTS' management, including its Chief Executive Officer and
its
Chief Financial Officer, have carried out an evaluation of the effectiveness
of
CTS' disclosure controls and procedures. Based on the determination
that the material weakness remediations in CTS' internal control over financial
reporting described above have not been fully tested, CTS’ Chief Executive
Officer and Chief Financial Officer have determined that CTS' disclosure
controls and procedures were not effective as of April 1, 2007.
Changes
in Internal Control Over Financial Reporting
Except
as
described above, there were no changes in CTS' internal control over financial
reporting for the quarter ended April 1, 2007 that have materially affected
or
are reasonably likely to materially affect CTS' internal control over financial
reporting.
Certain
processes in the manufacturer of CTS’ current and past products create hazardous
waste by-products as currently defined by federal and state laws and
regulations. CTS 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. In addition to
these non-CTS sites, CTS has an ongoing practice of providing
reserves for probably 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 relating to all such matters, either adequate
provision for probably costs has been made, or the ultimate costs resulting
will
not materially affect the consolidated financial position, results of operations
or cash flows of CTS.
Certain
claims are pending against CTS with respect to matters arising out of the
ordinary conduct of its business. For all claims, in the opinion of
management, based upon presently available information, either adequate
provision for anticipated costs has been made by insurance, accruals or
otherwise, or the ultimate anticipated costs resulting will not materially
affect CTS’ consolidated financial position, results of operations or cash
flows.
There
have been no significant changes in the Company’s risk factors since December
31, 2006.
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
Pursuant
to the requirements 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.
CTS
Corporation |
|
|
CTS
Corporation |
|
/s/
Richard
G. Cutter III
|
|
|
/s/
Vinod
M.
Khilnani
|
|
Richard
G.
Cutter III
|
|
|
Vinod
M.
Khilnani
|
|
Vice
President, Secretary and General Counsel
|
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
|
|
|
|
Dated:
May 31, 2007 |
|
|
Dated:
May 31, 2007 |
|