(Mark One)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______________ to _______________
Commission File Number:
1-4639
(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) |
Registrants telephone number, including area code: 574-293-7511
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
X
No
Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes
X
No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of April 22, 2003: 34,150,145
Page | |||
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PART I. | FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 1 | |
Condensed Consolidated Statements of Earnings (Loss) | |||
- For the Three Months ended March 30, 2003 and March 31, 2002 | 1 | ||
Condensed Consolidated Balance Sheets | |||
- As of March 30, 2003, and December 31, 2002 | 2 | ||
Condensed Consolidated Statements of Cash Flows | |||
- For the Three Months Ended March 30, 2003 and March 31, 2002 | 3 | ||
Condensed Consolidated Statements of Comprehensive Earnings (Loss) | |||
- For the Three Months Ended March 30, 2003 and March 31, 2002 | 4 | ||
Notes to Condensed Consolidated Financial Statements | 5 | ||
Item 2. | Management's Discussion and Analysis of | ||
Financial Condition and Results of Operations | 11 | ||
Item 3. | Quantitative and Qualitative Disclosure about Market Risk | 15 | |
Item 4. | Controls and Procedures | 15 | |
PART II. | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 16 | |
Item 6. | Exhibits and Reports on Form 8-K | 16 | |
SIGNATURES | 17 | ||
CERTIFICATIONS | 18 |
i
PART I - FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended
March 30, 2003
March 31, 2002
$
105,769
$
112,593
84,686
89,915
12,848
15,317
5,641
7,133
2,594
228
(1,972
)
(2,670
)
49
82
90
(174
)
(1,833
)
(2,762
)
761
(2,534
)
190
(633
)
$
571
$
(1,901
)
$
0.02
$
(0.06
)
$
0.02
$
(0.06
)
$
0.03
$
0.03
34,020
31,802
34,258
31,802
See notes to condensed consolidated financial statements.
1
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements
(Continued)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 30, 2003 | December 31, 2002* | ||||||||||
|
|
||||||||||
(UNAUDITED) | |||||||||||
ASSETS
|
|||||||||||
Current Assets
|
|||||||||||
Cash
|
$ | 7,661 | $ | 9,225 | |||||||
Accounts receivable, less allowances (2003 -- $1,218; 2002 -- $1,694)
|
59,783 | 63,802 | |||||||||
Inventories Note C
|
36,114 | 36,262 | |||||||||
Other current assets
|
6,211 | 7,212 | |||||||||
Deferred income taxes
|
35,997 | 35,833 | |||||||||
|
|
|
|||||||||
Total current assets
|
145,766 | 152,334 | |||||||||
Property, plant and equipment,
less accumulated depreciation (2003 -- $249,761; 2002 -- $251,430) |
142,913 | 148,632 | |||||||||
Other Assets
|
|||||||||||
Prepaid pension asset
|
123,392 | 120,277 | |||||||||
Intangible assets
|
39,214 | 39,923 | |||||||||
Assets held for sale Note E
|
18,826 | 23,135 | |||||||||
Other
|
5,496 | 5,731 | |||||||||
|
|
|
|||||||||
Total other assets
|
186,928 | 189,066 | |||||||||
|
|
|
|||||||||
Total Assets
|
$ | 475,607 | $ | 490,032 | |||||||
|
|
|
|||||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
|||||||||||
Current Liabilities
|
|||||||||||
Current maturities of long-term debt Note F
|
$ | 18,200 | $ | 28,350 | |||||||
Accounts payable
|
47,453 | 44,490 | |||||||||
Accrued liabilities
|
55,224 | 61,716 | |||||||||
|
|
|
|||||||||
Total current liabilities
|
120,877 | 134,556 | |||||||||
Long-term debt
Note F
|
67,000 | 67,000 | |||||||||
Other long-term obligations
|
11,505 | 11,501 | |||||||||
Deferred income taxes
|
11,962 | 11,955 | |||||||||
Shareholders Equity
|
|||||||||||
Preferred stock authorized 25,000,000 shares without par value; none issued
|
| | |||||||||
Common stock authorized 75,000,000 shares without par value;
|
|||||||||||
50,769,978 shares issued
at March 30, 2003 and
|
|||||||||||
50,718,883 shares issued at December 31, 2002
|
241,442 | 241,393 | |||||||||
Additional contributed capital
|
23,544 | 23,514 | |||||||||
Retained earnings
|
254,622 | 255,085 | |||||||||
Accumulated other comprehensive loss
|
(1,339 | ) | (835 | ) | |||||||
|
|
|
|||||||||
|
518,269 | 519,157 | |||||||||
Cost of common stock held in treasury
|
|||||||||||
(2003 -- 16,619,833 shares;
2002 --16,618,373 shares)
|
(254,006 | ) | (254,137 | ) | |||||||
|
|
|
|||||||||
Total shareholders equity
|
264,263 | 265,020 | |||||||||
|
|
|
|||||||||
Total Liabilities and Shareholders' Equity
|
$ | 475,607 | $ | 490,032 | |||||||
|
|
|
|||||||||
*The balance sheet at December 31, 2002, has been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements. |
2
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements
(Continued)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands of dollars)
Three Months Ended | ||||||||||
|
||||||||||
March 30, 2003 | March 31, 2002 | |||||||||
|
|
|||||||||
Cash flows from operating activities:
|
||||||||||
Net earnings (loss)
|
$ | 571 | $ | (1,901 | ) | |||||
Adjustments to reconcile net earnings (loss)
|
||||||||||
to net cash provided by operating activities:
|
||||||||||
Depreciation and amortization
|
8,812 | 11,228 | ||||||||
Changes in assets and liabilities:
|
||||||||||
Accounts receivable
|
4,019 | 1,495 | ||||||||
Inventories
|
148 | 6,428 | ||||||||
Other current assets
|
1,002 | (485 | ) | |||||||
Prepaid pension asset
|
(3,115 | ) | (3,607 | ) | ||||||
Accounts payable and accrued liabilities
|
(3,540 | ) | (12,803 | ) | ||||||
Other
|
302 | 341 | ||||||||
|
|
|
||||||||
Total adjustments
|
7,628 | 2,597 | ||||||||
|
|
|
||||||||
Net cash provided by operations
|
8,199 | 696 | ||||||||
|
||||||||||
Cash flows from investing activities:
|
||||||||||
Capital expenditures
|
(2,220 | ) | (4,673 | ) | ||||||
Proceeds from sales of assets
|
3,892 | | ||||||||
Other
|
| 135 | ||||||||
|
|
|
||||||||
Net cash provided by (used in) investing activities
|
1,672 | (4,538 | ) | |||||||
|
||||||||||
Cash flows from financing activities:
|
||||||||||
Payments of long-term debt
|
(10,150 | ) | (34,855 | ) | ||||||
Proceeds from issuance of long-term debt
|
| 1,050 | ||||||||
Net change in short-term borrowings
|
| 1,389 | ||||||||
Issuance of common stock
|
302 | 31,609 | ||||||||
Dividends paid
|
(1,025 | ) | (931 | ) | ||||||
Other
|
(53 | ) | 108 | |||||||
|
|
|
||||||||
Net cash used in financing activities
|
(10,926 | ) | (1,630 | ) | ||||||
|
||||||||||
Effect of exchange rate on cash
|
(509 | ) | (111 | ) | ||||||
|
|
|
||||||||
Net decrease in cash
|
(1,564 | ) | (5,583 | ) | ||||||
|
||||||||||
Cash and equivalents at beginning of year
|
9,225 | 13,255 | ||||||||
|
|
|
||||||||
Cash and equivalents at end of period
|
$ | 7,661 | $ | 7,672 | ||||||
|
|
|
||||||||
Supplemental cash flow information
|
||||||||||
Cash paid during the period for:
|
||||||||||
Interest
|
$ | 360 | $ | 1,294 | ||||||
Income taxes--net
|
$ | 1,424 | $ | 153 |
See notes to condensed consolidated financial statements.
3
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements
(Continued)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - UNAUDITED
(In thousands of dollars)
Three Months Ended | ||||||||||
|
||||||||||
March 30, 2003 | March 31, 2002 | |||||||||
|
|
|||||||||
Net earnings (loss)
|
$ | 571 | $ | (1,901 | ) | |||||
Other comprehensive earnings (loss):
|
||||||||||
Cumulative translation adjustments
|
(504 | ) | (410 | ) | ||||||
Deferred loss on forward contract
|
| (250 | ) | |||||||
|
|
|
||||||||
Comprehensive earnings (loss)
|
$ | 67 | $ | (2,561 | ) | |||||
|
|
|
See notes to condensed consolidated financial statements.
4
PART I - FINANCIAL INFORMATION
(Continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE ABasis of Presentation
The accompanying condensed consolidated interim financial statements
have been prepared by CTS Corporation (CTS or the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The condensed consolidated interim financial statements
should be read in conjunction with the financial statements, notes thereto and other
information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The accompanying unaudited condensed consolidated interim financial statements reflect,
in the opinion of management, all adjustments (consisting of normal recurring items)
necessary for a fair statement, in all material respects, of the financial position and results
of operations for the periods presented. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ materially from those estimates. The
results of operations for the interim periods are not necessarily indicative of the results for the
entire year.
NOTE BStock-Based Compensation
CTS accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees" and its related interpretations. CTS has adopted the disclosure requirements
of the Financial Accounting Standards Board's (FASB) Financial Accounting Standard (FAS) No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." Had compensation cost
for CTS' fixed, stock-based compensation plans been determined based on the fair value method,
as defined by FAS No. 123, "Accounting for Stock-Based Compensation," CTS' net earnings (loss)
and net earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:
5
PART I - FINANCIAL INFORMATION
(Continued)
NOTE CInventories
The components of inventory consist of the following:
NOTE DRestructuring and Impairment Charges
In the third quarter of 2002, CTS recorded $18.3 million of pre-tax
restructuring and impairment charges. The restructuring and impairment charges
were incurred in order to effect operational improvements and related
organizational realignments primarily in the Components and Sensors business
segment involving the relocation of certain manufacturing operations.
CTS completed substantially all of these restructuring actions by the end of 2002.
The restructuring charge of $5.0 million recorded in the third quarter of 2002
relates primarily to organizational realignment in the Components and Sensors
business segment, and reductions in support staff for the design of new custom
variations of certain product lines. Included in this amount is
$4.6 million of severance costs associated with the separation of approximately
300 employees, substantially all of which have been severed as of
March 30, 2003. Approximately 67% of the employees severed were salary and
indirect employees and 33% were hourly production employees.
The following table displays the restructuring activity and restructuring
reserve balances as of March 30, 2003 for actions initiated in 2002:
PART I - FINANCIAL INFORMATION
(Continued)
NOTE DRestructuring and Impairment Charges
(Continued)
The 2002 restructuring plan also includes $12.5 million of asset impairment
charges. Approximately $9.8 million of the impairment charge is the adjustment
needed to recognize impairments resulting from the reduction in the remaining
useful lives of certain manufacturing equipment. Approximately $2.1 million of the
impairment charge relates to the write-off of leasehold improvements at its
engineering and design facility in Taiwan and at its manufacturing facility in
China. Approximately $0.2 million relates to impairment of certain intangible
assets acquired in the 1999 acquisition of the Component Products Division of
Motorola. The remaining $0.4 million impairment charge relates to adjustments to the
estimated fair value of certain assets held for sale. Refer also to Note E,
Assets Held for Sale.
CTS also recognized a pension plan curtailment loss of approximately $0.8
million in the third quarter of 2002, resulting from reduced employment levels as a result of the
restructuring activities.
In 2001, CTS recorded $40.0 million of pre-tax restructuring and impairment
charges, $14.0 million in the second quarter and $26.0 million in the fourth
quarter. Plan actions were designed to permit the Company to operate more
efficiently in the then-existing environment and, at the same time, position
the Company for success when the economy improves. CTS completed these consolidations
and transfers in fiscal 2002.
During the first quarter of 2002, CTS recorded in cost of sales, $0.8
million of restructuring-related, one-time charges, consisting
primarily of equipment relocation and other employee-related costs.
No such charges were incurred in the first quarter of 2003.
Note EAssets Held for Sale
Assets held for sale at March 30, 2003 are comprised of facilities,
primarily the Longtan, Taiwan, building and other machinery and equipment that has been removed
from service and is to be disposed of pursuant to the Companys restructuring
activities (refer also to Note D, Restructuring and Impairment Charges). The
assets are held by the Components and Sensors business segment. These assets
are recorded at amounts not in excess of what management currently expects to
receive upon sale, less cost of disposal; however, the amounts the Company will
ultimately realize are dependent on numerous factors, some of which are beyond
managements ability to control, and could differ materially from the amounts
currently recorded.
During the fourth quarter of 2001, CTS completed an assessment of the carrying
value of its assets in light of then-existing and expected market conditions.
The review highlighted certain assets for which no production demand or use
existed or was forecasted to exist before economic obsolescence of the asset.
Such assets have been removed from service. An impairment loss was recorded to
reduce these assets to their then-estimated fair value. The Company routinely
monitors the estimated value of all assets held for sale and records
adjustments to these values as required. During the third quarter of 2002, CTS
reduced their estimate of the fair value of these assets by an additional $0.4
million.
In the first quarter of 2003, CTS sold the production equipment from
its 3.2x5mm TCXO production line. This equipment was classified as assets held for sale at
December 31, 2002.
7
PART I - FINANCIAL INFORMATION
(Continued)
Note FLong-Term Debt
CTS' amended credit agreement consists of a revolving credit facility commitment
totaling $85 million, expiring in December 2003,
with an outstanding balance of $18.2 million at March 30, 2003.
The credit agreement categorizes all debt existing on December 20, 2001, as
senior to any future debt. The debt is collaterized by substantially all U.S.
assets and a pledge of 65% of the stock of certain non-U.S. subsidiaries.
Interest rates on these borrowings fluctuate based upon LIBOR. CTS pays a fixed commitment
fee of 0.50 percent per annum on the undrawn portion of the revolving credit agreement.
The credit agreement requires, among other things, that CTS
maintain a minimum net worth, a minimum fixed charge coverage ratio and a maximum
leverage ratio. Failure of CTS to comply with these covenants could reduce the borrowing availability under
the credit agreement. Additionally, the credit agreement limits the amount allowed for
dividends, capital expenditures and acquisitions and requires the proceeds of all asset
sales be applied against outstanding borrowings. Furthermore, it requires repayment in an
amount of 90% of excess cash flow, as defined therein. CTS was in compliance with all of its
financial covenants at March 30, 2003.
NOTE GBusiness Segments
FAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires companies to provide certain information about their
operating segments. At the beginning of the fourth quarter of 2002, the Company
renamed the reportable business segments and realigned the product lines
included in each segment to reflect changes in its organizational structure and
the manner that results are evaluated and resources allocated by the chief
operating decision maker. All segment data included in these condensed consolidated financial
statements reflects the reportable business segments adopted in 2002. CTS has
two reportable business segments: 1) Components and Sensors and 2) Electronics
Manufacturing Services (EMS).
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; wireless components used in cellular
handsets; quartz crystals and oscillators used in the communications and
computer markets; low temperature cofired ceramics (LTCC) used in global
positioning systems (GPS) and electronic substrates used in various
communications and automotive applications; pointing sticks/cursor controls for
computers and games for the computer market; terminators, including ClearONE
terminators, used in computer and other high speed applications, switches,
resistor networks and potentiometers used to serve multiple markets.
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. EMS also
includes design of interconnect systems and complex backplanes, global
supply-chain management services and related manufacturing and design services
as may be required by the customer.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Management
evaluates performance based upon operating earnings before interest and income
taxes.
8
PART I - FINANCIAL INFORMATION
(Continued)
NOTE GBusiness Segments
(Continued)
Summarized financial information concerning CTS reportable segments, including
reclassification of prior years, is shown in the following table:
Reconciling information between reportable segments and CTS'
consolidated totals is shown in the following table:
NOTE HContingencies
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 by insurance,
accruals or otherwise, or the ultimate anticipated costs resulting will not
materially affect CTS consolidated financial position or results of
operations.
9
PART I - FINANCIAL INFORMATION
(Continued)
NOTE HContingencies
(Continued)
In one case, a claim made by one business unit of a major customer regarding a
possible performance-related issue with a particular product is pending. In
the opinion of management, CTS is not responsible for the customers
performance-related issue associated with its application of the CTS product
which met or exceeded all of the customers specifications. CTS and the
customer are in discussions to resolve the issue. If CTS is unable to resolve
this claim in a manner that is acceptable to both parties, it is possible that
future revenues could be reduced and that could have a material adverse effect
on CTS results of operations.
In 1999, CTS acquired certain assets and liabilities of the Component Products
Division of Motorola. The acquisition was accounted for under the purchase
method of accounting. As part of the purchase agreement, CTS may be obligated
to pay additional amounts. No amounts are due to Motorola
in 2003 for 2002 under the agreement. CTS does not expect to make a material
payment under this agreement in 2004 for 2003, the final year. The maximum remaining potential
payment under the acquisition agreement was $17.4 million at March 30, 2003.
NOTE IEarnings 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 calculation below provides
net earnings, average common shares outstanding and the resultant earnings per share
for both basic and diluted EPS for the quarter ending March 30, 2003.
The following table shows the potentially dilutive securities
which have been excluded from the diluted earnings per share
calculation for the period ending March 30, 2003 because they are either anti-dilutive
or the exercise price is below the average market price and the diluted loss per share
calculation for the period ending March 31, 2002 because their effect would reduce the loss per share:
10
PART I - FINANCIAL INFORMATION
(Continued)
Critical Accounting Policies
Management's Discussion and Analysis
of Financial Condition and Results of Operations discusses the Company's 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 judgement
and estimates related to the following critical accounting policies could materially
affect its consolidated financial statements.
Estimating
inventory valuation, the allowance for doubtful accounts and other accrued liabilities.
In the first three months of 2003,
there have been no changes in the above critical accounting policies.
Results of Operations
As a percentage of total sales, the first quarter of 2003 sales of components and
sensors and EMS products were 57% and 43%, respectively. As a percentage of total sales,
sales of components sensors and EMS products for the first quarter of 2002 were 58% and 42%, respectively.
Refer to Note G, "Business Segments," for a description of the Company's business segments.
The Components and Sensors business segment experienced a $4.6 million sales decrease,
or 7% from the first quarter of 2002. Sales decreases occurred principally as a result of lower volumes for
certain products announced as end of life in the third quarter of 2002.
The $2.6 million increase in segment operating earnings, from a segment operating loss of
$2.3 million in 2002 to segment operating earnings of $0.3 million in 2003, is primarily due to the
positive impact of reduced operating expenses, including $2.5 million of lower depreciation and
amortization expense. The first quarter of 2002 included a $3.1 million one-time customer reimbursement.
11
PART I - FINANCIAL INFORMATION
(Continued)
Results of Operations
(Continued)
The EMS segment experienced a 2003 sales decrease of $2.2
million, or 5% from the first quarter of 2002. The revenue decrease was experienced primarily
as a result of lower demand for networking and other infrastructure systems equipment.
The $1.0 million decrease in segment operating earnings from $3.3 million in 2002
to $2.3 million in 2003 is the result of lower volume and a shift in sales to lower margin products.
Comparison of First Quarter 2003 and First Quarter 2002
The following table highlights changes in significant components of the condensed
consolidated statements of earnings (loss) for the three-month periods ended March 30, 2003
and March 31, 2002:
Net sales decreased by $6.8 million, or 6% from the first quarter of 2002.
The decline in sales from the year ago period primarily reflects the Company's decision to exit and
end of life on certain component product lines used primarily in cell phone applications ($4.5 million)
and lower demand for networking and other infrastructure systems ($2.2 million).
12
PART I - FINANCIAL INFORMATION
(Continued)
Results of Operations
(Continued)
Gross margin decreased $1.6 million from 2002. However, excluding a $3.1 million one-time customer reimbursement and $0.8 million of
restructuring-related one-time charges from the first quarter of 2002, gross margins actually improved by $0.7 million or 1.8
percentage points in the first quarter of 2003 versus a year ago. The margin improvement results primarily from lower depreciation
expense of $1.5 million and favorable mix and other changes of $0.6 million, partially offset by the impact from lower volume of
approximately $1.4 million.
Selling, general and administrative expenses were $12.8 million, versus $15.3
million in the prior year's quarter. The reduction was primarily due to benefits of recent restructuring actions
and cost reduction programs and lower sales related expenses.
Research and development expenses decreased $1.5 million to $5.6 million from
the first quarter of 2002. While significant ongoing research
and development activities continue in our Components and Sensors business segment to support
expanded applications and new product development, a decrease in spending occurred due to the
end of life decision of certain products in the third quarter of 2002.
Research and development expenditures in the EMS business segment are typically much lower
than in the Components and Sensors business segment.
Operating earnings increased $2.4 million compared to prior year operating earnings. However, excluding a $3.1 million one-time
customer reimbursement and $0.8 million of restructuring related one-time charges from first quarter 2002 as described above, operating
earnings actually improved by $4.7 million in the first quarter of 2003 versus a year ago. The operating earnings improvement results
primarily from lower depreciation expense of $2.1 million and lower operating expenses and other cost items of $2.6 million primarily
from restructuring-related cost reductions.
During 2002 and 2001, CTS announced restructuring plans designed to effect operational
improvements and related organizational realignments and to size the Company to then-existing market
realities, while continuing to put a priority on positioning the Company to be successful as the economy
recovers and market growth returns. See Note D, "Restructuring and Impairment Charges," for a more
detailed explanation of the plan actions. The expected 2003 pre-tax profitability improvement associated with
the 2002 restructuring and asset impairment charges is estimated to be $17.0 million.
Interest expense decreased $0.7 million to $2.0 million from the first quarter
of 2002 primarily due to lower average outstanding debt balances.
During the first quarter of 2003, CTS completed the sale of its 3.2x5mm TCXO production line.
The 3.2x5mm TCXO products are used primarily in mobile handset applications and sales of these
3.2x5mm TCXO products were insignificant in prior years.
13
PART I - FINANCIAL INFORMATION
(Continued)
Liquidity and Capital Resources
During the first quarter of 2003, CTS reduced the revolving credit facility by $10.2 million, primarily through cash provided by
operations of $8.2 million and proceeds from sales of assets of $3.9 million, partially offset by capital spending of $2.2 million.
As a result of our revolving credit facility expiring at the end of this year, the entire
revolving credit facility was classified as a current liability as of December 31, 2002 as opposed to long-term debt. Overall, working capital increased $7.1 million from year-end, principally due to the partial paydown of
the revolving credit facility. Working capital, excluding the revolving credit facility change, actually improved $3.0 million
primarily from lower accounts receivable balances.
Cash flows provided by operations were $8.2 million in the first quarter 2003. Components of cash flows from operations include
positive earnings of $0.6 million, depreciation and amortization of $8.8 million and favorable changes in current assets and current
liabilities of $1.9 million, partially reduced by a $3.1 million increase in the prepaid pension asset.
In the first quarter of 2002, net cash provided by operations was $0.7 million. Positive cash flow from depreciation and amortization
was partially offset by net working capital reductions and the net loss for the first quarter of 2002.
Cash flows provided by investing activities totaled $1.7 million through the
first quarter of 2003, including $3.9 million of proceeds from the sale of assets, partially offset by
$2.2 million of capital expenditures. In the first quarter of 2002, cash flows used for investing
activities totaled $4.5 million, consisting principally of $4.7 million of capital expenditures.
Cash flows used by financing activities were $10.9 million in 2003, consisting
primarily of repayment of debt of $10.2 million and dividend payments of $1.0 million, partially
offset by proceeds from issuance of stock of $0.3 million. Cash flows used by financing activities were $1.6 million in 2002, consisting
primarily of proceeds from the issuance of stock of $31.6 million offset by the net repayment of debt of
$32.4 million and dividend payments of $0.9 million.
CTS' capital expenditures for 2003 are presently expected to total less than $20
million, $2.2 million of which has been spent during the first three months of the year.
These capital expenditures are primarily for new products and cost savings initiatives.
During 2003, CTS' credit agreement expires. As of December 31, 2002, the
outstanding balance required to be paid by year-end 2003 was $28.4 million, $10.2 million of which
had been paid as of March 30, 2003. CTS will likely refinance some portion of the credit
agreement with a new agreement. CTS is also obligated to make $5.9 million of
lease payments in 2003. CTS has historically been able to fund its capital and operating needs through
its cash flows from operations and available credit under its bank credit facilities.
This credit agreement contains financial covenants as described in Note F,
"Long-Term Debt." Although CTS management currently expects to be in compliance with all
financial covenants, there can be no assurance of this since certain factors, such as forecasted
future operating results, are dependent upon future events, some of which are beyond CTS' ability
to control. If CTS is unable to comply with the financial covenants, it will seek to obtain
amendments or waivers from the lenders and/or identify other sources of liquidity such as raising
additional capital and/or the sale of certain assets, including assets held for sale.
CTS believes cash flows from operations and available borrowings under its
revolving credit facility will be adequate to fund its working capital, capital expenditures and
debt service requirements. However, if customer demand decreases significantly from forecasted
levels or customer pricing pressures reduce revenues or profit margins significantly, CTS may
need to find an alternative funding source. In this event, CTS may choose to pursue additional
equity and/or debt financing. CTS may not be able to obtain additional financing, which would be
affected by general economic and market conditions, on terms acceptable to CTS or at all.
14
PART I - FINANCIAL INFORMATION
(Continued)
Liquidity and Capital Resources
(Continued)
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 quarter of 2003, CTS did not issue any common stock under this
registration statement. As of March 30, 2003, CTS could offer
up to $445.8 million of additional debt and/or equity securities under this registration statement.
On November 13, 2001, CTS' Form S-3 registration statement registering two million shares
of CTS common stock to be issued under CTS' Direct Stock Purchase Plan was declared effective by the
Securities and Exchange Commission. During the first quarter of 2003, CTS issued $0.3 million of
common stock under this registration statement. CTS used the net proceeds of these equity issuances
to repay the revolving loan under its credit agreement. As of March 30, 2003,
CTS could issue up to approximately 544,000 additional shares of common stock under this registration statement.
Statements about the Company's earnings outlook and its plans, estimates and
beliefs concerning the future are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations. Actual results may differ materially from
those reflected in the forward-looking statements due to a variety of factors
which could affect the Company's operating results, liquidity and financial
condition. We undertake no obligations to publicly update or revise any
forward-looking statements. Factors that could impact future results include
among others: the general market conditions in the automotive, computer
and communications markets, and in the overall worldwide economies; reliance on key
customers; the Company's capabilities to implement measures to improve its financial
condition and flexibility; the Company's successful execution of its ongoing
cost-reduction plans; pricing pressures and demand for the Company's products,
especially if economic conditions worsen or do not recover in the key markets
for the Company's products; changes in the liability insurance markets which might
impact the Company's capability to obtain appropriate levels of insurance coverage;
the effect of major health concerns, such as Severe Acute Respiratory Syndrome (SARS)
on our employees, customers and suppliers; and risks associated with our international
operations, including trade and tariff barriers, exchange rates and political and geopolitical
risks. Investors are encouraged to examine the Company's 2002 Form 10-K, which
more fully describe the risks and uncertainties associated with the Company's
business.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in CTS' market risk since December 31, 2002.
Item 4.
Controls and Procedures
CTS maintains a set of disclosure
controls and procedures designed to ensure information required to be disclosed by
CTS in reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Within the 90-day period prior to the
filing of this report, an evaluation was carried out under the supervision and with the
participation of CTS management, including the chief executive officer and chief
financial officer, of the effectiveness of CTS disclosure controls and procedures.
Based on that evaluation, the chief executive and financial officers have concluded that
CTS disclosure controls and procedures are effective. Subsequent to the date of their
evaluation, there have been no significant changes in CTS internal controls or in
other factors that could significantly affect these controls. The company's management,
including the CEO and CFO, does not expect our disclosure controls and procedures or our
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs.
15
Item 1. Financial Statements
(Continued)
March 30, 2003
Three Months Ended
March 30, 2003
March 31, 2002
($ in thousands,
except per share amounts)
$
571
$
(1,901
)
--
--
(616
)
(717
)
$
(45
)
$
(2,618
)
$
0.02
$
(0.06
)
--
(0.08
)
0.02
(0.06
)
$
--
$
(0.08
)
Item 1. Financial Statements
(Continued)
March 30, 2003
December 31, 2002
($ in thousands)
$
13,603
$
13,859
7,870
8,346
14,641
14,057
$
36,114
$
36,262
Workforce
Other
Reductions
Exit Costs
Total
($ in millions)
$
4.6
$
0.4
$
5.0
(3.4
)
(3.4
)
1.2
0.4
1.6
(0.2
)
(0.3
)
(0.5
)
$
1.0
$
0.1
$
1.1
6
Item 1. Financial Statements
(Continued)
Item 1. Financial Statements
(Continued)
Item 1. Financial Statements
(Continued)
Components
and Sensors
EMS
Total
($ in thousands)
$
60,325
$
45,444
$
105,769
$
323
$
2,271
$
2,594
$
405,649
$
69,958
$
475,607
$
64,944
$
47,649
$
112,593
$
(2,308
)
$
3,318
$
1,010
$
480,982
$
69,824
$
550,806
First Quarter
2003
First Quarter
2002
($ in thousands)
$
2,594
$
1,010
--
(750
)
--
(32
)
(1,972
)
(2,670
)
139
(92
)
$
761
$
(2,534
)
Item 1. Financial Statements
(Continued)
Net
Shares
($ in thousands,
Earnings
(In thousands)
Per Share
except per share amounts)
(Numerator)
(Denominator)
Amount
$
571
34,020
$
0.02
238
$
571
34,258
$
0.02
(1)
Includes
151 shares of CTS common stock to be issued to the former DCA shareholders who have not
yet tendered their stock certificates for exchange at March 30, 2003.
Three Months Ended
(Number of shares in thousands)
March 30, 2003
March 31, 2002
226
1,575
814
93
1,247
(1)
Includes 155 shares of CTS common stock to be issued to the former DCA
shareholders who have not yet tendered their stock certificates for
exchange at March 31, 2002.
Valuation of long-lived and intangible
assets and depreciation / amortization periods.
Income
taxes
Retirement plans
Business Segment Discussion
Electronics
Components
Manufacturing
& Sensors
Services
($ in thousands)
$
60,325
$
45,444
323
2,271
0.5
%
5.0
%
$
64,944
$
47,649
(2,308
)
3,318
(3.6
)%
7.0
%
(1)
Excludes restructuring and related one-time charges
of $0.8 million pre-tax. Refer also to Note G "Business Segments."
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
March 30, 2003
March 31, 2002
Increase
(Decrease)
($ in thousands)
$
105,769
$
112,593
$
(6,824
)
21,083
22,678
(1,595
)
19.9
%
20.1
%
(0.2
)%
12,848
15,317
(2,469
)
12.1
%
13.6
%
(1.5
)%
5,641
7,133
(1,492
)
2,594
228
2,366
2.5
%
0.2
%
2.3
%
1,972
2,670
(698
)
761
(2,534
)
3,295
190
(633
)
823
25.0
%
25.0
%
--
%
$
571
$
(1,901
)
$
2,472
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
*****
PART II - OTHER INFORMATION
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 by insurance, accruals or
otherwise, or the ultimate anticipated costs resulting will not materially affect
CTS consolidated financial position or results of operations.
In one case, a claim made by one
business unit of a major customer regarding a possible performance-related issue with a
particular product is pending. In the opinion of management, CTS is not responsible for
the customers performance-related issue associated with its application of the CTS
product which met or exceeded all of the customers specifications. CTS and the
customer are in discussions to resolve the issue. If CTS is unable to resolve this claim
in a manner that is acceptable to both parties, it is possible that future revenues could
be reduced and that could have a material adverse effect on CTS results of
operations.
a. Exhibits
b. Reports on Form 8-K
16
(99)(a)
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
None.
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
Vice President, Secretary and General Counsel |
Vinod M. Khilnani
Senior Vice President and Chief Financial Officer |
|||
Dated: April 23, 2003 |
17
I, Donald K. Schwanz, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of CTS Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: April 23, 2003 | /s/ Donald K. Schwanz | ||
|
|||
Donald K. Schwanz, Director
President and Chief Executive Officer |
18
I, Vinod M. Khilnani, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of CTS Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: April 23, 2003 | /s/ Vinod M. Khilnani | ||
|
|||
|
Vinod M. Khilnani
Senior Vice President and Chief Financial Officer |
19
EXHIBIT (10)(a)
THE CTS CORPORATION
STOCK RETIREMENT PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose . CTS Corporation (the Company) hereby establishes this Stock Retirement Plan (the Plan) to promote the interest of the Company and its shareholders by causing a portion of the total compensation payable to its non-employee directors to be deferred and paid in the form of Company stock, thereby increasing the directors beneficial ownership of Company stock and their proprietary interest in the Company. The Effective Date of the Plan is April 30, 1990.
2. Common Stock Units . In addition to the cash compensation otherwise payable to its non-employee directors, the Company as of the Effective Date shall establish, and thereafter maintain, a Deferred Stock Account in the name of each non-employee director. Subject to the provisions of Section 9, as of the first day of each calendar year beginning after the Effective Date, the Company shall credit 100 Common Stock Units, and as of the first day of 1998 and 1999, the Company shall credit 300 Common Stock Units, and as of the first day of 2000, 2001, 2002 and 2003, the Company shall credit 800 Common Stock Units, to the Deferred Stock Account of each person who was a non-employee director of the Company on the last day of the immediately preceding calendar year or who ceased to be a director during such preceding calendar year by reason of his retirement, disability or death and, in addition, on May 1, 1990 shall also credit to the Deferred Stock Account of each such director 50 Common Stock Units for each complete calendar year of his service to the Company as a non-employee director prior to January 1, 1990.
On October 17, 1997, the Company shall credit 1,000 Common Stock Units to the Deferred Stock Account of each person who is a non-employee director of the Company on that date.
Commencing in 2004 and each year thereafter, on the second Tuesday in January, the Company shall credit 800 Common Stock Units to the Deferred Stock Account of each person who is a non-employee director of the Company on the last day of the immediately preceding calendar year or who ceased to be a director during the immediately preceding calendar year by reason of his retirement, disability or death, provided however that if CTS common stock is not traded on the New York Stock Exchange on the second Tuesday in January, Common Stock Units shall be credited on the next preceding day on which CTS common stock is traded on the New York Stock Exchange (the Credit Date). If the value of 800 Common Stock Units exceeds $30,000 by more than 10%, (calculated by multiplying the number of units times the closing price of CTS common stock on the New York Stock Exchange on the Credit Date), the number of units granted on the Credit Date will be reduced as necessary to bring the value to an amount approximately equal to $30,000, without using fractional units.
3. Dividend Equivalents . As of each dividend payment date declared with respect to the Companys common stock, the Company shall determine the number of Common Stock Units representing dividend equivalents to be credited to each directors Deferred Stock Account for that dividend payment. The number of Common Stock Units to be credited for each dividend payment shall be equal to:
(a) | the product of (i) the dividend per share of the Companys common stock which is payable as of the dividend payment date, multiplied by (ii) the sum of the number of Common Stock Units credited to the directors Deferred Stock Account as of the applicable dividend record date plus the number of dividend equivalents calculated for dividend payments during the same calendar year; |
DIVIDED BY
(b) | the closing price of a share of the Companys common stock on the dividend payment date (or, if such stock was not traded on that date, on the next preceding date on which it was traded), as reported by the New York Stock Exchange; |
As of each Credit Date, the sum of the Common Stock Units representing dividend equivalents for dividend payments during the preceding calendar year will be credited to each directors Deferred Stock Account. In lieu of crediting fractional Common Stock |
1
Units, the value thereof shall be carried forward, without interest, and treated as an additional dividend in the calculation of dividend equivalents to be made with respect to the next following dividend payment date. |
4. Transfer of Shares of Common Stock . Each director, or in the event of his death his beneficiary, shall be entitled to receive one share of the Companys common stock for each Common Stock Unit credited to his Deferred Stock Account and all such shares shall be transferred to the director or beneficiary as of the second Tuesday in January next following the date on which the director ceases to be a director for any reason. As of the date on which the transfer of shares of common stock is made to any director or his beneficiary under this Section 4, the Company shall pay the director or beneficiary the net amount of any dividend equivalents carried over to that year in accordance with Section 3.
5. Beneficiary . Each director may, from time to time, by writing filed with the Secretary of the Company, designate any legal or natural person or persons (who may be designated contingently or successively) to whom shares of the Companys common stock attributable to his Common Stock Units are to be transferred if the director dies prior to his receipt of all such shares. A beneficiary designation will be effective only if a signed form is filed with the Secretary of the Company while the director is alive and will cancel all beneficiary designation forms filed earlier. If a director fails to designate a beneficiary as provided above, or if all designated beneficiaries die before the director or before transfer of all shares of common stock attributable to the directors Common Stock Units, all remaining shares attributable to such Common Stock Units shall be transferred, in accordance with Section 4, to the estate of the last to die of the director and his designated beneficiaries as soon as practicable after such death.
6. Acceleration . The Secretary of the Company may accelerate the transfer of shares of common stock with respect to Common Stock Units credited to the Deferred Stock Account of any director or directors for reasons of individual hardship, estate administration, changes in tax laws or accounting principles or any other reason which negates or diminishes the continued value of the Deferred Stock Account to the Company or its directors.
7. Nontransferability . The interest of any director or beneficiary under the Plan is not subject to the claims of his creditors and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered.
8. Shareholder Status . As of the date of transfer, a director or beneficiary shall have all rights of a shareholder with respect to shares of common stock transferred in accordance with Section 4. Prior to such date, the Companys obligation under this Plan is an unsecured promise to deliver shares of the Companys common stock. The Company shall not hold any such shares in trust or as a segregated fund.
9. Changes in Stock . In the event of any change in the outstanding shares of the Companys common stock by reason of any stock dividend, split up, recapitalization, merger, consolidation, exchange of shares or other similar corporate change, the number of Common Stock Units to be credited in accordance with Section 2 and the shares of common stock to be transferred in accordance with Section 4 shall be adjusted proportionately; provided, however, that if a proportional adjustment cannot be made or, if the Board of Directors of the Company determines that further adjustment is appropriate to fairly accomplish the purposes of the Plan, the Board of Directors shall make such equitable adjustment under the Plan as it determines will fairly preserve the benefits of the Plan to the participants and the Company.
10. No Right to Continue as a Director . Nothing in the Plan shall be construed to constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company to continue to nominate or retain as a director any participant for any specific period of time.
11. Successors . This Plan shall be binding upon any assignee or successor in interest to the Company whether by merger, consolidation or sale of all or substantially all of the Companys assets.
12. Amendment and Termination . The Board of Directors may, from time to time, amend or terminate the Plan; provided, however, that no such amendment or termination shall adversely affect the rights of any director or beneficiary without his consent with respect to Common Stock Units credited prior to such amendment or termination.
2
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the quarterly report of CTS Corporation (the Company) on Form 10-Q for the quarter ended March 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April ___, 2003 | /s/ Donald K. Schwanz |
Donald K. Schwanz | |
Chairman of the Board & | |
Chief Executive Officer | |
/s/ Vinod M. Khilnani | |
Vinod M. Khilnani | |
Sr. Vice President & | |
Chief Financial Officer |