x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 2006
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common stock, without par value
|
New York Stock Exchange |
(1) | Portions of the 2006 Annual Report to shareholders are incorporated herein by reference in Parts I and II. |
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4
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EMS
Components & Sensors
Total
(As a % of consolidated net sales)
2006
2005
2004
2006
2005
2004
2006
2005
2004
%
%
%
25
%
23
%
25
%
25
%
23
%
25
%
16
%
14
%
15
%
6
%
7
%
12
%
22
%
21
%
27
%
24
%
29
%
35
%
2
%
2
%
3
%
26
%
31
%
38
%
6
%
5
%
%
1
%
1
%
1
%
7
%
6
%
1
%
7
%
8
%
%
%
%
%
7
%
8
%
%
5
%
2
%
%
%
%
%
5
%
2
%
%
1
%
1
%
1
%
7
%
8
%
8
%
8
%
9
%
9
%
59
%
59
%
51
%
41
%
41
%
49
%
100
%
100
%
100
%
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EMS:
Power supplies and converters, prefabricated steel, printed
circuit boards, passive electronics components and
semiconductors, integrated circuits, connectors, cables, and
modules.
Components and Sensors:
Conductive inks and contactors which contain precious metals
(primarily silver and palladium), passive electronic components,
integrated circuits and semiconductors, rare earths (for ceramic
compositions), ceramic components, plastic components, molding
compounds, printed circuit boards and assemblies, quartz blanks
and crystals, wire harness assemblies, copper, brass, and
steel-based raw materials and components.
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($ in millions)
January 28, 2007
January 29, 2006
$
46.0
$
21.4
63.5
61.3
$
109.5
$
82.7
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10
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Item 2.
Properties
Manufacturing Facilities
Square Footage
Owned/Leased
Segment
91,000
Leased
Components and Sensors
40,000
Owned
(1)
EMS
9,200
Owned
Components and Sensors
2,900
Leased
Components and Sensors
39,560
Leased
Components and Sensors
319,000
Owned
Components and Sensors
75,000
Owned
Components and Sensors and EMS
37,000
Leased
Components and Sensors and EMS
133,000
Owned
(2)
Components and Sensors
83,000
Leased
EMS
51,000
Owned
Components and Sensors
115,000
Leased
EMS
60,000
Leased
Components and Sensors
44,700
Leased
EMS
159,000
Owned
(3)
Components and Sensors and EMS
112,000
Owned
Components and Sensors
210,000
Owned
(4)
Components and Sensors and EMS
72,428
Leased
Components and Sensors
1,653,788
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Non-
Manufacturing
Facilities
Square Footage
Owned/Leased
Description
Segment
249,000
Owned
Idle facility
Components and Sensors
110,000
Leased
Administrative offices and Research
Components and Sensors
85,000
Owned
Idle facility/partially sublet
Components and Sensors
800
Leased
Sales office
Components and Sensors
2,200
Leased
Administrative/sales office
Components and Sensors
93,000
Owned
Administrative offices and Research
Components and Sensors and EMS
69,400
Leased
Idle facility
EMS
45,000
Leased
Sublet to tenant
EMS
94,000
Owned
Idle facility
Components and Sensors
1,708
Leased
Sales office
Components and Sensors
1,700
Leased
Sales office
Components and Sensors
1,420
Leased
Sales office
Components and Sensors
785
Leased
Sales office
Components and Sensors
102,500
Owned
Idle facility
Components and Sensors
1,400
Leased
Sales office
Components and Sensors
857,913
Item 3.
Legal Proceedings
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(1) | 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. |
(2) | In December 2006, 6,377 shares were surrendered in connection with the exercise of an employee stock option. |
Item 6. | Selected Financial Data |
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 8. | Financial Statements and Supplementary Data |
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Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
| 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 approvals. |
| Lack of effectiveness of the internal audit function to obtain an understanding of processes and controls at the Moorpark and Santa Clara locations. |
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Item 10. | Directors, Executive Officers and Corporate Governance |
Walter S. Catlow | Director since 1999 |
Lawrence J. Ciancia | Director since 1990 |
Thomas G. Cody | Director since 1998 |
Gerald H. Frieling, Jr. | Director since 1982 |
Roger R. Hemminghaus | Director since 2000 |
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Michael A. Henning
Director since 2000
Robert A. Profusek
Director since 1998
Donald K. Schwanz
Director since 2001
Patricia K. Vincent
Director since 2003
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Name
Age
Positions and Offices
63
Chairman, President and Chief
Executive Officer
59
Executive Vice President and
President of CTS Electronics Manufacturing Solutions
54
Senior Vice President and Chief
Financial Officer
55
Senior Vice President
52
Senior Vice President Administration
60
Vice President, General Counsel and
Secretary
44
Vice President, Strategy and
Corporate Development
52
Vice President and Controller
45
Treasurer
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Item 11. | Executive Compensation |
Fees Earned or | ||||||||||||||||
Paid in Cash | Stock Awards (1) | Option Awards (2) | ||||||||||||||
($) | ($) | ($) | Total $ | |||||||||||||
Name (a) | (b) | (c) | (d) | (h) | ||||||||||||
Walter S. Catlow
|
82,500 | 32,499 | 5,866 | 120,865 | ||||||||||||
Lawrence J. Ciancia
|
71,500 | 32,499 | 5,866 | 109,865 | ||||||||||||
Thomas G. Cody
|
85,500 | 32,499 | 5,866 | 123,865 | ||||||||||||
Gerald H. Frieling, Jr.
|
73,000 | 32,499 | 5,866 | 111,365 | ||||||||||||
Roger R. Hemminghaus
|
81,000 | 32,499 | 5,866 | 119,365 | ||||||||||||
Michael A. Henning
|
91,000 | 32,499 | 5,866 | 129,365 | ||||||||||||
Robert A. Profusek
|
59,000 | 32,499 | 5,866 | 97,365 | ||||||||||||
Patricia K. Vincent
|
62,000 | 32,499 | 3,684 | 98,183 |
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(1)
Amounts in this column reflect the dollar amount of
compensation expense recognized by CTS in 2006 with respect to
all stock awards to non-employee directors. On December 7,
2005, 2,500 restricted stock units were awarded to each
non-employee director for 2006 service. The grant date fair
value of each award was $30,100. On December 6, 2006, 2,100
restricted stock units were awarded to each non-employee
director for 2007 service. The grant date fair value of each
award was $32,172. Those awards vested on January 9, 2007
and were distributed upon vesting absent a deferral election by
the director. Messrs. Catlow, Ciancia and Henning and
Ms. Vincent elected to defer distribution until their
retirement from the Board of Directors. The non-employee
directors had no other non-vested stock awards outstanding at
fiscal year-end.
(2)
Amounts in this column reflect the dollar amount of
compensation expense recognized by CTS in 2006 with respect to
all option awards to non-employee directors. Non-employee
directors did not receive option awards in fiscal year 2006. The
number of shares underlying options at fiscal year-end for each
non-employee director, other than Ms. Vincent, was 10,800
exercisable and 3,200 unexercisable. The number of shares
underlying unexercised options at fiscal year-end for
Ms. Vincent was 1,600 exercisable and 1,500
unexercisable.
Encourage executives to achieve the strong financial and
operational performance of CTS, both long and short-term;
Provide a competitive level of total compensation necessary to
attract and retain talented and experienced executives; and
Align compensation with the interests of shareholders.
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Thomas G. Cody, Chairman
Robert A. Profusek
Roger R. Hemminghaus
Patricia K. Vincent
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Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Non-Equity | Value and | |||||||||||||||||||||||||||||||||||
Incentive | Non-Qualified | |||||||||||||||||||||||||||||||||||
Stock | Option | Plan | Deferred | All Other | ||||||||||||||||||||||||||||||||
Name and | Salary | Bonus (2) | Award(s) | Awards | Compensation | Compensation | Compensation | Total | ||||||||||||||||||||||||||||
Principal | Year | ($) | ($) | ($) (3) | ($) (4) | ($) (5) | Earnings (6) | ($) (7) | ($) | |||||||||||||||||||||||||||
Position (1) (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
Donald K. Schwanz Chairman,
President and Chief Executive Officer
|
2006 | 766,022 | 62,346 | 484,770 | 404,454 | 735,381 | 893,438 | 48,782 | 3,395,193 | |||||||||||||||||||||||||||
Vinod M. Khilnani, Senior Vice
President and Chief Financial Officer
|
2006 | 357,808 | 54,550 | 280,254 | 106,600 | 228,997 | 120,393 | 23,842 | 1,172,444 | |||||||||||||||||||||||||||
Donald R. Schroeder, Executive Vice
President and President of CTS Electronics Manufacturing
Solutions
|
2006 | 316,715 | 31,830 | 169,994 | 127,048 | 60,809 | 375,497 | 117,448 | 1,199,341 | |||||||||||||||||||||||||||
H. Tyler Buchanan, Senior Vice
President
|
2006 | 252,021 | 38,998 | 170,970 | 52,400 | 97,532 | 278,990 | 31,526 | 922,437 | |||||||||||||||||||||||||||
Richard G. Cutter, Vice President,
Secretary and General Council
|
2006 | 238,942 | 23,187 | 132,039 | 79,801 | 137,631 | 107,900 | 33,522 | 753,022 |
(1) | The persons named in this table are referred to as the Named Executive Officers. |
(2) | Amounts represent cash payments in connection with lapse of transfer restrictions on restricted shares issued under the 1988 Restricted Stock and Cash Bonus Plan. |
(3) | Assumptions made in the valuation of restricted stock units are set forth in Note J to CTS Consolidated Financial Statements. |
(4) | Assumptions made in the valuation of stock options are set forth in Note J to CTS Consolidated Financial Statements. |
(5) | Amounts earned under the 2006 Management Incentive Plan. |
(6) | Change in pension value is based on the difference between the estimated present value of each Named Executive Officers accrued benefit as of December 31, 2006 and the estimated present value of his accrued benefit as of December 31, 2005, with respect to Mr. Schwanz, under the CTS Corporation Pension Plan and his Individual Excess Benefit Retirement Plan, and with respect to each other Named Executive Officer, under the CTS Corporation Pension Plan and the CTS Corporation 2003 Excess Benefit Retirement Plan. Calculations are made based on the assumptions described under the caption Pension Benefits. These amounts do not include any above-market or preferential earnings on non-qualified deferred compensation. |
(7) | Amounts in this column for 2006 reflect the following perquisites and personal benefits: |
(i) | for Mr. Schwanz, a cash perquisite allowance, financial planning services, executive physical services, tax preparation services. | |
(ii) | for Mr. Khilnani, a cash perquisite allowance. | |
(iii) | for Mr. Schroeder, an $80,400 temporary living allowance, a cash perquisite allowance, financial planning services, tax preparation services and an executive physical. | |
(v) | for Mr. Buchanan, a cash perquisite allowance, financial planning services and tax preparation services. | |
(vi) | for Mr. Cutter, a cash perquisite allowance, tax preparation services and an executive physical. |
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All Other
All Other
Option
Estimated Possible Payouts
Stock Awards:
Awards:
Exercise or
Grant Date
Under Non-Equity Incentive
Number of
Number of
Base Price
Fair Value
Plan Awards
Shares of
Securities
of Option
of Stock
Threshold
Target
Maximum
Stock or Units
Underlying
Awards
and
Grant Date
($)
($)
($)
(#)
Options (#)
($/Sh)
Option
Name (a)
(b)
(c)
(d)
(e)
(i)
(j)
(k)
Awards
0
574,516
1,149,033
09/13/2006
(1)
35,000
505,400
06/07/2006
32,000
$
13.68
192,915
0
178,904
357,808
06/07/2006
15,500
212,040
06/07/2006
11,000
$
13.68
66,315
0
158,358
316,715
06/07/2006
14,000
191,520
06/07/2006
9,000
$
13.68
54,257
0
126,011
252,021
06/07/2006
12,000
164,160
06/07/2006
7,000
$
13.68
42,200
0
107,524
215,048
06/07/2006
11,500
157,320
06/07/2006
6,500
$
13.68
39,186
(1) | In June 2006, the Compensation Committee deferred consideration of a restricted stock unit grant recommendation for Mr. Schwanz until review of his employment agreement was completed. Following discussion of Mr. Schwanzs employment agreement and anticipated retirement, the Committee recommended a restricted stock unit award with a one-year vesting period for Mr. Schwanz which was approved by the Board of Directors in September 2006. |
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Stock Awards
Option Awards
Market Value of
Number of Shares
Shares or Units
Option
or Units of Stock
of Stock Held
Number of Securities
Number of Securities
Exercise
Option
Held That Have Not
That Have Not
Underlying Unexercised
Underlying Unexercised
Price
Expiration
Vested
Vested
Options Exercisable
Options Unexercisable
($)
Date
(#)
($)
Name (a)
(b)
(c)
(e)
(f)
(g)
(h)
0
32,000
(1)
13.68
6/06/2016
101,200
(5)
1,588,840
12,500
37,500
(2)
11.11
6/07/2015
18,500
18,500
(3)
11.04
6/08/2014
54,000
18,000
(4)
9.78
6/11/2013
47,013
0
7.70
7/30/2012
100,000
0
14.02
9/30/2011
35,000
0
23.00
4/17/2011
50,000
0
44.875
1/16/2011
0
11,000
(1)
13.68
6/06/2016
71,700
(6)
1,125,690
5,500
16,500
(2)
11.11
6/07/2015
8,750
8,750
(3)
11.04
6/08/2014
15,000
5,000
(4)
9.78
6/11/2013
15,000
0
7.70
7/30/2012
20,000
0
25.10
5/6/2011
0
9,000
(1)
13.68
6/06/2016
40,683
(7)
638,723
5,000
15,000
(2)
11.11
6/07/2015
5,250
5,250
(3)
11.04
6/08/2014
13,500
4,500
(4)
9.78
6/11/2013
15,000
0
7.70
7/30/2012
12,000
0
23.00
4/17/2011
4,000
0
50.00
6/22/2010
0
7,000
(1)
13.68
6/06/2016
35,000
(8)
549,500
2,000
6,000
(2)
11.11
6/07/2015
4,000
4,000
(3)
11.04
6/08/2014
13,500
4,500
(4)
9.78
6/11/2013
12,000
0
7.70
7/30/2012
8,000
0
23.00
4/17/2011
3,000
0
50.00
6/22/2010
5,000
0
46.00
10/19/2009
6,000
0
33.625
06/23/2009
0
6,500
(1)
13.68
6/06/2016
32,000
(9)
502,400
2,425
7,275
(2)
11.11
6/07/2015
3,600
3,600
(3)
11.04
6/08/2014
11,100
3,400
(4)
9.78
6/11/2013
8,000
0
7.70
07/30/2012
8,000
0
23.00
04/17/2011
3,000
0
50.00
6/22/2010
(3) | Award granted on June 9, 2004 vests in 25% installments each year commencing on June 9, 2005. |
(4) | Award granted on June 12, 2003, final installment vests on June 12, 2007. |
(5) | 1,600 restricted shares will vest on July 31, 2007; 2,000 restricted shares will vest on June 12, 2007 and 2008; 8,200 restricted stock units will vest on June 9, 2007, 2008 and 2009; 9,000 restricted stock units will vest on June 8, 2007, and 27,000 restricted stock units will vest on December 30, 2007; 35,000 restricted stock units will vest on September 13, 2007. |
(6) | 1200 restricted shares will vest on July 31, 2007; 600 restricted shares will vest on January 31, 2007 and 2008; 1400 restricted shares will vest on June 12, 2007 and 2008, 3600 restricted stock units will vest on June 9, 2007, 2008 and 2009; 3800 restricted stock units will vest on June 8, 2007, 2008, 2009 and 2010; 3100 restricted stock units will vest on June 7, 2007, 2008, 2009, 2010 and 2011; 25,000 restricted stock units will vest on October 4, 2009. |
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(7)
1083 restricted shares will vest on July 31, 2007; 1200
restricted shares will vest on June 12, 2007 and 2008; 3200
restricted stock units will vest on June 9, 2007, 2008 and
2009; 3400 restricted stock units will vest on June 8,
2007, 2008, 2009 and 2010; 2800 restricted stock units will vest
on June 7, 2007, 2008, 2009, 2010 and 2011.
(8)
883 restricted shares will vest on July 31, 2007; 1000
restricted shares will vest on June 12, 2007 and 2008; 2600
restricted stock units will vest on June 9, 2007, 2008 and
2009; 2600 restricted stock units will vest on June 8,
2007, 2008, 2009 and 2010. 2300 restricted stock units will vest
on June 7, 2007, 2008, 2009, 2010 and 2011.
(9)
500 restricted shares will vest on July 31, 2007; 200
shares vested on January 31, 2007 and 200 will vest on
January 31, 2008; 1,000 restricted shares will vest on
June 12, 2007 and 2008; 2,400 restricted stock units will
vest on June 9, 2007, 2008 and 2009; 2,600 restricted stock
units will vest on June 8, 2007, 2008, 2009 and 2010; and
2,300 restricted stock units will vest on June 7, 2007,
2008, 2009, 2010, 2011.
Option Awards
Stock Awards
Number of
Number of
Shares Acquired
Value Realized
Shares Acquired
Value Realized
on Exercise
Upon Exercise
on Vesting
on Vesting
Name of Executive
(#)
($)
(#)
($)
Officer (a)
(b)
(c)
(d)
(e)
12,987
103,636
21,800
$
299,346
(1)
11,400
$
156,518
(2)
8,883
$
122,774
(3)
8,400
$
116,166
(4)
6,700
$
92,083
(5)
(1) | Includes $62,346 in market value of shares vesting under the 1988 Restricted Stock and Cash Bonus Plan. An equal amount was paid as a cash bonus upon vesting. |
(2) | Includes $54,550 in market value of shares vesting under the 1988 Restricted Stock and Cash Bonus Plan. An equal amount was paid as a cash bonus upon vesting. |
(3) | Includes $31,830 in market value of shares vesting under the 1988 Restricted Stock and Cash Bonus Plan. An equal amount was paid as a cash bonus upon vesting. |
(4) | Includes $38,998 in market value of shares vesting under the 1988 Restricted Stock and Cash Bonus Plan. An equal amount was paid as a cash bonus upon vesting. |
(5) | Includes $23,187 in market value of shares vesting under the 1988 Restricted Stock and Cash Bonus Plan. An equal amount was paid as a cash bonus upon vesting. |
Number of | Present | |||||||||||||
Years | Value of | Payments | ||||||||||||
Credited | Accumulated | During Last | ||||||||||||
Service | Benefit | Fiscal Year | ||||||||||||
(#) | ($) | ($) | ||||||||||||
Name (a) | Plan Name (b) | (c) | (d) | (e) | ||||||||||
Donald K. Schwanz
|
CTS Corporation Pension Plan | 6.56 | 475,057 | 0 | ||||||||||
CTS Corporation Individual Excess Benefit Retirement Plan | 11.34 | (1) | 1,932,357 | 0 | ||||||||||
Vinod M. Khilnani
|
CTS Corporation Pension Plan | 5.78 | 106,592 | 0 | ||||||||||
CTS Corporation 2003 Excess Benefit Retirement Plan | 5.78 | 185,894 | 0 | |||||||||||
Donald R. Schroeder
|
CTS Corporation Pension Plan | 34.44 | 1,291,212 | 0 | ||||||||||
CTS Corporation 2003 Excess Benefit Retirement Plan | 34.44 | 898,192 | 0 | |||||||||||
H. Tyler Buchanan
|
CTS Corporation Pension Plan | 29.78 | 600,813 | 0 | ||||||||||
CTS Corporation 2003 Excess Benefit Retirement Plan | 29.78 | 406,753 | 0 | |||||||||||
Richard G. Cutter
|
CTS Corporation Pension Plan | 7.56 | 177,211 | 0 | ||||||||||
CTS Corporation 2003 Excess Benefit Retirement Plan | 7.56 | 166,669 | 0 |
(1) | The additional 4.78 years of service credited to Mr. Schwanz under the CTS Corporation Individual Excess Benefit Retirement Plan increases the present value of his estimated normal retirement annual benefit by $1,043,399 based on the assumption that he takes his benefit as a lump sum calculated as of December 31, 2006. |
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37
the acquisition by any entity of 25% or more of CTS voting
stock, subject to certain exceptions;
the incumbent board members ceasing to constitute a majority of
the board;
a reorganization, merger, consolidation, or sale of all or
substantially all of CTS assets, subject to certain
exceptions; or
the approval by CTS shareholders of a complete liquidation
or dissolution of CTS, subject to certain exceptions.
the failure to maintain the executive in his office or position
or an equivalent or better office or position;
a significant adverse change in the nature of the
executives duties, a reduction in the executives
base or incentive pay or an adverse change in any employee
benefits, (including for example, welfare benefits, equity
awards, incentive compensation or retirement benefits);
the executives good faith determination that as a result
of a change in circumstances following the change-in-control, he
is unable to carry out or has suffered a substantial reduction
in the duties he had prior to the change-in-control;
a successor entitys failure to assume all obligations of
CTS under the severance agreement;
CTS or its successor moves the executives principal work
location by more than 35 miles or requires him to travel at
least 20% more;
CTS or its successor commits any material breach of the
change-in-control agreement; or
CTS stock ceases to be publicly traded or listed on the New York
Stock Exchange.
a lump sum equal to three times the sum of the greater of the
executives base salary at the time of the change in
control or his average base salary over the three years prior to
termination plus the greater of his average incentive pay over
the three years prior to the change in control or his target
incentive pay for the year in which the change-in-control
occurred;
continued participation for 36 months following termination
in welfare benefit plans and similar benefit programs, or if
continued participation cannot be provided under the terms of
those plans, payment for welfare benefits, provided that the
obligation to provide welfare benefits will be reduced to the
extent benefits are provided by another employer;
a lump sum payment equal to the increase in actuarial value of
the benefits under CTS qualified and supplemental
retirement plans that the executive would have received had he
remained employed for 36 months following his termination date;
a lump sum payment ($105,000 for Mr. Schwanz and $67,500
for the other Named Executive Officers) in lieu of any
perquisites the executive would otherwise have been provided;
up to $30,000 for outplacement services;
reimbursement of legal, tax and estate planning expense related
to the severance agreement;
reimbursement of relocation expenses incurred during the
36 month period following termination;
a lump sum payment equal to his target incentive pay for the
year in which the termination occurs, prorated based on his
number of months of actual service during the year; and
accelerated vesting, exercise rights and lapse of restrictions
on all equity-based compensation awards.
38
cts corporation
Perquisites
Vesting of
Vesting of
Outplacement
Non-Vested
Non-Vested
Pension
Welfare
Tax/Estate
Pro Rata
Stock
Restricted
Benefit
Benefit
Planning &
Target
Excise Tax
Name
Options
Stock & RSUs
Equivalent
Equivalent
Relocation
Severance
Incentive
Gross Up
Total
429,535
1,676,760
1,879,137
43,624
265,000
4,061,449
*
2,846,408
11,201,913
168,331
1,207,330
384,209
42,780
227,500
1,687,267
178,904
1,192,381
5,088,702
138,136
693,406
789,975
32,958
227,500
1,441,673
*
1,130,705
4,454,353
86,960
602,880
715,912
16,626
227,500
1,147,232
126,011
999,203
3,922,324
83,429
547,930
352,676
9,390
227,500
1,084,117
*
773,252
3,078,294
*
Retirement eligible employees would be entitled to a pro rata
portion of their incentive awards under the terms of the
incentive plan.
Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters
cts corporation
39
Name and Address
Number of Shares
Percent of Class
3,148,700
8.79
%
3,062,842
8.53
%
2,416,278
6.75
%
2,149,561
6
%
1,947,648
5.4
%
1,910,600
5.34
%
(1)
As reported in the Schedule 13G filed February 9,
2007, Dimensional Fund Advisors, Inc. has sole power to
vote and dispose of the shares.
(2)
As reported in the Schedule 13D filed May 3, 2006,
Gabelli Funds, LLC has sole power to vote and dispose of
495,000 shares; GAMCO Asset Management Inc. has sole power
to vote 2,190,042 shares and sole power to dispose of
2,505,042 shares; Gabelli Advisers, Inc. has sole power to
vote and dispose of 25,000 shares; Gabelli Securities, Inc.
has sole power to vote and dispose of 8,000 shares; MJG
Associates, Inc. has sole power to vote and dispose of
29,800 shares.
(3)
As reported in the Schedule 13G filed February 14,
2007, FMR has sole power to vote 135,700 shares and sole
power to dispose of 2,416,278 shares.
(4)
As reported in the Schedule 13G filed January 23,
2007, Barclays Global Fund Advisors has sole power to vote and
dispose of 1,098,358 shares and Barclays Global Investors,
N.A. has sole power to vote 881,682 shares and sole power
to dispose of 1,028,395 shares; Barclays Global Investors,
LTD has sole power to vote and dispose of 22,808 shares.
(5)
As reported in the Schedule 13G filed February 13, 2007,
AXA Financial, Inc. and its affiliates has the sole power to
vote 1,448,073 shares, shared power to vote 24,800 and sole
power to dispose of 1,947,648 shares.
(6)
As reported in the Schedule 13G filed January 22,
2007, State Teachers Retirement Board of Ohio. Inc. has sole
power vote and dispose of the shares.
40
cts corporation
Options
Directors
Shares
Exercisable
Deferred
% of
Beneficially
Within 60
Shares Held in
Common
Shares
Name
Owned
Days
401(k) Plan
Stock Units
Total
Outstanding
32,395
(2)
63,750
10,170
0
106,315
*
9,739
(1)
13,300
0
4,098
27,137
*
10,856
(1)
13,300
0
16,365
40,521
*
8,745
(1)
13,300
0
4,722
26,767
*
18,799
(2)
45,375
843
0
65,017
*
13,883
(1)
13,300
0
19,020
46,203
*
11,732
(1)
13,300
0
3,267
28,299
*
8,731
(1)
13,300
0
3,267
25,298
*
35,365
(2)
81,875
1,593
0
118,833
*
10,545
(1)(3)
13,300
0
4,722
28,567
*
76,080
(2)
69,125
41,464
0
186,669
*
59,467
(2)
364,763
0
0
424,230
1.18%
7,707
(1)
2,400
0
800
10,907
*
415,413
809,388
60,215
56,261
1,341,277
3.7%
(1)
Includes restricted stock units that are distributable upon
the directors separation from service and convert on a
one-to-one basis to shares of CTS common stock upon
distribution.
(2)
Includes net shares to be received for restricted stock units
vesting within 60 days.
(3)
Includes 1,800 shares held by Mr. Profuseks
spouse. Mr. Profusek disclaims any beneficial interest with
respect to these shares.
(c)
(b)
Number of Securities
(a)
Weighted-Average
Remaining Available for
Number of Securities to
Exercise Price of
Future Issuance Under Equity
be Issued Upon Exercise
Outstanding
Compensation Plans
of Outstanding Options,
Options, Warrants
(Excluding Securities
Plan Category
Warrants and Rights
and Rights
Reflected in Column (a))
1,526,863
$
15.88
5,372,011
56,261
-0-
1,583,124
5,372,011
cts corporation
41
Item 13.
Certain Relationships, Related Transactions, and Director
Independence
Is not an employee of the corporation and has not been an
employee of the corporation for at least five years;
Is not an affiliate of the corporation other than in the
capacity of a director; and has not been an affiliate of the
corporation for at least five years;
Is not an employee or affiliate of the corporations
present auditing firm or an auditing firm retained by the
corporation within the past five years and has not been an
employee or affiliate of such a firm for at least five years;
Is not an employee of a company on whose board an executive of
the corporation presently serves as a director or has served as
a director within the past five years and has not been an
employee of such a company for at least five years;
Is not an employee of a company that accounts for at least 2% or
$1 million, whichever is greater, of the corporations
consolidated gross revenues, and has not been an employee of
such a company for at least five years;
Is not an employee of any company which made payments to or
received payments from the corporation which exceeded 2% or
$1 million, whichever is greater, of that companys
consolidated gross revenues; and has not been an employee of
such a company for at least five years;
Is not an employee or director of any company that makes direct
material investments or trades in CTS stock or that regularly
advises investors concerning CTS stock;
Does not presently receive any direct or material indirect
compensation from the corporation other than the standard
directors compensation package;
Has not received more than $10,000 per year in direct
compensation from the company, excluding the standard
directors compensation package, during the past five years;
Does not have any other relationship with the corporation or any
other entity, including charitable and civic organizations that
in the opinion of the Board could be considered to effect the
directors ability to exercise his independent judgment as
a director;
Is not a service provider who currently provides professional
services to the corporation, to an affiliate of the corporation
or an individual officer of the corporation or one of its
affiliates in excess of $10,000 per year.
Is not an immediate family member of any individual who would
fail to meet the criteria for independence set forth above.
42
cts corporation
Item 14.
Principal Accountant Fees and Services
cts corporation
43
Audit Fees
(1)
Audit-Related Fees
(2)
Tax Fees
All Other Fees
$
2,683,759
$
126,507
$
0
$
0
$
1,207,095
$
0
$
0
$
0
(1)
For 2006, Audit Fees consist of fees and expenses billed by
Grant Thornton for the audit of CTS 2006 financial
statements. For 2005, Audit Fees consist of fees and expenses
billed by Grant Thornton for the audit of CTS 2005
financial statements.
(2)
For 2006, Audit-related Fees consist of fees billed by Grant
Thornton as follows: $50,000 for valuation issues, stock options
and opening balance sheet review, $8,000 for review of an SEC
comment letter and $68,507 for investigation services. Grant
Thornton did not bill CTS for any Audit-related services in
2005.
Item 15. | Exhibits and Financial Statements Schedules |
(2) | Agreement and Plan of Merger dated November 16, 2004 by and among SMTEK International, Inc., Cardinal Acquisition, Inc. and CTS Corporation (incorporated by reference to the Exhibit 2.1 to the Current Report on Form 8-K dated November 17, 2004, filed with the Commission on November 17, 2004). |
(3)(i) | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 5 to the Current Report on Form 8-K, filed with the Commission on September 1, 1998). |
(3)(ii) | Bylaws (incorporated by reference to Exhibit 4 to the Current Report on Form 8-K, filed with the Commission on September 1, 1998). |
(10)(a) | Employment Agreement, dated as of October 1, 2006, between the Company and Donald K. Schwanz, including Individual Excess Benefit Retirement Plan, (incorporated by reference to Exhibit (10)(a) to the Current Report on Form 8-K filed with the Commission on December 8, 2006).* |
(10)(b) | Prototype officers and directors indemnification agreement (incorporated by reference to Exhibit (10)(g) to the Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 21, 1996). |
(10)(c) | CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, approved by the shareholders on April 28, 1989, as amended and restated on May 9, 1997 (incorporated by reference to Exhibit (10)(e) to the Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, filed with the Commission on August 12, 1997).* |
(10)(d) | CTS Corporation 1996 Stock Option Plan, approved by the shareholders on April 26, 1996, as amended and restated on May 9, 1997 (incorporated by reference to Exhibit (10)(f) to the Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, filed with the Commission on August 12, 1997).* |
(10)(e) | CTS Corporation 2001 Stock Option Plan, approved by the shareholders on March 9, 2001 (incorporated by reference to Exhibit (10)(c) to the Quarterly Report on Form 10-Q for the quarter ended April 1, 2001, filed with the Commission on April 27, 2001).* |
(10)(f) | Rights Agreement between CTS Corporation and National City Bank, N.A., (successor to EquiServe Trust Company, N.A.) dated August 28,1998 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K filed with the Commission on September 1, 1998). |
(10)(g) | Amendment No. 1, dated as of October 15, 2001, to the Rights Agreement dated as of August 28, 1998, between CTS Corporation and National City Bank, N.A., (successor to EquiServe Trust Company, N.A.) (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form 8-A filed with the Commission on April 29, 2002). |
(10)(h) | Amendment No. 2, dated as of April 22, 2002, to the Rights Agreement, dated as of August 28, 1998, between CTS Corporation and National City Bank, N.A., (successor to EquiServe Trust Company, N.A.), as amended on October 15, 2001 (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form 8-A filed with the Commission on April 29, 2002). |
44
cts corporation
(10)(i)
CTS Corporation Stock Retirement Plan for Non-Employee
Directors, effective April 30, 1990, as amended
(incorporated by reference to Exhibit (10)(a) to the
Quarterly Report on
Form
10-Q
for the
quarter ended March 30, 2003, filed with the Commission on
April 23, 2003).*
(10)(j)
Amendment dated as of December 1, 2004, to the
CTS Corporation Stock Retirement Plan for Non-Employee
Directors, effective April 30, 1990, as amended
(incorporated by reference to Exhibit (10)(j) to the Annual
Report on
Form
10-K
for the
year ended December 31, 2004, filed with the Commission on
March 4, 2005).
(10)(k)
Prototype Severance Agreements between CTS Corporation and
its officers, general managers and managing directors
(incorporated by reference to Exhibit (10)(k) to the Annual
Report on
Form
10-K
for the
year ended December 31, 2002, filed with the Commission on
February 14, 2003).*
(10)(l)
CTS Corporation Management Incentive Plan approved by the
shareholders on May 1, 2002 (incorporated by reference to
Appendix A to the Proxy Statement for the 2002 Annual
Meeting of Shareholders, filed with the Commission on
March 18, 2002).*
(10)(m)
CTS Corporation Pension Plan (formerly known as the
CTS Corporation Salaried Employees Pension Plan)
(incorporated by reference to Exhibit (10)(t) to the Annual
Report on
Form
10-K
for the
year ended December 31, 2002, filed with the Commission on
February 14, 2003).*
(10)(n)
Amendments to the CTS Corporation Pension Plan (formerly
known as the CTS Corporation Salaried Employees
Pension Plan) (incorporated by reference to Exhibit 10(b)
to the Quarterly Report on
Form
10-Q
for the
quarter ended June 29, 2003, filed with the Commission on
July 25, 2003).*
(10)(o)
CTS Corporation 2003 Excess Benefit Retirement Plan, as
adopted effective July 1, 2003 and as amended effective
June 1, 2004 (incorporated by reference to
Exhibit 10(v) to the Annual Report on
Form
10-K
for the
year ended December 31, 2005, filed with the Commission on
February 22, 2006).*
(10)(p)
Purchase Agreement dated May 5, 2004 by and between
CTS Corporation and Bear Stearns & Co. Inc., as
Initial Purchaser (incorporated by reference to the
Exhibit 1.1 to the Current Report on
Form
8-K
dated
May 18, 2004, filed with the Commission on May 19,
2004).
(10)(q)
Indenture dated as of May 11, 2004 by and between
CTS Corporation and Wells Fargo Bank, N.A. as Trustee
(incorporated by reference to the Exhibit 1.1 to the
Current Report on
Form
8-K
dated
May 18, 2004, filed with the Commission on May 19,
2004).
(10)(r)
CTS Corporation 2004 Omnibus Long-term Incentive Plan and
Incentive Stock Option Agreement (incorporated by reference to
the Exhibit 10(a) to the Quarterly Report on
Form
10-Q
for the
quarter ended September 26, 2004, filed with the Commission
on October 19, 2004).*
(10)(s)
Director and Named Executive Officer Compensation (incorporated
by reference to Exhibit 10(b) to the Quarterly Report on
Form
10-Q
for the
quarter ended July 2, 2006, filed with the Commission on
July 27, 2006).*
(10)(t)
Employment Agreement dated October 4, 2005, between the
Company and Vinod M. Khilnani, (incorporated by reference to
Exhibit 10(b) to the Quarterly Report on
Form
10-Q
for the
quarter ended October 2, 2005.)*
(10)(u)
Prototype Named Executive Officer Restricted Stock Unit
Agreement (incorporated by reference to Exhibit 10(a) to
the Quarterly Report on
Form
10-Q
for the
quarter ended July 2, 2006, filed with the Commission on
July 27, 2006.)*
(10)(v)
CTS Corporation 2001 Stock Option Plan: Employee Stock
Option Agreement, dated October 1, 2001, as amended
December 15, 2005.*
(10)(w)
Prototype Executive Officer RSU Supplemental Agreement
(incorporated by reference to Exhibit 10(a) to the
Quarterly Report on
Form
10-Q
for the
quarter ended July 2, 2006, filed with the Commission on
July 27, 2006).*
(10)(x)
Amendments to the CTS Corporation Pension Plan
(incorporated by reference to Exhibit 10(q) to the Annual
Report on
Form
10-K
for the
year ended December 31, 2005, filed with the Commission on
February 22, 2006).*
(10)(y)
Amendments to the CTS Corporation Pension Plan
(incorporated by reference to Exhibit 10(a) to the
Quarterly Report on
Form
10-Q
for the
quarter ended April 2, 2006, filed with the Commission on
April 26, 2006).*
(10)(z)
Credit Agreement dated as of June 27, 2006 by and among
CTS Corporation, the Lenders named therein and Harris Trust
and Savings Bank as L/ C Issuer and Administrative Agent
(incorporated by reference to Exhibit 10(a) to the Current
Report on Form
8-K
filed with the Commission on June 29, 2006).
(10)(aa)
Amendment No. 1 to the CTS Corporation 2004 Omnibus
Long-term Incentive Plan.*
(10)(bb)
Prototype Non-employee Director Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10(aa) to the Annual
Report on
Form
10-K
for the
year ended December 31, 2005, filed with the Commission on
February 22, 2006).*
cts corporation
45
(13)
Portions of the 2006 Annual Report to shareholders incorporated
herein.
(21)
Subsidiaries.
(23)(a)
Consent of Grant Thornton LLP.
(23)(b)
Consent of PricewaterhouseCoopers LLP.
(31)(a)
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(31)(b)
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(32)(a)
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(32)(b)
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
46
cts corporation
CTS Corporation | ||
Date: May 14, 2007
|
By:
/s/ Vinod M.
Khilnani
Senior Vice President and Chief Financial Officer |
Date: May 14, 2007
|
By: |
/s/ Donald K. Schwanz
President and Chief Executive Officer (Principal Executive Officer) |
||
Date: May 14, 2007
|
By: |
/s/ Walter S. Catlow
Director |
||
Date: May 14, 2007
|
By: |
/s/ Lawrence J. Ciancia
Director |
||
Date: May 14, 2007
|
By: |
/s/ Thomas G. Cody
Director |
||
Date: May 14, 2007
|
By: |
/s/ Gerald H.
Frieling, Jr.
Director |
||
Date: May 14, 2007
|
By: |
/s/ Roger R. Hemminghaus
Director |
||
Date: May 14, 2007
|
By: |
/s/ Michael A. Henning
Director |
||
Date: May 14, 2007
|
By: |
/s/ Robert A. Profusek
Director |
cts corporation
47
Date: May 14, 2007
|
By: |
/s/ Patricia K. Vincent
Director |
||
Date: May 14, 2007
|
By: |
/s/ Vinod M. Khilnani
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
||
Date: May 14, 2007
|
By: |
/s/ Thomas A. Kroll
Vice President and Controller (Principal Accounting Officer) |
S-1
cts corporation
cts corporation
S-2
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 approvals.
Lack of effectiveness of the internal audit function to obtain
an understanding of processes and controls at the Moorpark and
Santa Clara locations.
S-3
cts corporation
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 resource 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.
Enhance and document CTS annual vendor certification
process.
Strengthen operating policies around pricing adjustments,
customer returns, vendor disputes, etc.
Institute additional operational monitoring reports to
review/track early warning signs e.g. short payments, premium
freight, customer rejects, etc.
Standardize and strengthen account reconciliation process.
Further enhance the Moorpark and Santa Clara reporting system
documentation and user training.
/s/ Donald K. Schwanz
President and Chief Executive Officer |
/s/ Vinod M. Khilnani
Senior Vice President and Chief Financial Officer |
cts corporation
S-4
(i)
Monitoring and accountability over the operating effectiveness
of the reconciliation and journal entry controls including lack
of effective Internal Audit understanding of processes and
controls at the Moorpark and Santa Clara locations
(ii)
Inappropriate or ineffective vendor masterfile and accounts
payable approval controls
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock
split, spin-off, combination, repurchase or exchange of Shares
or other securities of the Company, or corporate transaction or
event having an effect similar to the foregoing, the Committee
shall adjust the number and type of Shares available for Awards
under the Plan, the number and type of Shares subject to
outstanding Awards, and the Exercise Price with respect to any
Award as is equitably required to prevent dilution or
enlargement of the benefits or potential benefits intended to be
made available under the Plan. In the case of any stock split,
including a stock split effected by means of a stock dividend,
and in the case of any other dividend paid in shares of the
Company, such adjustments shall be made automatically without
the necessity of Committee action, on the customary arithmetical
basis. Any fractional Share resulting from an adjustment
pursuant to this Section 5(g) shall be disregarded.
Moreover, in the event of any such transaction or event, the
Committee may provide in substitution for any or all outstanding
Awards under this Plan such alternative consideration as it may
determine to be equitable and may in connection therewith
require the surrender of all or part of any Award to be
replaced.
2
cts corporation
CTS revenues increased 6.2% during 2006 compared to 2005,
following 16.2% sales growth in 2005 compared to 2004. The sales
increase in 2005 was partially driven by acquisition of the
SMTEK business. Sales in the Components and Sensors segment
increased by 6.7% driven by growth in automotive product sales,
while the EMS segment increased by 5.8% due to higher sales into
the communication, medical, and defense and aerospace markets,
partially offset by decreased sales into the computer market.
Gross margins in 2006 increased $0.6 million from 2005 due
to higher sales volume, partially offset by operational
inefficiencies in both segments. Gross margins as a percent of
sales were 18.4% in 2006 compared to 19.5% in 2005. Within the
Components and Sensors segment, margins were unfavorably
impacted primarily by automotive launch-related costs for
certain new products, commodity price increases and
restructuring-related costs. Within the EMS segment, margins
were unfavorably impacted by expenses incurred for a new
customer
start-up,
excessive freight costs, labor inefficiencies and pricing
pressures.
Selling, general and administrative and research and development
expenses decreased as a percent of sales to 13.2% in 2006 from
13.8% in 2005. During 2006, expenses increased due to CTS
adoption of the provisions of FAS No. 123(R),
Share- Based Payment, which required CTS to
recognize the expense related to the fair value of equity-based
compensation awards. Nevertheless, by continuing to leverage
selling, general and administrative and research and development
expenses, the Company was more than able to offset the increase.
Operating earnings decreased to $32.8 million in 2006 from
$37.9 million in 2005. The 2006 operating earnings included
$4.3 million of restructuring and restructuring-related
charges associated with the consolidation of the Berne, Indiana
operation and the further impairment of an idle facility lease.
Net earnings increased to $24.2 million in 2006 from
$20.8 million in 2005. In 2006, net earnings included a net
impact of $3.4 million, or $0.08 per share, for
restructuring and restructuring-related charges. In 2005, income
tax expense included a net unfavorable impact of
$4.3 million, or $0.10 per share, consisting of
$6.0 million of expense relating to the repatriation of
foreign cash to the United States under the provisions of the
American Jobs Creation Act of 2004 and a $1.7 million
benefit relating to the reversal of income tax reserves due to
the successful resolution of tax issues in certain foreign
jurisdictions.
Excluding the restructuring and restructuring-related charges in
2006, and excluding the impact of the tax repatriation and
reversal of reserves, and the gain on sale of excess equipment
related to the divestiture of the Low Temperature Co-fired
Ceramics (LTCC) business in 2005, the adjusted earnings per
share, diluted was $0.71 in 2006 and $0.61 in 2005.
Year Ending December 31,
2005
2006
(as restated)
$
0.63
$
0.53
0.08
(0.02
)
0.10
0.08
0.08
$
0.71
$
0.61
| provides a truer measure of CTS operating performance, |
| reflects the results used by management in making decisions about the business, and |
| helps review and project CTS performance over time. |
4
cts corporation
Components
($ in thousands)
EMS
& Sensors
Total
$
385,744
$
269,870
$
655,614
$
6,179
$
30,963
$
37,142
1.6
%
11.5
%
5.7
%
$
364,458
$
253,026
$
617,484
$
7,705
$
30,227
(1)
$
37,932
2.1
%
11.9
%
6.1
%
$
270,334
$
260,982
$
531,316
$
7,817
$
23,311
(2)
$
31,128
2.9
%
8.9
%
5.9
%
(1)
Includes $3.1 million of gain on sale of excess
equipment and disposition of LTCC assets.
(2)
Includes a $3.9 million of gain on asset sales, of
which, $2.7 million relates to the sale of excess land in
Canada.
6
cts corporation
Components & Sensors
EMS
Consolidated Total
Geographic Region
2006
2005
2004
2006
2005
2004
2006
2005
2004
51%
61%
56%
48%
47%
34%
49%
53%
45%
23%
20%
17%
6%
7%
20%
13%
13%
19%
26%
19%
27%
46%
46%
46%
38%
34%
36%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Year Ended December 31,
2005
(In thousands of dollars)
2006
(as restated)
2004
$
655,614
$
617,484
$
531,316
534,784
497,270
421,560
120,830
120,214
109,756
18.4
%
19.5
%
20.7
%
70,913
68,255
63,485
10.8
%
11.1
%
11.9
%
15,873
17,092
19,063
2.4
%
2.8
%
3.6
%
(2,142)
(3,065)
(3,920)
3,368
32,818
37,932
31,128
5.0
%
6.1
%
5.9
%
3,654
5,902
5,535
(1,502)
(966)
(324)
30,666
32,996
25,917
6,469
12,240
(2)
5,961
$
24,197
(1)
$
20,756
$
19,956
3.7
%
3.4
%
3.8
%
$
0.63
(1)
$
0.53
(2)
$
0.53
(1) | Net earnings and diluted earnings per share include a net impact of $3.4 million, or $0.08 per diluted share, related to restructuring and restructuring-related charges associated with the consolidation of the Berne, Indiana operations and the further impairment of an idle facility lease. |
(2) | Income tax expense and diluted earnings per share include a net impact of $4.3 million, or $0.10 per diluted share, respectively, consisting of $6.0 million of expense relating to the repatriation of foreign cash to the United States under the provisions of the American Jobs Creation Act of 2004 and a $1.7 million benefit relating to the reversal of income tax reserves due to the successful resolution of tax issues in certain foreign jurisdictions. |
Year Ended
December 31,
($ in thousands, except per share amounts)
2006
$
988
988
592
$
0.02
$
0.01
8
cts corporation
Actual
incurred
through
Planned
December 31,
($ in millions)
Costs
2006
$
3.1
$
2.6
0.2
0.2
0.1
0.1
3.4
2.9
0.3
0.5
0.3
0.5
0.6
1.0
$
4.0
$
3.9
($ in millions) | ||||
Restructuring liability at
January 1, 2006
|
$ | | ||
2006 charge
|
3.9 | |||
Costs paid
|
(3.7 | ) | ||
Restructuring liability at
December 31, 2006*
|
$ | 0.2 | ||
| Net debt repayment of $15.6 million. |
| Capital spending of $15.8 million. |
| Purchase of treasury stock of $2.3 million. |
| Dividends paid of $4.3 million. |
| Cash provided by operations of $47.2 million. |
| Proceeds from the sale of assets of $14.5 million. |
Year Ended December 31, | ||||||||||||
2005 | ||||||||||||
(In millions of dollars) | 2006 | (as restated) | 2004 | |||||||||
Net cash provided by operations
|
$ | 47.2 | $ | 44.5 | $ | 14.0 | ||||||
Capital expenditures
|
(15.8 | ) | (15.0 | ) | (12.7 | ) | ||||||
Free cash flow
|
$ | 31.4 | $ | 29.5 | $ | 1.3 | ||||||
10
cts corporation
Before
FAS No. 158
After
Application of
Adjustments
Application of
($ in thousands)
FAS No. 158
Increase/(Decrease)
FAS No. 158
$
158,723
$
(58,057
)
$
100,666
167
167
9,153
1,929
11,082
1,122
23,970
25,092
2,267
36,183
38,450
370
370
4,910
58
4,968
23
23
35
35
December 31, 2006 | December 31, 2005 | |||||||||||||||
Average | Average | |||||||||||||||
Interest | Interest | |||||||||||||||
Balance | Rate | Balance | Rate | |||||||||||||
($ in millions) | ($) | (%) | ($) | (%) | ||||||||||||
$100 million revolving credit
agreement
|
$ | | 6.2 | % | $ | | | % | ||||||||
Former revolving credit agreement
|
| | 2.1 | 6.1 | ||||||||||||
Convertible subordinated debentures
due 2007
|
| | 5.5 | 6.5 | ||||||||||||
Convertible senior subordinated
debentures due 2024
|
60.0 | 2.1 | 60.0 | 2.1 | ||||||||||||
Term loan, due 2011
|
0.8 | 7.3 | 0.9 | 5.8 | ||||||||||||
60.8 | 68.5 | |||||||||||||||
Less current maturities
|
0.2 | 7.3 | 0.2 | | ||||||||||||
Total long-term debt
|
$ | 60.6 | 2.2 | % | $ | 68.3 | 2.6 | % | ||||||||
12
cts corporation
Payments Due by Period
($ in millions)
Total
2007
2008-2009
2010-2011
2012-beyond
$
83.1
$
1.5
$
2.9
$
2.8
$
75.9
(2)
22.5
5.6
8.9
5.3
2.7
17.3
1.3
4.6
2.8
8.6
$
122.9
$
8.4
$
16.4
$
10.9
$
87.2
(1)
Including principal and coupon payments of the
$60 million Debentures issued in 2004.
(2)
Debentures issued in May 2004. Investor may convert the
debentures, under certain circumstances, at any time to CTS
common stock. The conversion price is $15.00 per share.
14
cts corporation
Shareholders of CTS Corporation
May 14, 2007
16
cts corporation
Shareholders of CTS Corporation:
Year Ended December 31,
2005
2006
(as restated)
2004
$
655,614
$
617,484
$
531,316
534,784
497,270
421,560
70,913
68,255
63,485
15,873
17,092
19,063
(2,142
)
(3,065
)
(3,920
)
3,368
32,818
37,932
31,128
(3,654
)
(5,902
)
(5,535
)
934
1,300
922
568
(334
)
(598
)
(2,152
)
(4,936
)
(5,211
)
30,666
32,996
25,917
6,469
12,240
5,961
$
24,197
$
20,756
$
19,956
$
0.68
$
0.57
$
0.56
$
0.63
$
0.53
$
0.53
18
cts corporation
Year Ended December 31,
2005
2006
(as restated)
2004
$
24,197
$
20,756
$
19,956
24,896
27,059
26,082
(6,173
)
(8,741
)
(10,864
)
4,071
2,704
1,668
1,885
8,263
153
(2,142
)
(3,065
)
(3,920
)
3,368
(15,222
)
8,824
(11,822
)
87
(3,644
)
(10,809
)
8,404
(4,488
)
3,855
1,933
(3,320
)
150
1,881
171
(482
)
22,988
23,763
(5,989
)
47,185
44,519
13,967
14,482
6,093
19,813
(15,787
)
(15,009
)
(12,711
)
(35,561
)
(1,305
)
(44,477
)
7,102
73,850
161,160
172,185
(81,608
)
(188,285
)
(153,915
)
(7,874
)
9,988
3,311
(2,406
)
(13,013
)
(2,309
)
(11,283
)
(2,005
)
(4,307
)
(4,343
)
(4,537
)
112
(113
)
87
(22,136
)
(45,889
)
12,720
2,857
(3,129
)
1,870
26,601
(48,976
)
35,659
12,029
61,005
25,346
$
38,630
$
12,029
$
61,005
$
3,133
$
5,360
$
4,857
1,568
5,114
6,901
20
cts corporation
Accumulated
Additional
Other
Common
Contributed
Retained
Comprehensive
Comprehensive
Treasury
Stock
Capital
Earnings
Earnings (Loss)
Earnings
Stock
Total
$
262,748
$
21,520
$
263,430
$
151
$
(253,658
)
$
294,191
19,956
$
19,956
19,956
2,074
2,074
2,074
(877
)
(877
)
(877
)
21,153
(4,322
)
(4,322
)
(40
)
119
(79
)
171
13
(24
)
160
6
6
104
104
(2,005
)
(2,005
)
308
1,109
1,417
263,297
22,761
279,064
1,348
(255,766
)
310,704
20,756
20,756
20,756
(786
)
(786
)
(786
)
(806
)
(806
)
(806
)
19,164
(4,342
)
(4,342
)
10,932
10,932
11
21
(32
)
250
41
(14
)
277
473
(656
)
(183
)
7
7
113
113
(11,283
)
(11,283
)
128
2,576
2,704
275,211
24,743
295,478
(244
)
(267,095
)
328,093
24,197
24,197
24,197
4,810
4,810
4,810
369
369
369
$
29,376
(36,218
)
(36,218
)
(4,305
)
(4,305
)
575
(112
)
463
767
(1,133
)
(366
)
(2,309
)
(2,309
)
193
193
4,096
4,096
$
276,553
$
27,899
$
315,370
$
(31,283
)
$
(269,516
)
$
319,023
($ in thousands)
2006
2005
$
7,202
$
2,392
(2,636
)
(36,367
)
(2,118
)
$
(31,283
)
$
(244
)
22
cts corporation
24
cts corporation
Year-Ended December 31, 2005
(in thousands, except per share amounts)
As Reported
Adjustments
As Restated
$
495,069
$
2,201
$
497,270
68,049
206
68,255
40,339
(2,407
)
37,932
35,403
(2,407
)
32,996
13,169
(929
)
12,240
$
22,234
$
(1,478
)
$
20,756
$
0.61
$
(0.04
)
$
0.57
0.57
(0.04
)
0.53
December 31, 2005 | |||||||||||||
As Reported | Adjustments | As Restated | |||||||||||
Account receivable
|
$ | 91,265 | $ | (475 | ) | $ | 90,790 | ||||||
Finished goods
|
11,771 | 160 | 11,931 | ||||||||||
Work-in-process
|
16,039 | (367 | ) | 15,672 | |||||||||
Raw materials
|
32,754 | 272 | 33,026 | ||||||||||
Total Inventories
|
60,564 | 65 | 60,629 | ||||||||||
Other current assets
|
9,145 | (548 | ) | 8,597 | |||||||||
Total current assets
|
180,674 | (958 | ) | 179,716 | |||||||||
Machinery and equipment
|
248,348 | (23 | ) | 248,325 | |||||||||
Deferred income taxes
|
22,011 | 876 | 22,887 | ||||||||||
Other assets
|
2,088 | (2 | ) | 2,086 | |||||||||
Total other assets
|
243,586 | 874 | 244,460 | ||||||||||
Total Assets
|
$ | 533,936 | $ | (107 | ) | $ | 533,829 | ||||||
Accounts payable
|
67,196 | 1,524 | 68,720 | ||||||||||
Accrued salaries, wages and vacation
|
10,496 | 165 | 10,661 | ||||||||||
Income taxes payable
|
6,127 | (293 | ) | 5,834 | |||||||||
Other accrued liabilities
|
22,651 | (6 | ) | 22,645 | |||||||||
Total current liabilities
|
119,933 | 1,390 | 121,323 | ||||||||||
Other long-term obligations
|
16,139 | (19 | ) | 16,120 | |||||||||
Retained earnings
|
296,956 | (1,478 | ) | 295,478 | |||||||||
Total shareholders equity
|
329,571 | (1,478 | ) | 328,093 | |||||||||
Total Liabilities and
Shareholders Equity
|
$ | 533,936 | $ | (107 | ) | $ | 533,829 | ||||||
($ in thousands)
At January 31, 2005
$
34,867
6,108
11,158
24,144
4,627
80,904
16,702
3,098
13,013
32,813
$
48,091
Pro forma Twelve Months Ended
($ in thousands, except
December 31, 2005
per share amounts)
(as restated)
December 31, 2004
$
627,531
$
645,948
$
20,930
$
21,923
$
0.58
$
0.60
$
0.53
$
0.57
($ in millions) | ||||
Cash paid
|
$ | 37.2 | ||
Fair value of stock issued
|
10.9 | |||
Liabilities assumed
|
32.8 | |||
Fair value of assets acquired
|
$ | 80.9 | ||
26
cts corporation
Shares
Net Earnings
(In thousands)
Per Share
(In thousands of dollars, except per share amounts)
(Numerator)
(Denominator)
Amount
$
24,197
35,826
$
0.68
402
984
4,000
$
25,181
40,228
$
0.63
$
20,756
36,307
$
0.57
653
978
4,000
$
21,734
40,960
$
0.53
$
19,956
35,910
$
0.56
382
632
2,575
26
(1)
$
20,588
38,893
$
0.53
(1) | Represents shares of CTS common stock to be issued to the former DCA shareholders, a company which was acquired by CTS in 1997. |
Year Ended December 31, | ||||||||||||
(Number of shares in thousands) | 2006 | 2005 | 2004 | |||||||||
Stock options where the exercise
price exceeds the average market price of common shares during
the period
|
695 | 659 | 737 | |||||||||
Securities related to subordinated
convertible debt
|
| 1,060 | 1,247 | |||||||||
2006 | 2005 | |||||||||||||||||
Gross | Gross | |||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||
($ in thousands) | Amount | Amortization | Amount | Amortization | ||||||||||||||
Amortized intangible assets:
|
||||||||||||||||||
Customer lists/ relationships
|
$ | 47,075 | $ | (10,501 | ) | $ | 47,075 | $ | (8,451 | ) | ||||||||
Patents
|
10,319 | (7,744 | ) | 10,319 | (6,673 | ) | ||||||||||||
Employment agreements
|
142 | (137 | ) | 142 | (65 | ) | ||||||||||||
Customer order backlog
|
| | 346 | (346 | ) | |||||||||||||
Total
|
57,536 | (18,382 | ) | 57,882 | (15,535 | ) | ||||||||||||
Goodwill
|
24,657 | | 24,657 | | ||||||||||||||
Total intangible assets
|
$ | 82,193 | $ | (18,382 | ) | $ | 82,539 | $ | (15,535 | ) | ||||||||
($ in thousands)
2006
2005
$
$
2,080
60,000
60,000
5,500
821
875
2
60,821
68,457
186
164
$
60,635
$
68,293
28
cts corporation
FAS No. 158
Before
Adjustments
After
Application of
Increase/
Application of
($ in thousands)
FAS No. 158
(Decrease)
FAS No. 158
$
158,723
$
(58,057
)
$
100,666
167
167
9,153
1,929
11,082
1,122
23,970
25,092
2,267
36,183
38,450
370
370
4,910
58
4,968
23
23
35
35
Other Postretirement
Pension Plans
Benefit Plan
($ in thousands)
2006
2005
2006
2005
$
199,929
$
197,411
$
5,338
$
5,145
$
208,579
$
196,492
$
5,145
$
5,433
5,113
5,236
19
29
12,087
11,338
299
318
1,785
(850
)
87
6,616
118
(485
)
(10,341
)
(9,754
)
(161
)
(150
)
(383
)
(499
)
(82
)
$
216,927
$
208,579
$
5,338
$
5,145
$
277,035
$
276,991
$
$
37,726
8,688
1,109
1,713
161
149
(10,341
)
(9,754
)
(161
)
(149
)
815
(603
)
$
306,344
$
277,035
$
$
$
89,417
$
68,456
$
(5,338
)
$
(5,145
)
75,468
(62
)
3,857
3
$
89,417
$
147,781
$
(5,338
)
$
(5,204
)
Other Postretirement | ||||||||||||||||
Pension Plans | Benefit Plan | |||||||||||||||
($ in thousands) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Prepaid pension asset
|
$ | 100,666 | $ | 152,483 | $ | | $ | | ||||||||
Other accrued liabilities
|
(167 | ) | (1,156 | ) | (370 | ) | (150 | ) | ||||||||
Other long-term obligations
|
(11,082 | ) | (7,648 | ) | (4,968 | ) | (5,054 | ) | ||||||||
Accumulated other comprehensive loss
|
| 4,102 | | | ||||||||||||
$ | 89,417 | $ | 147,781 | $ | (5,338 | ) | $ | (5,204 | ) | |||||||
Other | ||||||||
Postretirement | ||||||||
($ in thousands) | Pension Plans | Benefit Plan | ||||||
Unrecognized loss
|
$ | 36,333 | $ | 34 | ||||
Unrecognized prior service cost
|
2,117 | 1 | ||||||
Total
|
$ | 38,450 | $ | 35 | ||||
($ in thousands) | 2006 | 2005 | ||||||
Projected benefit obligation
|
$ | 21,012 | $ | 17,830 | ||||
Accumulated benefit obligation
|
18,916 | 16,502 | ||||||
Fair value of plan assets
|
9,763 | 7,698 | ||||||
Other Postretirement | |||||||||||||||||||||||||
Pension Plans | Benefit Plan | ||||||||||||||||||||||||
($ in thousands) | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||
Service cost
|
$ | 5,113 | $ | 5,236 | $ | 5,292 | $ | 19 | $ | 29 | $ | 31 | |||||||||||||
Interest cost
|
12,086 | 11,338 | 11,265 | 299 | 318 | 310 | |||||||||||||||||||
Expected return on plan
assets
(1)
|
(24,739 | ) | (25,661 | ) | (27,051 | ) | | | | ||||||||||||||||
Amortization of unrecognized:
|
|||||||||||||||||||||||||
Transition obligation
|
| (304 | ) | (492 | ) | | | | |||||||||||||||||
Prior service cost
|
482 | 799 | 901 | 1 | | 1 | |||||||||||||||||||
Loss
|
2,716 | 1,125 | 658 | | | | |||||||||||||||||||
Curtailment loss
|
325 | 475 | | (81 | ) | | | ||||||||||||||||||
Net (income) expense
|
$ | (4,017 | ) | $ | (6,992 | ) | $ | (9,427 | ) | $ | 238 | $ | 347 | $ | 342 | ||||||||||
Weighted-average actuarial
assumptions
(2)
|
|||||||||||||||||||||||||
Benefit obligation assumptions:
|
|||||||||||||||||||||||||
Discount rate
|
5.72 | % | 5.93 | % | 5.94 | % | 5.75 | % | 6.00 | % | 6.00 | % | |||||||||||||
Rate of compensation increase
|
4.78 | % | 4.70 | % | 4.83 | % | | | | ||||||||||||||||
Pension income/postretirement
Expense assumptions:
|
|||||||||||||||||||||||||
Discount rate
|
5.92 | % | 5.94 | % | 6.17 | % | 6.00 | % | 6.00 | % | 6.25 | % | |||||||||||||
Expected return on plan
assets
(1)
|
8.43 | % | 8.45 | % | 8.70 | % | | | | ||||||||||||||||
Rate of compensation increase
|
4.70 | % | 4.83 | % | 4.83 | % | | | | ||||||||||||||||
(1) | Expected return on plan assets is net of expected investment expenses and certain administrative expenses. |
(2) | During the fourth quarter of each year, CTS reviews its actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted. |
30
cts corporation
Percentage of Plan
Target
Assets at
Allocations
December 31,
Asset Category
2007
2006
2005
65
%
67
%
66
%
33
%
30
%
32
%
%
%
%
2
%
3
%
2
%
100
%
100
%
100
%
(1)
Equity securities include CTS common stock in the amounts of
approximately $23 million (8% of total plan assets) at
December 31, 2006 and approximately $16 million (6% of
total plan assets) at December 31, 2005.
Other
Postretirement
($ in thousands)
Pension Plans
Benefit Plan
$
10,673
$
370
13,740
377
11,590
381
12,401
384
13,929
387
77,856
1,903
Year Ended December 31
2005
($ in thousands, except per share amounts)
(as restated)
2004
$
20,756
$
19,956
(888
)
(1,254
)
$
19,868
$
18,702
$
0.57
$
0.56
0.55
0.52
0.53
0.53
$
0.51
$
0.50
Year Ended | ||||||
($ in thousands, except per share amounts) | December 31, 2006 | |||||
Impact of adopting
FAS No. 123(R) on:
|
||||||
Operating earnings
|
$ | 988 | ||||
Earnings before income taxes
|
988 | |||||
Net earnings
|
592 | |||||
Net earnings per share:
|
||||||
Basic
|
$ | 0.02 | ||||
Diluted
|
$ | 0.01 | ||||
Year Ended December 31 | ||||||||||||
($ in thousands) | 2006 | 2005 | 2004 | |||||||||
Stock
options
(1)
|
$ | 1,033 | $ | 101 | $ | 223 | ||||||
Restricted stock units
|
2,826 | 2,289 | 766 | |||||||||
Restricted stock
|
212 | 478 | 680 | |||||||||
Total
|
$ | 4,071 | $ | 2,868 | $ | 1,669 | ||||||
(1) | Stock option expense includes $45, $101 and $223 ending December 31, 2006, 2005, and 2004, respectively, related to non-employee director stock options. |
32
cts corporation
2004 Plan
2001 Plan
1996 Plan
6,500,000
2,000,000
1,200,000
332,000
887,963
306,900
658,138
113,788
806,413
294,200
5,372,011
Year Ended December 31 | ||||||||||||
($ in thousands) | 2006 | 2005 | 2004 | |||||||||
Expected volatility
|
53.3%-58.2% | 52.4% | 61.8%- 69.9% | |||||||||
Weighted-average expected volatility
|
54.1% | 52.4% | 65.3% | |||||||||
Expected dividends
|
0.9% | 1.1% | 1.1% | |||||||||
Expected term
|
4.0-10.0 years | 10.0 years | 4.5 years | |||||||||
Weighted-average risk-free rate
|
5.1% | 4.1% | 2.9% | |||||||||
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Shares | Price | Term | Value | ||||||||||||
Outstanding at January 1, 2006
|
1,567,499 | $ | 15.93 | |||||||||||||
Granted
|
93,000 | 13.68 | ||||||||||||||
Exercised
|
(68,186 | ) | 8.43 | |||||||||||||
Expired or Forfeited
|
(65,450 | ) | 22.44 | |||||||||||||
Outstanding at December 31,
2006
|
1,526,863 | $ | 15.88 | 5.9 years | $ | 5,848 | ||||||||||
Exercisable at December 31,
2006
|
1,185,963 | $ | 17.13 | 5.2 years | $ | 4,428 | ||||||||||
2006 | ||||||||
Weighted- | ||||||||
Average | ||||||||
($ in thousands, | Grant-Date | |||||||
except per share amounts) | Options | Fair Value | ||||||
Nonvested at January 1, 2006
|
488,943 | $ | 5.35 | |||||
Granted
|
93,000 | 6.53 | ||||||
Vested
|
(231,493 | ) | 4.74 | |||||
Forfeited
|
(9,550 | ) | 4.56 | |||||
Nonvested at December 31, 2006
|
340,900 | (1) | $ | 6.11 | ||||
(1) | Based on historical experience, CTS currently expects approximately 329,000 of these options to vest. |
Options Outstanding
Options Exercisable
Weighted-
Average
Number
Remaining
Weighted-
Number
Weighted-
Range of
Outstanding
Contractual
Average
Exercisable
Average
Exercise
at
Life
Exercise
at
Exercise
Prices
12/31/06
(Years)
Price
12/31/06
Price
.11 866,013
6.6
$
9.39
630,113
$
8.97
.24 237,800
6.9
14.10
132,800
14.34
.63 318,800
4.0
24.58
318,800
24.58
.00 102,750
3.7
47.00
102,750
47.00
.25 1,500
2.8
64.38
1,500
64.38
Weighted-
Weighted-
Weighted-
Average
Average
Average
Remaining
Aggregate
Exercise
Grant Date
Contractual
Intrinsic
RSUs
Units
Price
Fair Value
Term
Value
525,898
$
$
11.49
258,500
13.80
(101,010
)
11.24
(25,250
)
11.44
658,138
$
$
12.21
4.3 years
$
2,143
28,438
$
$
12.85
21.4 years
$
81
Weighted-
Average
Grant Date
RSUs
Fair Value
507,460
$
11.43
258,500
13.80
(111,010
)
11.31
(25,250
)
11.44
629,700
$
12.42
34
cts corporation
2005
($ in thousands)
2006
(as restated)
2004
$
11,584
$
11,335
$
2,921
19,082
21,661
22,996
$
30,666
$
32,996
$
25,917
2005
($ in thousands)
2006
(as restated)
2004
$
318
$
(1,419
)
$
365
578
563
3,903
4,818
5,245
4,586
3,977
5,808
886
5,535
(3,100
)
939
800
1,654
58
1,928
1,599
1,883
8,263
153
$
6,469
$
12,240
$
5,961
2005
($ in thousands)
2006
(as restated)
$
38,345
$
56,367
4,075
124
2,572
7,883
$
44,992
$
64,374
1,792
1,821
1,112
1,419
74,590
81,681
12,173
7,826
10,215
7,507
8,775
5,974
2,433
2,613
111,090
108,841
66,098
44,467
(17,207
)
(17,133
)
$
48,891
$
27,334
2005
2006
(as restated)
2004
35.0
%
35.0
%
35.0%
2.8
%
1.5
%
5.6%
(15.6
)%
(8.6
)%
(13.6)%
(0.4
)%
(0.4
)%
(0.5)%
(1.2
)%
(4.4
)%
(4.0)%
0.5
%
1.0
%
0.5%
21.1
%
24.1
%
23.0%
0.0
%
(5.1
)%
0.0%
0.0
%
18.1
%
0.0%
21.1
%
37.1
%
23.0%
36
cts corporation
Components &
($ in thousands)
EMS
Sensors
Total
$
385,744
$
269,870
$
655,614
6,179
30,963
37,142
169,623
358,210
527,833
6,843
18,053
24,896
6,057
9,730
15,787
$
364,458
$
253,026
$
617,484
7,705
30,227
(1)
37,932
159,822
374,007
533,829
6,649
20,410
27,059
5,844
9,165
15,009
$
270,334
$
260,982
$
531,316
7,817
23,311
(1)
31,128
99,757
422,420
522,177
3,520
22,562
26,082
2,887
9,824
12,711
(1)
Includes $3.1 million and $3.9 million of gain on
asset sales in 2005 and 2004, respectively.
Year Ended December 31,
2005
($ in thousands)
2006
(as restated)
2004
$
37,142
$
37,932
$
31,128
(3,654
)
(5,902
)
(5,535
)
934
1,300
922
568
(334
)
(598
)
(3,849
)
(475
)
$
30,666
$
32,996
$
25,917
Year Ended December 31,
($ in thousands)
2006
2005
2004
$
263,097
$
278,397
$
197,557
173,118
143,815
66,989
82,178
87,411
122,129
77,713
66,528
105,196
40,277
27,303
28,468
19,231
14,030
10,977
$
655,614
$
617,484
$
531,316
Year Ended December 31, | ||||||||||||
2005 | ||||||||||||
($ in thousands) | 2006 | (as restated) | 2004 | |||||||||
Long-Lived Assets
|
||||||||||||
United States
|
$ | 24,296 | $ | 38,487 | $ | 42,016 | ||||||
China
|
35,560 | 37,254 | 40,659 | |||||||||
United Kingdom
|
15,637 | 16,493 | 14,990 | |||||||||
Singapore
|
9,845 | 7,550 | 7,319 | |||||||||
Canada
|
5,373 | 5,545 | 5,292 | |||||||||
Taiwan
|
2,065 | 1,880 | 2,008 | |||||||||
Other non-U.S.
|
3,692 | 2,444 | 211 | |||||||||
Consolidated long-lived assets
|
$ | 96,468 | $ | 109,653 | $ | 112,495 | ||||||
38
cts corporation
Actual incurred
through
($ in millions)
Planned Costs
December 31, 2006
$
3.1
$
2.6
0.2
0.2
0.1
0.1
3.4
2.9
0.3
0.5
0.3
0.5
0.6
1.0
$
4.0
$
3.9
($ in millions) | ||||
Restructuring liability at
January 1, 2006
|
$ | | ||
2006 charge
|
3.9 | |||
Costs paid
|
(3.7 | ) | ||
Restructuring liability at
December 31, 2006
|
$ | 0.2 | ||
Additions
Balance at
Beginning of
Charged to
Charged to
Balance at
Period
Expense
Other Accounts
Deductions
End of Period
(In thousands of dollars)
$
2,373
$
883
$
$
(1,117
)
(1)
$
2,139
$
6,187
$
3,184
$
$
(3,943
)
$
5,428
$
1,450
$
577
$
426
(2)
$
(80
)
$
2,373
$
5,648
$
2,883
$
857
(2)
$
(3,201
)
$
6,187
$
1,585
$
$
$
(135
)
$
1,450
$
8,513
$
1,612
$
$
(4,477
)
$
5,648
(1) | Majority of deductions relates to the write-off of receivables due from Delphi Automotive Systems, which declared Chapter 11 bankruptcy. |
(2) | Amounts relate to the acquisition of SMTEK International, Inc. Refer also to Note C, Acquisition, appearing in the notes to the consolidated financial statements as noted in the Index appearing under Item 15(1)(1) and (2). |
40
cts corporation
Net
Gross
Operating
Net
Sales
Margins
Earnings
Earnings
$
173,520
$
29,916
$
9,141
$
7,651
165,676
29,105
8,524
6,247
165,925
31,768
7,556
5,259
150,493
30,041
7,597
5,040
$
655,614
$
120,830
$
32,818
$
24,197
$
154,598
$
31,454
$
13,469
$
7,495
149,210
28,253
8,471
5,932
158,346
32,292
10,321
3,942
155,330
28,215
5,671
3,387
$
617,484
$
120,214
$
37,932
$
20,756
Dividends | Net Earnings | |||||||||||||||||||
High (5) | Low (5) | Declared | Basic | Diluted | ||||||||||||||||
2006
|
||||||||||||||||||||
4th quarter
(1)
|
$ | 16.23 | $ | 13.55 | $ | 0.03 | $ | 0.21 | $ | 0.20 | ||||||||||
3rd quarter
(2)
(as
restated)
|
15.00 | 13.35 | 0.03 | 0.17 | 0.16 | |||||||||||||||
2nd quarter
(as restated)
|
14.89 | 12.26 | 0.03 | 0.15 | 0.14 | |||||||||||||||
1st quarter
(as restated)
|
13.38 | 11.06 | 0.03 | 0.14 | 0.13 | |||||||||||||||
$ | 0.12 | $ | 0.68 | $ | 0.63 | |||||||||||||||
2005
|
||||||||||||||||||||
4th quarter
(3)
(as
restated)
|
$ | 12.53 | $ | 10.91 | $ | 0.03 | $ | 0.21 | $ | 0.19 | ||||||||||
3rd quarter (as restated)
|
13.40 | 11.15 | 0.03 | 0.16 | 0.15 | |||||||||||||||
2nd quarter
(4)
|
13.16 | 10.13 | 0.03 | 0.11 | 0.10 | |||||||||||||||
1st quarter
|
14.10 | 11.29 | 0.03 | 0.09 | 0.09 | |||||||||||||||
$ | 0.12 | $ | 0.57 | $ | 0.53 | |||||||||||||||
(1) | The fourth quarter of 2006 reflects a reduction in the effective tax rate from 24.1% to 21.1%. The reduction was primarily due to an increased percentage of profits reported in lower-tax foreign jurisdictions. |
(2) | The third quarter of 2006 includes a pre-tax gain of $0.7 million, or $0.6 million after-tax and $0.07 per diluted share, relating to the sale/leaseback of the Albuquerque building. |
(3) | The fourth quarter of 2005 includes $1.5 million, or $0.03 per diluted share, of tax expense relating to the repatriation of foreign cash to the United States under the provisions of the American Jobs Creation Act of 2004 and $0.7 million of tax expense, or $0.02 per diluted share, relating to an increase in the tax rate before the benefit of reversal of reserves and HIA dividends from 23% to 25%. |
(4) | The second quarter of 2005 includes $4.5 million, or $0.11 per diluted share, of tax expense relating to the repatriation of foreign cash to the United States under the provisions of the American Jobs Creation Act of 2004 and $1.7 million of tax benefit, or $0.04 per diluted share, relating to the reversal of income tax reserves due to the successful resolution of tax issues in certain foreign jurisdictions. |
(5) | The market prices of CTS common stock presented reflect the highest and lowest sales prices on the New York Stock Exchange for each quarter of the last two years. |
% of
2005 (as
% of
% of
% of
% of
2006
Sales
restated)
Sales
2004
Sales
2003
Sales
2002
Sales
$
655,614
100.0
$
617,484
100.0
$
531,316
100.0
$
462,987
100.0
$
457,804
100.0
534,784
81.6
497,270
80.5
421,560
79.3
366,275
79.1
366,775
80.1
67,720
10.3
64,812
10.5
61,174
11.5
54,390
11.8
59,467
13.0
15,873
2.4
17,092
2.8
19,063
3.6
21,476
4.6
24,118
5.3
3,193
0.5
3,443
0.6
2,311
0.4
2,467
0.5
3,870
0.8
(2,142
)
(0.3
)
(3,065
)
(0.5
)
(3,920
)
(0.7
)
3,368
0.5
4,563
1.0
18,343
4.0
32,818
5.0
37,932
6.1
31,128
5.9
13,816
3.0
(14,769
)
(3.2
)
(2,152
)
(0.3
)
(4,936
)
(0.8
)
(5,211
)
(1.0
)
(7,568
)
(1.6
)
(9,031
)
(2.0
)
30,666
4.7
32,996
5.3
25,917
4.9
6,248
1.4
(23,800
)
(5.2
)
6,469
1.0
12,240
2.0
5,961
1.1
(6,327
)
(1.3
)
(5,950
)
(1.3
)
24,197
3.7
20,756
3.3
19,956
3.8
12,575
2.7
(17,850
)
(3.9
)
295,478
279,064
263,430
255,085
276,988
(4,305
)
(4,342
)
(4,322
)
(4,230
)
(4,053
)
$
315,370
$
295,478
$
279,064
$
263,430
$
255,085
$
0.68
$
0.57
$
0.56
$
0.36
$
(0.54
)
$
0.63
$
0.53
$
0.53
$
0.36
$
(0.54
)
35,826
36,307
35,910
34,723
33,148
40,228
40,960
38,893
34,989
33,148
$
0.12
$
0.12
$
0.12
$
0.12
$
0.12
15,787
15,099
12,711
9,044
12,833
24,896
27,059
26,082
33,605
43,373
$
227,620
$
179,716
$
204,146
$
164,766
$
152,334
125,681
121,323
102,961
95,689
134,556
1.8 to 1
1.5 to 1
2.0 to 1
1.7 to 1
1.1 to 1
$
101,939
$
58,393
$
101,185
$
69,077
$
17,778
60,543
60,629
42,734
31,925
36,262
96,468
109,653
112,495
122,481
148,632
527,833
533,829
522,177
482,250
490,032
5,425
13,299
3,311
60,821
68,457
94,150
75,880
67,000
83,315
84,577
105,669
87,013
78,501
319,023
328,093
310,704
294,191
265,020
35,823
35,859
35,909
36,067
34,101
$
8.91
$
9.16
$
8.65
$
8.16
$
7.77
$
16.23-11.06
$
14.10-10.13
$
15.85-9.90
$
14.94-4.90
$
19.56-3.65
4,977
4,902
4,487
5,041
5,313
1,647
1,683
1,628
1,527
1,585
42
cts corporation
CTS (Tianjin) Electronics Company, Ltd., a Peoples
Republic of China corporation
CTS Electronics Dongguan, Ltd., a Peoples Republic of
China corporation
(1)
Less than 1% of the outstanding shares of stock is owned of
record by nominee shareholders pursuant to national laws
regarding resident or nominee ownership.
(2)
CTS of Canada, L.P., is a limited partnership formed by CTS
of Canada Holding Co. and CTS of Canada G.P., Ltd.
44
cts corporation
1.
I have reviewed this annual report on
Form
10-K
of
CTS Corporation;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this 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 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-15(e)
and
15d-15(e))
and
internal control over financial reporting (as defined in
Exchange Act
Rules
13a-15(f)
and
15d-15(f))
for the
registrant and have:
a)
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b)
designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statement for external purposes in
accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusion about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d)
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5.
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b)
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
/s/ Donald K. Schwanz
Chairman, President and
Chief Executive Officer
46
cts corporation
1.
I have reviewed this annual report on
Form
10-K
of
CTS Corporation;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this 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 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-15(e)
and
15d-15(e))
and
internal control over financial reporting (as defined in
Exchange Act
Rules
13a-15(f)
and
15d-15(f))
for the
registrant and have:
a)
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b)
designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statement for external purposes in
accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusion about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d)
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5.
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b)
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
/s/ Vinod M. Khilnani
Senior Vice President and
Chief Financial Officer
(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 as of the dates and for the periods
expressed in the Report.
/s/
Donald K. Schwanz
Donald K. Schwanz
Chairman, President and
Chief Executive Officer
48
cts corporation
(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 as of the dates and for the periods
expressed in the Report.
/s/
Vinod M. Khilnani
Vinod M. Khilnani
Sr. Vice President and
Chief Financial Officer