Cts Corp 10-Q for FY2020 Q1

Cts Corp (CTS)

10-Q 2020-04-24 For: 2020-03-31

Added on April 07, 2026

About this 10-Q

Cts Corp filed this 10-Q on April 24, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $103.08M; down 12.4% from $117.63M a year earlier
Net income: $3.81M; down 66.7% from net income of $11.42M a year earlier
Diluted EPS: $0.12; down 64.7% from $0.34 a year earlier

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IN		35-0225010
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)



4925 Indiana Avenue
Lisle	IL	60532
(Address of principal executive offices)		(Zip Code)



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, without par value	CTS	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer ☐	Non-accelerated filer o	Smaller reporting company	☐	Emerging growth company	☐



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Earnings (Unaudited) For the Three Months Ended March 31, 2020 and March 31, 2019	3

	Condensed Consolidated Statements of Comprehensive Earnings (Unaudited) For the Three Months Ended March 31, 2020 and March 31, 2019	4

	Condensed Consolidated Balance Sheets As of March 31, 2020 (Unaudited) and December 31, 2019	5

	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2020 and March 31, 2019	6

	Condensed Consolidated Statements of Shareholder's Equity (Unaudited) For the Three Months Ended March 31, 2020 and March 31, 2019	7

	Notes to Condensed Consolidated Financial Statements ‑ (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6.	Exhibits	36

SIGNATURES		36



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Registrant’s telephone number, including area code:	(630)	577-8800



	Three Months Ended
	March 31,			March 31,
	2020			2019
Net sales	$	103,075		$	117,625
Cost of goods sold	70,176			77,010
Gross Margin	32,899			40,615
Selling, general and administrative expenses	16,759			17,522
Research and development expenses	7,408			6,791
Restructuring charges	240			2,084
Operating earnings	8,492			14,218
Other (expense) income:
Interest expense	(851		)	(466		)
Interest income	331			432
Other (expense) income, net	(1,982		)	96
Total other (expense) income, net	(2,502		)	62
Earnings before income taxes	5,990			14,280
Income tax expense	2,182			2,861
Net earnings	$	3,808		$	11,419
Earnings per share:
Basic	$	0.12		$	0.35
Diluted	$	0.12		$	0.34

Basic weighted – average common shares outstanding:	32,466			32,807
Effect of dilutive securities	327			463
Diluted weighted – average common shares outstanding:	32,793			33,270

Cash dividends declared per share	$	0.04		$	0.04



	(Unaudited)
	March 31,			December 31,
	2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	150,955		$	100,241
Accounts receivable, net	71,250			78,008
Inventories, net	45,679			42,237
Other current assets	15,094			16,992
Total current assets	282,978			237,478
Property, plant and equipment, net	101,755			105,038
Operating lease assets, net	25,117			24,644
Other Assets
Prepaid pension asset	63,093			62,082
Goodwill	106,056			106,056
Other intangible assets, net	82,919			85,215
Deferred income taxes	20,296			19,795
Other	2,951			3,046
Total other assets	275,315			276,194
Total Assets	$	685,165		$	643,354
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	46,766		$	48,219
Operating lease obligations	3,178			2,787
Accrued payroll and benefits	8,818			9,564
Accrued expenses and other liabilities	34,476			36,378
Total current liabilities	93,238			96,948
Long-term debt	151,200			99,700
Long-term operating lease obligations	25,078			24,926
Long-term pension obligations	6,548			6,632
Deferred income taxes	5,576			5,637
Other long-term obligations	6,059			4,292
Total Liabilities	287,699			238,135
Commitments and Contingencies (Note 10)
Shareholders’ Equity
Common stock	310,098			307,932
Additional contributed capital	39,832			43,689
Retained earnings	512,276			509,766
Accumulated other comprehensive loss	(94,994		)	(91,726		)
Total shareholders’ equity before treasury stock	767,212			769,661
Treasury stock	(369,746		)	(364,442		)
Total shareholders’ equity	397,466			405,219
Total Liabilities and Shareholders’ Equity	$	685,165		$	643,354



	Common Stock		Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Earnings/(Loss)			Treasury Stock			Total
Balances at December 31, 2019	$	307,932	$	43,689		$	509,766		$	(91,726	)	$	(364,442	)	$	405,219
Net earnings	—		—			3,808			—			—			3,808
Changes in fair market value of derivatives, net of tax	—		—			—			(4,414		)	—			(4,414		)
Changes in unrealized pension cost, net of tax	—		—			—			1,285			—			1,285
Cumulative translation adjustment, net of tax	—		—			—			(139		)	—			(139		)
Cash dividends of $0.04 per share	—		—			(1,298		)	—			—			(1,298		)
Acquired 220,731 for treasury stock	—		—			—			—			(5,304		)	(5,304		)
Issued shares on vesting of restricted stock units	2,166		(4,069		)	—			—			—			(1,903		)
Stock compensation	—		212			—			—			—			212
Balances at March 31, 2020	$	310,098	$	39,832		$	512,276		$	(94,994	)	$	(369,746	)	$	397,466


•	Recognize revenue when the performance obligations are met



	Three Months Ended
	March 31, 2020		March 31, 2019
Transportation	$	61,534	$	78,842
Industrial	20,843		18,156
Medical	9,370		9,666
Aerospace & Defense	9,005		7,523
Telecom & IT	2,323		3,438
Total	$	103,075	$	117,625



	As of
	March 31,			December 31,
	2020			2019
Accounts receivable, gross	$	71,932		$	78,269
Less: Allowance for credit losses	(682		)	(261		)
Accounts receivable, net	$	71,250		$	78,008



	Domestic Pension Plans						Foreign Pension Plans
	Three Months Ended						Three Months Ended
	March 31,			March 31,			March 31,			March 31,
	2020			2019			2020			2019
Service cost	$	—		$	—		$	7		$	9
Interest cost	1,443			1,931			7			7
Expected return on plan assets⁽¹⁾	(2,454		)	(3,047		)	(4		)	(4		)
Amortization of loss	1,622			1,312			43			42
Total expense, net	$	611		$	196		$	53		$	54



FORM	10-Q



	Three Months Ended
	March 31,			March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	3,808		$	11,419
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	6,532			5,924
Pension and other post-retirement plan expense	673			251
Stock-based compensation	228			1,214
Restructuring impairment charges	—			854
Deferred income taxes	333			1,063
(Gain) on sales of fixed assets	—			(40		)
Impairment of fixed assets	1,016			—
(Gain) loss on foreign currency hedges, net of cash	(23		)	53
Changes in assets and liabilities, net of acquisition:
Accounts receivable	6,176			(2,682		)
Inventories	(4,005		)	1,053
Operating lease assets	(473		)	(2,372		)
Other assets	799			(1,687		)
Accounts payable	1,252			1,275
Accrued payroll and benefits	(237		)	(5,250		)
Accrued liabilities	(5,364		)	(4,014		)
Income taxes payable	730			(535		)
Operating lease liabilities	542			2,439
Accrued expenses and other liabilities	7			675
Pension and other post-retirement plans	(67		)	(47		)
Net cash provided by operating activities	11,927			9,593
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(4,570		)	(5,325		)
Proceeds from sale of assets	—			51
Net cash used in investing activities	(4,570		)	(5,274		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt	(764,550		)	(159,100		)
Proceeds from borrowings of long-term debt	816,050			159,100
Purchase of treasury stock	(5,304		)	(849		)
Dividends paid	(1,299		)	(1,310		)
Taxes paid on behalf of equity award participants	(1,903		)	(2,637		)
Net cash provided by (used) in financing activities	42,994			(4,796		)


•	Identify the contract(s) with a customer


•	Determine the transaction price



	As of
	March 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	92,194	$	(40,012	)	$	52,182
Technology and other intangibles	47,925		(19,388		)	28,537
In process research and development	2,200		—			2,200
Other intangible assets, net	$	142,319	$	(59,400	)	$	82,919
Amortization expense for the three months ended March 31, 2020			$	2,295



	As of
	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	92,194	$	(38,682	)	$	53,512
Technology and other intangibles	47,925		(18,422		)	29,503
In process research and development	2,200		—			2,200
Other intangible assets, net	$	142,319	$	(57,104	)	$	85,215
Amortization expense for the three months ended March 31, 2019			$	1,690



	Amortization expense
2020	$	6,756
2021	8,893
2022	8,657
2023	6,651
2024	6,489
Thereafter	45,473
Total amortization expense	$	82,919



			Actual costs
	Planned		incurred through
June 2016 Plan	Costs		March 31, 2020
Workforce reduction	$	3,075	$	3,312
Building and equipment relocation	9,025		10,530
Other charges⁽¹⁾	1,300		2,156
Total restructuring charges	$	13,400	$	15,998



Restructuring liability at January 1, 2020	$	1,993
Restructuring charges	240
Cost paid	(606		)
Other activity⁽¹⁾	(444		)
Restructuring liability at March 31, 2020	$	1,183


•	Unrealized gains (losses) on pension obligations are deferred from income statement recognition until the gains or losses are realized. Amounts reclassified to income from AOCI are included in net periodic pension income (expense). Further information related to our pension obligations is included in Note 6 – Retirement Plans.



							(Gain) Loss
	As of			Gain (Loss)			Reclassified			As of
	December 31,			Recognized			from AOCI			March 31,
	2019			in OCI			to Income			2020
Changes in fair market value of hedges:
Gross	$	659		$	(5,422	)	$	(281	)	$	(5,044	)
Income tax (expense) benefit	(150		)	1,225			64			1,139
Net	509			(4,197		)	(217		)	(3,905		)

Changes in unrealized pension cost:
Gross	(124,140		)	—			1,660			(122,480		)
Income tax benefit (expense)	34,018			—			(375		)	33,643
Net	(90,122		)	—			1,285			(88,837		)

Cumulative translation adjustment:
Gross	(2,211		)	(41		)	—			(2,252		)
Income tax benefit (expense)	98			(98		)	—			—
Net	(2,113		)	(139		)	—			(2,252		)
Total accumulated other comprehensive (loss) income	$	(91,726	)	$	(4,336	)	$	1,068		$	(94,994	)



	Unrecognized
	Compensation		Weighted-
	Expense at		Average
	March 31, 2020		Period
Service-based RSUs	$	3,020	1.56
Performance-based RSUs	3,919		2.24
Total	$	6,939	1.94



	2018 Plan	2014 Plan	2009 Plan	2004 Plan	Directors' Plan
Awards originally available	2,500,000	1,500,000	3,400,000	6,500,000	N/A
Performance-based options outstanding	—	225,000	—	—	—
Maximum potential RSU and cash settled awards outstanding	452,250	218,272	92,600	35,952	5,522
Maximum potential awards outstanding	452,250	443,272	92,600	35,952	5,522
RSUs and cash settled awards vested and released	27,037	—	—	—	—
Awards available for grant	2,020,713	—	—	—	—



	Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019	364,396		$	19.87
Granted	64,796		30.13
Vested and released	(47,195	)	27.05
Forfeited	(3,624	)	28.45
Outstanding at March 31, 2020	378,373		$	20.65
Releasable at March 31, 2020	224,974		$	15.02



Description	Grant Date	Vesting Year	Vesting Dependency	Target Units Outstanding	Maximum Number of Units to be Granted
2018 - 2020 Performance RSUs	February 8, 2018	2020	35% RTSR, 35% sales growth, 30% operating cash flow	31,398	62,796
2018 - 2020 Performance RSUs	February 16, 2018	2020	35% RTSR, 35% sales growth, 30% operating cash flow	31,820	63,640
2019 - 2021 Performance RSUs	February 7, 2019	2021	35% RTSR, 35% sales growth, 30% operating cash flow	60,414	120,828
2019 Supplemental Performance RSUs	February 7, 2019	2021	Succession Planning Targets	6,945	13,890
2020 - 2022 QTI Performance RSUs	September 24, 2019	2022	50% EBITDA growth, 50% Sales growth	1,750	3,500
2020 - 2022 Performance RSUs	February 6, 2020	2022	25% RTSR, 40% sales growth, 35% operating cash flow	72,521	145,042
Total				204,848	409,696



				Quoted
				Prices
	Liability			in Active		Significant
	Carrying			Markets for		Other			Significant
	Value at			Identical		Observable			Unobservable
	March 31,			Instruments		Inputs			Inputs
	2020			(Level 1)		(Level 2)			(Level 3)
Interest rate swaps	$	(2,363	)	$	—	$	(2,363	)	$	—
Foreign currency hedges	$	(2,733	)	$	—	$	(2,733	)	$	—



			Quoted
			Prices
	Asset		in Active		Significant
	Carrying		Markets for		Other		Significant
	Value at		Identical		Observable		Unobservable
	December 31,		Instruments		Inputs		Inputs
	2019		(Level 1)		(Level 2)		(Level 3)
Interest rate swaps	$	4	$	—	$	4	$	—
Foreign currency hedges	$	580	$	—	$	580	$	—



	Operating Leases⁽¹⁾
2020	$	3,514
2021	4,686
2022	4,547
2023	4,185
2024	4,075
Thereafter	16,950
Total	$	37,957
Less: interest	(9,701		)
Present value of lease liabilities	$	28,256



	Consideration Paid
Cash paid, net of cash acquired of $567	$	72,850
Contingent consideration	1,056
Purchase price	$	73,906



	Fair Values at July 31, 2019
Current assets	$	6,221
Property, plant and equipment	2,567
Other assets	29
Goodwill	34,999
Intangible assets	32,800
Fair value of assets acquired	76,616
Less fair value of liabilities acquired	(2,710		)
Purchase price	$	73,906



	Carrying Value		Weighted Average Amortization Period
Customer lists/relationships	$	31,000	15.0
Technology and other intangibles	1,800		5.0
Total	$	32,800



	Three Months Ended							Percent of		Percent of
	March 31,			March 31,		Percent		Net Sales –		Net Sales –
	2020			2019		Change		2020		2019
Net sales	$	103,075		$	117,625	(12.4	)%	100.0	%	100.0	%
Cost of goods sold	70,176			77,010		(8.9	)	68.1		65.5
Gross margin	32,899			40,615		(19.0	)	31.9		34.5
Selling, general and administrative expenses	16,759			17,522		(4.4	)	16.3		14.9
Research and development expenses	7,408			6,791		9.1		7.2		5.8
Restructuring charges	240			2,084		(88.5	)	0.2		1.8
Total operating expenses	24,407			26,397		(7.5	)	23.7		22.4
Operating earnings	8,492			14,218		(40.3	)	8.2		12.1
Total other (expense) income, net	(2,502		)	62		(4,135.5	)	(2.4	)	0.1
Earnings before income taxes	5,990			14,280		(58.1	)	5.8		12.1
Income tax expense	2,182			2,861		(23.7	)	2.1		2.4
Net earnings	$	3,808		$	11,419	(66.7	)%	3.7	%	9.7	%
Earnings per share:
Diluted net earnings per share	$	0.12		$	0.34


•	Credit limits and payment terms based on available credit information,


•	Adjustments to credit limits based upon payment history and the customer's current credit worthiness,