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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana | 35-0225010 | |||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | |||||
4925 Indiana AvenueLisleIL | 60532 | |||||
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: 630-577-8800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common stock, without par value | CTS | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ☐Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer"filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | |||
☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes
The aggregate market value of the voting and non-voting stock held by non-affiliates of CTS Corporation, based upon the closing sales price of CTS common stock on June 30, 2017,2023, was approximately $706,120,000.$1,338,342,292. There were 32,938,46630,789,099 shares of common stock, without par value, outstanding on February 20, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
ITEM |
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| PAGE |
1. |
| 4 | |
1A. |
| 9 | |
1B. |
| 19 | |
1C. |
| 19 | |
2. |
| 20 | |
3. |
| 21 | |
4. |
| 21 | |
5. |
| 21 | |
6. |
| 22 | |
7. |
| Management's Discussion and Analysis of Financial Condition and Results of Operations | 23 |
7A. |
| 29 | |
8. |
| 31 | |
9. |
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 68 |
9A. |
| 68 | |
9B. |
| 70 | |
9C. |
| Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 70 |
10. |
| 70 | |
11. |
| 70 | |
12. |
| Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters | 71 |
13. |
| Certain Relationships and Related Transactions, and Director Independence | 71 |
14. |
| 71 | |
15. |
| 72 | |
16. |
| 73 | |
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| 74 |
CTS CORPORATION 2
ITEM | PAGE | ||||
Safe Harbor
Forward-Looking Statements
This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management'smanagement’s expectations, certain assumptions, and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties, and other factors, which could cause ourCTS’ actual results, performance, or achievements to differ materially from those presented in the forward-looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: supply chain disruptions; changes in the economy generally, including inflationary and/or recessionary conditions, and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition ourCTS’ business; rapid technological change; general market conditions in the transportation, communications, and information technology industries, as well as conditions in the industrial, defenseaerospace and aerospace,defense, and medical markets; reliance on key customers; unanticipated public health crises, natural disasters or other events; environmental compliance and remediation expenses; the ability to protect ourCTS’ intellectual property; pricing pressures and demand for ourCTS’ products; and risks associated with ourCTS’ international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks.risks (including, without limitation, the potential impact U.S./China relations and the conflict between Russia and Ukraine may have on our business, results of operations and financial condition); the amount and timing of any share repurchases; and the effect of any cybersecurity incidents on our business. Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of this Annual Report on Form 10-K. We undertake10-K and other filings made with the SEC. CTS undertakes no obligation to publicly update ourCTS’ forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.
CTS CORPORATION 3
PART I
Item 1.
BusinessCTS Corporation ("CTS", "we", "our", "us" or the "Company") is a global manufacturer of sensors, electronicconnectivity components, and actuators. CTS was established in 1896 as a provider of high-quality telephone products and was incorporated as an Indiana corporation in February 1929. Our principal executive offices are located in Lisle, Illinois.
We design, manufacture, and sell a broad line of sensors, electronicconnectivity components, and actuators primarily to original equipment manufacturers ("OEMs") and tier one suppliers for the aerospace communications,and defense, industrial, information technology, medical, and transportation markets. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products, technologies, and technologiestalent within these categories.
We operate manufacturing facilities in North America, Asia, and Europe. Sales and marketing are accomplished through our sales engineers while also using independent manufacturers' representatives and distributors.
See the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Annual Report on Form 10-K for financial information regarding the Company.
PRODUCTS BY MAJOR MARKETS
Our products perform specific electronic functions for a given product family and are intended for use in customer assemblies. Our major products consist principally of sensors and actuators used in passenger or commercial vehicles, electronic components used in communications infrastructure, information technology and other high-speed applications, switches, and potentiometers supplied to multiple markets, and fabricated piezoelectric materials and substrates used primarily in medical, industrial, defense and aerospace, and information technology markets.
2017 | 2016 | 2015 | |
Industry | |||
Transportation | 65% | 66% | 67% |
Industrial | 18% | 17% | 17% |
Medical | 8% | 7% | 3% |
Defense and Aerospace | 4% | 4% | 5% |
Information Technology | 3% | 4% | 5% |
Communications | 2% | 2% | 3% |
% of consolidated net sales | 100% | 100% | 100% |
Product Description | Transportation | Industrial | Medical | Aerospace and Defense | ||||
SENSE | • | • | • | • | ||||
(Controls, Pedals, Piezo Sensing Products, Sensors, Switches, Transducers) | ||||||||
CONNECT | • | • | • | |||||
(EMI/RFI Filters, Capacitors, Frequency Control Products, Resistors, RF filters) | ||||||||
MOVE | • | • | • | |||||
(Piezo Microactuators, Rotary |
The following table provides a breakdown of net sales by end-market as a percent of consolidated net sales:
Industry |
| 2023 |
| 2022 |
| 2021 |
Transportation |
| 55% |
| 52% |
| 55% |
Industrial |
| 24% |
| 29% |
| 27% |
Medical |
| 12% |
| 11% |
| 9% |
Aerospace and Defense |
| 9% |
| 8% |
| 9% |
% of consolidated net sales |
| 100% |
| 100% |
| 100% |
In the above table, net sales to the telecommunications and information technology end markets are included in the industrial end-market for all periods presented. The end-market sales for 2022 were adjusted by immaterial amounts to align the classification of certain customers in connection with our recent acquisitions with our enterprise-level end market information.
MARKETING AND DISTRIBUTION
Sales and marketing to OEMscustomers is accomplished through our sales engineers, independent manufacturers' representatives, and distributors. We maintain sales offices in China, Czech Republic, Denmark, Germany, India, Japan, Scotland, Singapore, Taiwan, and the United States. Approximately 90%91% of 20172023 net sales were attributable to our sales engineers.
CTS CORPORATION 4
Our sales engineers generally service theour largest customers with application-specific products. A vast majority of our products are engineered solutions. The sales engineers work closely with major customers in designing and developing products to meet specific customer requirements.
In 2023, independent distributors accounted for approximately 6% of net sales. We use distributors for a small portion of our product portfolio that are standard and require less design support, to service smaller customers, and to provide supply chain fulfillment for certain customers. Our key distribution partners include large global and regional distributors such as Avnet, Inc., Digi-Key Electronics, Master Electronics, Future Electronics, and TTI, Inc. In addition, we also utilize the services of independent manufacturers' representatives for customers not serviced directly by our sales engineers. Independent manufacturers' representatives receive commissions from us. During 2017,2023, approximately 5%3% of net sales were attributable to independent manufacturers' representatives. We also use independent distributors. Independent distributors purchase products from us for resale to customers. In 2017, independent distributors accounted for approximately 5% of net sales.
RAW MATERIALS
We utilize a wide variety of raw materials and purchased parts in our manufacturing processes. The following are the most significant raw materials and purchased components:
These raw materials and parts are purchased from a number of suppliers, and we generally do not believe we are dependent upon one or a limited number of suppliers. Although we purchase all of our semiconductors, REEs, conductive inks, and silver pastes from a limited number of suppliers, alternative sources are generally available.
Lead times between the placement of orders for certain raw materials and purchased parts and actual delivery to us may vary. Occasionally, we may need to order raw materials in greater quantities and at higher prices to compensate for the variability of lead times for delivery.
PATENTS, TRADEMARKS, AND LICENSES
In 2023, CTS continued its practice of obtaininginnovation and protecting its intellectual property by obtaining patents in the U.S. and non-U.S.abroad. CTS’s patents cover inventions relating to products that weits engineers have designed, and manufactured, as well as processesfor methods and equipment usedtechnology related to CTS’s manufacturing processes. CTS obtained 23 patents in our manufacturing technology. We were issued 6 new2023, including four U.S. patents, and 17 non-U.S.13 patents in 2017Asia, and six patents in Europe. CTS currently hold 151owns approximately 285 patents worldwide including 131 active U.S. patents and 157 non-U.S. patents. We have 8own seven registered U.S. trademarks, 20most of which are also registered foreign trademarks and 4 international trademark registrations.in jurisdictions throughout the world. We have also licensed the right to use several ofcertain patents and our patents. In 2017, license and royalty income for 2023 was less than 1% of net sales.
MAJOR CUSTOMERS
Years Ended December 31, | |||
2017 | 2016 | 2015 | |
Total of 15 largest customers / net sales | 64.4% | 63.1% | 61.4% |
Our net sales to significant customers as a percentage of total net sales were as follows:
Years Ended December 31, | |||
2017 | 2016 | 2015 | |
Cummins Inc. | 13.4% | 9.9% | 9.3% |
Honda Motor Co. | 11.2% | 10.7% | 10.7% |
Toyota Motor Corporation | 10.2% | 10.4% | 10.1% |
|
| Years Ended December 31, | ||||
|
| 2023 |
| 2022 |
| 2021 |
Cummins, Inc. |
| 15.0% |
| 15.3% |
| 15.0% |
Toyota Motor Corporation |
| 12.5% |
| 11.5% |
| 12.4% |
We sell automotive parts to these threetwo transportation customers for certain vehicle platforms under purchase agreements that have noprogram lifetime volume commitmentsestimates and are subject to purchase orders issued from time to time.
No other customer accounted for 10% or more of total net sales during these periods.
Changes in the level of our customers' orders have, in the past, had a significant impact on our operating results. If a major customer reduces the amount of business it doestransacts with us, or substantially changes the terms of that business, there could be an adverse impact on our operating results.
CTS CORPORATION 5
COMPETITION
We compete with many domestic and foreign manufacturers principally based on the basis of product features, technology, price, quality, reliability, delivery, and service. Most of our product lines encounter significant global competition. The number of competitors varies from product line to product line. No one competitor competes with us in every product line, but manysome competitors are larger and more diversified than we are.
Some customers have reduced or plan to reduce their number of suppliers, while increasing their volume of purchases. In certain other cases customers may choose to use multiple vendors to source products, which could impact our volumes and revenues. Customers demand lower cost and higher quality, reliability, and delivery standards from us as well as from our competitors. These trends create opportunities for us, but also increase the risk of loss of business to competitors. We are subject to competitive risks that are typical within the electronics industry,in our end markets, including in some cases short product life cycles and technical obsolescence.
We believe we compete most successfully in custom engineered products manufactured to meet specific applications of major OEMs.
NON-U.S. REVENUES AND ASSETS
Our net sales to customers originating from our non-U.S. operations as a percentage of total net sales were as follows:
Years Ended December 31, | |||
2017 | 2016 | 2015 | |
Net sales from non-U.S. operations | 32% | 30% | 38% |
Years Ended December 31, | |||
2017 | 2016 | 2015 | |
Total assets at non-U.S. operations | 49% | 48% | 46% |
|
| Years Ended December 31, | ||||
|
| 2023 |
| 2022 |
| 2021 |
Net sales from non-U.S. operations |
| 45.0% |
| 44.4% |
| 42.0% |
We believe the business risks to our non-U.S. operations, though substantial, are normal risks for global businesses. These risks include currency controls and changes in currency exchange rates, longer collection cycles, political and transportationfulfilment risks, economic downturns and inflation, government regulations, and expropriation. See “Item 1A. Risk Factors” for additional discussion of these and other risks that our business faces.
Our non-U.S. manufacturing facilities are located in China, Czech Republic, Denmark, India, Mexico, Philippines, Poland, and Taiwan.
HUMAN CAPITAL MANAGEMENT AND OUR CULTURE
CTS is a leading provider of sensing and motion devices as well as connectivity components and we believe our employees are a critical asset to meeting our mission of enabling an intelligent and seamless world. We take great pride in the products we build, and the manner in which we operate as a company and as individuals. We work together, drawing on our strengths, guided by our culture, which is built on the following core values:
CTS CORPORATION 6
We have a global business, and our employees reflect the diversity of our geographic information.
North America | 2,294 | ||
Asia | 1,262 | ||
Europe | 525 | ||
Total | 4,081 | ||
Female | 58 | % | |
Male | 42 | % |
CTS strives to foster an environment where all employees are respected and treated equally. Empowering our employees’ distinctive talents delivers customer value and advances our culture and engagement. We strive to create an inclusive workplace where everyone feels valued, respected, appreciated, and embraced because of their differences – a place where every employee can be themselves so they can reach their highest potential and help us achieve our business goals.
Our employees must adhere to a Code of Ethics that sets standards for researchappropriate behavior. We provide our employees with annual training on a variety of compliance-related topics including preventing, identifying and development activities is as follows:
Years Ended December 31, | |||
(in thousands) | 2017 | 2016 | 2015 |
Research and development | $25,146 | $24,040 | $22,461 |
We have developed key recruitment and development activities relateretention strategies that guide our human capital management approach as part of the overall management of our business. We advance these strategies through a number of programs and initiatives including the following:
Talent Planning Process
We have a global talent review and succession planning process designed to developing new, innovative products and technologies to meetalign our talent plans with the current and future needsstrategies of the business. This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent acquisition and development. Each year, employees are expected to have defined performance objectives so that they focus time and resources appropriately, understand their impact to the success of our customers. strategy, and understand how their performance will be assessed. Each year managers are expected to complete a mid-year and year-end performance evaluations with their employees.
Employee Compensation
We strive to align compensation with an external group of peer companies in our industry and/or similar to our size while also maintaining consistency and equity within our organization. In addition, we offer a broad range of company-paid benefits, which we believe are competitive in our industry. Our compensation programs are designed to align the compensation of our employees with their performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. We engage with outside consulting firms to benchmark all of our customers with engineering supportemployee compensation and benefits aligning to ensure qualitymarket median.
Training and reliability through all phases of design, launch,Development
Employee development and manufacturing to meet or exceed customer requirements. Many such researchcompany growth go hand in hand. At CTS, we focus our learning and development activities benefit one or a limited numberon areas that we believe will most effectively support the achievement of customers or potential customers. All researchour business objectives. In the competitive environment in which we operate, employees need to replenish their knowledge and acquire new skills to do their jobs better. CTS provides growth and development costsopportunities through programs such as Education Reimbursement, Situational Leadership, Leadership Essentials, and the Accelerated Leadership Program. In addition, we have a mentorship program for key employees to leverage internal leadership and expertise.
Health and Safety
The safety and well-being of our employees is a priority and vital to our success. Our health and safety activities are expensed as incurred.
CTS Cares
We employed 3,222 people at December 31, 2017, with 80% of these employees located outside the U.S. We employed 2,796 people at December 31, 2016. Approximately 117 employees at one locationrecognize that we have a responsibility to be a positive influence in the United States were covered by two collective bargaining agreementscommunities in which we do business around the world, and CTS Cares is the platform that connects CTS employees to the causes that we care about. We have a rich history of philanthropy and
CTS CORPORATION 7
community involvement. Our employees routinely leverage their individual skills and capabilities to give back to their local communities. We value and are proud of the contributions that our employees make. CTS Cares supports our global community.
EXECUTIVE OFFICERS OF THE COMPANY
Executive Officers. The following persons serve as executive officers of CTS as of December 31, 2017. Both agreements are scheduled2023.
Name | Age | Positions and Offices | ||
Kieran O'Sullivan | 61 | President, Chief Executive Officer and Chairman of the Board | ||
Ashish Agrawal | 53 | Vice President and Chief Financial Officer | ||
Scott D’Angelo | 53 | Vice President, General Counsel and Secretary | ||
Martin Baumeister | 57 | Senior Vice President |
Kieran O’Sullivan – 61 – President, Chief Executive Officer and Chairman of the Board. Mr. O’Sullivan joined CTS on January 7, 2013. Before joining CTS, Mr. O’Sullivan served as Executive Vice President of Continental AG’s Global Infotainment and Connectivity Business and led the NAFTA Interior Division, having joined Continental AG, a global automotive supplier, in 2006. Mr. O’Sullivan is a member of the board of directors of LCI Industries, a supplier of engineered components for manufacturers of recreational vehicles, manufactured homes, marine applications, and for the related aftermarkets, serving as the chairperson of the risk committee, and as a member of the corporate governance, nominating and sustainability and audit committees.
Ashish Agrawal – 53 – Vice President and Chief Financial Officer. On November 11, 2013, Mr. Agrawal was elected Vice President and Chief Financial Officer of CTS. Mr. Agrawal joined CTS in June 2011 as Vice President, Treasury and Corporate Development, and was elected as Treasurer on September 1, 2011. Before joining CTS, Mr. Agrawal was with Dometic Group AB, a manufacturer of refrigerators, awnings and air conditioners, as Senior Vice President and Chief Financial Officer, Americas, beginning in 2007. Prior to expire upon completionthat, Mr. Agrawal was with General Electric Co. in various positions beginning in December 1994.
Scott D’Angelo – 53 – Vice President, General Counsel and Secretary. Mr. D’Angelo joined CTS in February 2021 and was elected General Counsel and Secretary on February 11, 2021. Prior to joining CTS, Mr. D’Angelo was a member of the International Commercial and Trade Practice Group of Baker McKenzie, LLP from March 2019, and served as Vice President, Deputy General Counsel & Chief Compliance Officer of Fortune Brands Home & Security, Inc., a leading home and security products company, from May 2015 and, prior to that, served in several senior roles with McDonald’s Corporation.
Martin Baumeister – 57 – Senior Vice President. Mr. Baumeister joined CTS on January 14, 2020. Immediately prior to joining CTS, Mr. Baumeister served as Executive Director - Product Line Electronics Americas at Vitesco Technologies since October 2019. Prior to that role, Mr. Baumeister served as Executive Director Electronics Americas when Continental separated that subsidiary into an independent entity from July 2018, and served as Executive Director - Global Customer Head from February 2015.
Information with respect to the Company’s Directors and corporate governance policies and practices may be found in our 2016 Restructuring Plan activities.
ADDITIONAL INFORMATION
We are incorporated in the State of Indiana. Our principal corporate office is located at 4925 Indiana Avenue, Lisle, ILIllinois 60532.
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Our internet address is www.ctscorp.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act") as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC"). Other than the documents that we file with or furnish to the SEC that are incorporated by reference herein, the information contained on or accessible through our website is not part of this or any other report we file or furnish to the SEC.
Investors and others should note that we announce material financial information to our investors using the Investors section of this annual reportour website (ctscorp.com/investors), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media and blogs to communicate with our investors and the public about the Company, our services and other issues. It is possible that the information we post on Form 10-K is located atsocial media and blogs could be deemed to be material information. Therefore, we encourage investors, the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Informationmedia, and others interested in the Company to review the information we post on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxysocial media channels and information statements and other information regardingblogs listed on our filings at www.sec.gov.
Item 1A.
Risk FactorsThe following are certain risk factors that could affect our business, financial condition and operating results. These risk factors should be considered in connection with evaluating forward-looking statements contained in this Annual Report on Form 10-K or in any other reports filed or furnished by us, because these factors could cause our actual results and financial condition to differ materially from those projected in any such forward-looking statements. Before you invest in us, you should know that making such an investment involves risks, including the risks described below. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. The risks that are highlighted below are not the only ones that we face. If any of the following risks occur, our business, financial condition orand operating results could be negatively affected.
Risks Related to Our Business and Industry
Because we currently derive a significantsubstantial portion of our revenues from a small number of customers, any decrease in orders from these customers could have an adverse effect on our business, financial condition and operating results.
We depend on a small number of customers for a largesubstantial portion of our business, and changes in the level of our customers' orders have, in the past, had a significant impact on our results of operations. If a major customer significantly delays, reduces, or cancels the level of business it does with us, there could be an adverse effect on our business, financial condition and operating results. Significant pricing and margin pressures exerted by a major customer could also materially adversely affect our operating results. In addition, we generate significant accounts receivable from sales to our major customers. If one or more of our major customers were to become insolvent or otherwise unable to pay or were to delay payment for our products, our business, financial condition and operating results could be materially adversely affected.
Our customers may cancel their orders, change production quantities or locations or delay production.
We generally doreceive volume estimates, but not obtain firm long-term purchasevolume commitments from our customers, and regularlymay experience reduced or extended lead times in customer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons.reasons including the use of additional suppliers. Uncertain economic and geopolitical conditions may result in some of our customers delaying the delivery of some of the products we manufacture for them and placing purchase orders for lower volumes of products than previously anticipated. Cancellations, reductions or delays by a significant customer or by a number of customers may harm our results of operations by reducing the volumes of products we manufacture and sell, as well as by causing a delay in the recovery of our expenditures for inventory in preparation for customer orders, or by reducing our asset utilization, resulting in lower profitability.
In addition, our customers may requirerequest that manufacturing of their products be transitioned from one of our facilities to another to achieve cost reductions and other objectives. Such transfers may result in short-term inefficiencies and costs due to resulting excess capacity and overhead at one facility and capacity constraints and the inability to fulfill all orders at another. In addition, we make key decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements. The short-term nature of our customers' commitments and the changesChanges in demand for theirour customers’ products may reduce our ability to estimate future customer requirements accurately. This may make it difficult to schedule production and maximize utilization of our manufacturing capacity. Anticipated orders may not materialize, and delivery schedules may be deferred as a result of changes in demand for our products or our customers' products. We often increase staffing and capacity and incur other expenses to meet the anticipated demand of our customers, which causes reductions in our gross margins if customer orders are delayed or canceled. On occasion, customers may require rapid increases in production, which may stress our
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resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers' demands. In addition, because many of our costs and operating expenses are relatively fixed over the short-term, a reduction in customer demand could harm our gross margin and operating income until such time as adjustments can be made to activity and operating levels or to structural costs.
Deterioration of general economic, political, credit and/or capital market conditions could adversely affect our financial performance, our ability to grow or sustain our business, financial condition and results of operations, and our ability to access the capital markets.
We compete around the world in various geographic regions and product markets. Global economic and political conditions affect our business and the businesses of our customers and suppliers. Recessions, economic downturns, price instability, inflation, slowing economic growth and social and political instability in the markets where we compete could negatively affect our revenues and financial performance, and adversely impact our ability to grow or sustain our business. For example, current macroeconomic and political instability caused by the Russia-Ukraine conflict (as discussed below), global supply chain disruptions and inflation have adversely impacted and could continue to adversely impact our business and financial results.
The capital and credit markets provide us with liquidity to operate and grow our business beyond the liquidity that operating cash flows provide. A global or regional economic downturn or disruption of the credit markets could increase our future borrowing costs and impair our ability to access capital and credit markets necessary for our operations and to execute our strategic plan. If our access to capital on terms commercially acceptable to us were to become significantly constrained, or if costs of capital increased significantly, then our financial condition, results of operations and cash flows could be adversely affected.
Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing Russia-Ukraine conflictor other geopolitical tensions and conflict.
The ongoing conflict between Russia and Ukraine (which we refer to as the “Russia-Ukraine conflict”) has adversely affected the global economy, and the geopolitical tensions and conflicts it generates may continue to negatively impact our operations. It has resulted in heightened economic sanctions from the U.S., the U.K., the European Union (the "E.U.") and the international community. Even though we have no physical assets in Russia, the impact of the Russia-Ukraine conflict could have a material adverse effect on our business, financial condition, results of operations, supply chain, availability of critical supplies, intellectual property, partners, or customers. Further escalation of geopolitical tensions related to the Russia-Ukraine conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, broader impacts that expand into other markets, cyberattacks, supply chain and logistics disruptions, and volatility in foreign exchange rates, interest rates and financial markets, any of which may adversely affect our business and supply chain. More broadly, there could be additional negative impacts to our financial results if the Russia-Ukraine conflict worsens, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures, including with respect to energy and supply chain cost increases or shortages, or the geographic proximity of the conflict relative to the rest of Europe. Similar geopolitical tensions and political and/or armed conflicts, including tensions between the U.S. and China, China and Taiwan, and the conflict between Israel and Palestine could adversely impact our employees, financial performance, and global operations, including by, among other things, jeopardizing the safety of our employees and facilities, disrupting our and our partners’ production, supply chain and logistics and communications, and causing market volatility, which could adversely impact our sales and/or amplify or affect many of our other risks described elsewhere in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.
The impacts of supply chain constraints and inflationary pressures could adversely impact our operating results.
Our business has been, and may continue to be, impacted by supply chain constraints, including as a result of raw materials and electronic component shortages, including, in particular, shortages of semiconductor chips and resin, longer lead times, port congestion, increased freight costs and the uncertain economic environment worldwide. These supply chain constraints have and may in the future prevent us from making scheduled shipments to customers. Our inability to make scheduled shipments could cause us to experience a shortfall in revenue, increase our costs and adversely affect our relationship with affected customers and our reputation as a reliable supplier. We may be required to pay higher prices for raw materials or electronic components in short supply and order these raw materials or electronic components in greater quantities to compensate for variable delivery times. We may also be required to pay higher prices for raw materials or electronic components due to inflationary trends regardless of supply. In addition, current proposed or future governmental policies may increase the risk of inflation, which could further increase the costs of raw materials and other components for our business. The supply and price of our key raw materials and electronic components can be affected by a number of factors beyond our control, including market demand, inflation, alternative sources for suppliers, global geopolitical events, global or regional disease outbreaks or pandemics, trade agreements among producing and consuming nations and governmental regulations (including tariffs).
Similarly, if the costs of goods continue to increase, our suppliers may seek price increases from us. If we are unable to mitigate the impact of these matters through price increases, cost savings to offset cost increases, hedging arrangements, or other measures, our
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results of operations and financial condition could be adversely impacted. If our competitors maintain or substantially lower their prices, we may lose customers and mark down prices. Our profitability may be impacted by prices that do not offset the inflationary pressures, which may impact our gross margins. Even if we are able to raise the prices of our products, we may not be able to sustain such price increases. Temporary or sustained price increases may also lead to a decrease in demand for our products as competitors may not adjust their prices which could lead to a decline in sales volume and loss of market share. Our projections may not accurately predict the volume impact of price increases, which could adversely affect our business, financial condition and results of operations.
We sell products to customers in cyclical industries that are subject to significant downturns that could materially adversely affect our business, financial condition and operating results.
We sell products to customers in cyclical industries that have experienced economic and industry downturns. The markets for our products have softened in the past and may again soften in the future. We may face reduced end-customer demand, underutilization of our manufacturing capacity, changes in our revenue mix and other factors that could adversely affect our results of operations in the near-term. results.
We cannot predict whether we will achieve profitability in future periods.
Factors negatively affecting thesethe industries we serve and the demand for their products alsocould negatively affect our business, financial condition and operating results. Any adverse occurrence, including among others, industry slowdown, recession, public health crisis, political instability, costly or constraining regulations, increased tariffs, reduced government budgets and spending, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers' production schedules or labor disturbances, that results in a decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results. These industries are generallymay be unionized and some of our customers have experienced labor disruptions in the past. Furthermore, these industries arecan be highly cyclical in nature and sensitive to changes in general economic conditions, consumer preferences and interest rates. The failureinsolvency of manufacturerscustomers that we serve may result in the failure to receive payment in full for products sold in the past and an abrupt cancellationreduction in demand for certain products. Weakness in demand, the insolvency of manufacturerscustomers that we serve or their suppliers, and constriction of credit markets may negatively and materially affect our facility utilization, cost structure, financial condition, and operating results.
Our operating results may vary significantly from period to period.
We experience fluctuations in our operating results. Some of the principal factors that contribute to these fluctuations are: changes in demand for our products; our effectiveness in managing manufacturing processes, costs and timing of our component purchases so that components are available when needed for production, while mitigating the risks of purchasing inventory in excess of immediate production needs; the degree to which we are able to utilize our available manufacturing capacity; changes in the cost and availability of components, which often occur in the electronics manufacturing industry and which affect our margins and our ability to meet delivery schedules; general economic and served industry conditions; and local conditions and events that may affect our production volumes, such as labor conditions or political instability.
We may pursue acquisition opportunities that are intended to complement or expand our business as well as divestitures that could impact our business operations. We may not be able to complete these transactions, and these transactions, if executed, may pose significant risks that could materially adversely affect our business, financial condition and operating results.
On an ongoing basis we explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer us growth opportunities. For example, during 2022 and 2023, we acquired TEWA Temperature Sensors SP. Zo.o. (“TEWA”), Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S, “Ferroperm”) and maglab AG ("Maglab"). We may have difficulty finding suitable acquisition opportunities or, if we do identify these opportunities, we may not be able to complete the transactions for any number of reasons including a failure to secure financing. In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired businesses such as TEWA, Ferroperm and Maglab, including their operations or employees. Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of management's attention from our existing business to integrate the operations and personnel of the acquired or combined business; possible adverse effects on our operating results during the integration process; difficulties managing and integrating operations in geographically dispersed locations; increases in our expenses and working capital requirements, which could reduce our return on invested capital; exposure to unanticipated liabilities of acquired companies; and our possible inability to achieve the intended objectives of the transaction. Even if we are initially successful in integrating a new operation, we may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities or the incurrence of additional debt. These and other factors could harm our ability to achieve anticipated levels of profitability from acquired operations or realize other anticipated benefits of an acquisition and could adversely affect our business and operating results.
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We have in the past, and may in the future, consider divesting certain business operations. Divestitures may involve a number of risks, including the diversion of management's attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of operations in the affected business. Failure to timely complete or consummate a divestiture may negatively affect valuation of the affected business or result in restructuring charges.
We may restructure our operations or fail to execute capital projects as planned, which may materially adversely affect our business, financial condition and operating results.
We have announced and initiated restructuring plans or capital projects at various times in the recent past designed to revise and consolidate certain aspects of our operations for the purpose of improving our cost structure and operational efficiency. We may incur restructuring and impairment charges in the future if circumstances warrant, which could be material. Additionally, if we are unsuccessful in implementing restructuring plans or in executing capital projects, we may experience disruptions in our operations and higher ongoing costs, which may materially adversely affect our business, financial condition and operating results.
We may be unable to compete effectively against competitors.
The industries in which we operate are highly competitive and characterized by price erosion and rapid technological change. We compete against many domestic and foreign companies, some of which have substantially greater manufacturing, financial, research and development, and marketing resources than we do. If any customer becomes dissatisfied with our prices, quality, or timeliness of delivery, among other things, it could award business to our competitors. Moreover, some of our customers could choose to manufacture and develop particular products themselves rather than purchase them from us. Increased competition could result in price reductions, reduced profit margins and loss of market share, each of which could materially adversely affect our business, financial condition and operating results. These developments also may materially adversely affect our ability to compete successfully going forward. We cannot assure you that our products will continue to compete successfully with our competitors' products.
We may be unable to keep pace with rapid technological changes that could make some of our products or processes obsolete before we realize a return on our investment.
The technologies relating to some of our products have undergone and are continuing to undergo changes. End markets for our products are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements, and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable before we can recover any or all of our research, development and commercialization expenses, or our capital investments. Furthermore, the life cycles of our products and the products we manufacture for others vary, may change, and are difficult to estimate.
We may experience difficulties that could delay or prevent the successful development, introduction and marketing of new products or product enhancements and our new products or product enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and operating results could be materially adversely affected.
Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.
Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to design or manufacturing errors, supplier quality issues, or component failure. Product defects could result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects could result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. As we grow our business, the risk of exposure to product liability litigation increases. We may be required to participate in a recall involving products which are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability; however, costs related to product defects and the costs of such claims, including costs of defense and settlement, may exceed our available coverage. Accordingly, our results of operations, cash flow and financial position could be adversely affected.
We are subject to government regulations, including environmental, health, and safety laws and regulations, that expose us to potential financial liability.
Our operations are regulated by a number of federal, state, local and foreign government regulations, including those pertaining to environmental, health, and safety (“EHS”) that govern, among other things, air and water emissions, worker protection, and the handling, storage and disposal of hazardous materials. Compliance with EHS laws and regulations is a major consideration for us because we use
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hazardous materials in our manufacturing processes. If we violate EHS laws and regulations, we could be liable for substantial fines, penalties, and costs of mandated remedial actions and we could suffer reputational damage due to any such violations. Our environmental permits could also be revoked or modified, which could require us to cease or limit production at one or more of our facilities, thereby materially adversely affecting our business, financial condition and operating results. EHS laws and regulations have generally become more stringent over time and could continue to do so, imposing greater compliance costs and increasing risks and penalties associated with any violation, which also could materially affect our business, financial condition and operating results.
We have been notified by the U.S. Environmental Protection Agency (the “EPA”), state environmental agencies and, in some cases, groups of potentially responsible parties, that we are potentially liable for environmental contamination at several sites currently and formerly owned or operated by us, including sites designated as National Priorities List sites under the EPA’s Superfund program. Superfund liability is joint and several and we may be held responsible for more than our share of contamination at a site. On February 8, 2023, we received a demand letter from the EPA seeking reimbursement of its past response costs and interest thereon in the amount of $9,955 relating to the CTS of Asheville, Inc. Superfund Site, from the three potentially responsible parties associated with the site, including the Company. See Note 11 "Contingencies" in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. Although we estimate our potential environmental liability and reserve for such matters, including the Asheville site, we cannot assure you that our reserves will be sufficient to cover the actual costs that we incur as a result of these matters.
Future events, such as the notification of potential liability at new sites, the discovery of additional contamination or changes to an approved remedy at an existing site, changes to existing EHS laws and regulations or their interpretation, and more rigorous regulatory action by government authorities, may require additional expenditures by us, which could have a negative impact on our operations.
Changes in tax, environmental, trade or other regulations or failure to comply with existing licensing, trade and other regulations could cause volatility or have a material adverse effect on our business and financial results.
Future changes to U.S. or foreign tax and trade policies, impositions of new or increased tariffs, other trade restrictions or other government actions, including any government shutdown, may lead to the continuation or escalation of such risks and uncertainty.
In addition, changes to existing tax laws or the adoption of new tax laws, particularly in the U.S. and the E.U., could have a material adverse impact on our effective tax rate, future cash tax liabilities and the ability to utilize deferred tax assets. The current economic and political environment may result in significant tax law changes in the numerous jurisdictions in which we operate. In addition, our effective tax rate could be materially affected by certain tax proposals developed by the Organization for Economic Cooperation and Development and European Commission regarding the taxation of multinational businesses. Adverse changes in the underlying profitability and financial outlook of our operations in several jurisdictions could lead to changes in our valuation allowances against deferred tax assets and other tax accruals that could materially and adversely affect our results of operations. In addition, acquisitions or divestitures may cause our effective tax rate to change.
We base our tax positions upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax positions are subject to review and possible challenge by taxing authorities and to possible changes in law, which may have a retroactive effect.
Continued economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult. The final resolution of tax audits and any related litigation can differ from our historical provisions and accruals, resulting in an adverse effect on our financial performance. Additionally, modifications of laws and policies governing foreign trade and investment, including trade agreements and tariffs such as the United States-Mexico-Canada Agreement, or the European Union-United Kingdom Trade and Cooperating Agreement, could adversely affect our supply chain, business and results of operations. The implementation of additional tariffs and retaliatory tariffs from trade partners or related uncertainties could further increase the cost of certain of our imported materials, thereby adversely affecting our profitability.
Failure to comply with existing laws and regulations or changes in these laws, regulations, or interpretations thereof, specifically tax and environmental laws or any other laws or regulations could result in the loss, revocation or suspension of our licenses, permits or approvals and could have a material adverse effect on our business, financial condition and results of operations. Additionally, uncertainties exist with respect to the interpretation of, and potential future developments in, complex domestic and international tax laws and regulations, the amount and timing of future taxable income and the interaction of such laws and regulations among jurisdictions. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded.
Risks Related to Technology and Data Privacy
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We are exposed to, and may be adversely affected by, cybersecurity threats, incidents or other disruptions to our information technology systems and data.
We rely on our information technology systems and networks, including cloud-based systems, in connection with many of our business activities, some of which are managed directly by us, while others are managed by third-party service providers and are not under our direct control. Our operations routinely involve receiving, storing, processing and transmitting information pertaining to our business, customers, suppliers, employees, and other operations. We have both an increasing reliance on information technology systems and an increasing digital footprint as a result of changing technologies, connected devices and digital offerings, as well as expanded remote work policies. If these technologies, systems, products or services are threatened, disputed, damaged, cease to function properly, are compromised due to employee or third-party contractor error, user error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity incidents, such as those involving denial of service attacks, ransomware, unauthorized access, malicious software, or other intrusions or disruptions, including by criminals, nation states or insiders, our business may be adversely impacted. The impacts of any such circumstances could include production downtimes, operational delays, and other impacts on our operations and ability to provide products and services to our customers; compromise of confidential, proprietary or otherwise protected information, including personal information and customer confidential data; destruction, corruption, or theft of data or intellectual property; manipulation, disruption, or improper use of these technologies, systems, products or services; financial losses from fraudulent transactions, remedial actions, loss of business or potential liability; adverse media coverage; and legal claims or legal proceedings, including regulatory investigations, actions and fines; and damage to our reputation and, as a result, have a material adverse effect on our business operations and financial performance.
Cybersecurity incidents could have a disruptive effect on our business.
From time to time, we and the service providers that we depend on to host our data and support our systems and business operations, are the target of, and periodically respond to, cybersecurity threats, including phishing and denial-of-service attacks, which, if successful, could result in a loss of business or customer information, systems interruption or the disruption of our operations. The techniques that are used to obtain unauthorized access, disable or degrade service or sabotage systems and data change frequently, have continued to increase in recent years and such efforts may be difficult to detect for long periods of time. As a result, we monitor our systems to protect our technology infrastructure and data. In addition, we further attempt to mitigate these risks by employing a number of other measures, including employee training, a breach response plan, and maintenance of backup and protective systems. Further, while we maintain insurance coverage that is intended to address certain aspects of cybersecurity risks, such insurance coverage may not cover all losses or all types of claims that arise. Notwithstanding these measures, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity threats, any of which could have a material adverse effect on our business operations and financial performance. We have in the past been subject to cybersecurity incidents which have not had a material impact on our business or financial condition and expect that we will be subject to additional cybersecurity incidents in the future.
We are exposed to risks and costs associated with complying with privacy laws and protecting personal data and other sensitive information.
We are subject to various risks and costs associated with the collection, handling, storage and transmission of information, including costs related to compliance with U.S. and foreign data protection and privacy laws and other contractual obligations, as well as risks associated with the compromise of our systems collecting such information. Many jurisdictions, including the E.U., the U.K., China and certain states within the U.S., have passed laws that require companies to meet specific requirements regarding the processing, use, and disclosure of personal data. We collect internal and customer data and other information, including personally identifiable information for a variety of business purposes, including managing our workforce and providing requested products and services. We could be exposed to investigations, fines, penalties, restrictions, litigation, reputational harm or other expenses, or other adverse effects on our business, due to failure to protect personal data or other sensitive information or failure to maintain compliance with the various U.S. and foreign data collection and privacy laws or applicable data security standards.
Failure to keep pace with developments in technology could adversely affect our operations or competitive position.
The technologies and systems we use to operate our business may require refinements and upgrades, and third parties may cease support of systems that are currently in use. The development and maintenance of these technologies may require significant investment by us. As various systems and technologies become outdated or new technology is required, we may not be able to replace or introduce them as quickly as needed or in a cost-effective and timely manner. As a result, our business operations could be disrupted and we could be exposed to cybersecurity threats, adversely affecting our business operations and financial performance.
Because third parties provide us with a number of operational and technical services, third-party cybersecurity incidents could expose us to liability, harm our reputation, damage our competitiveness and adversely affect our financial performance.
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Third parties provide us with certain operational and technical services. These third parties may have access to our systems, provide hosting services, or otherwise process data about or on behalf of us, our employees or partners. Any third-party cybersecurity incident could compromise the security, integrity or availability of or result in the theft, unauthorized access or processing, or disruption of access to data, which could negatively impact our operations. We rely on the internal processes and controls of third-party software and application vendors to maintain the security of all software code, systems, and data provided to or used by or on behalf of the Company. Any cybersecurity incidents involving third parties on which we rely could negatively affect our reputation, our competitive position and our financial performance, and we could face regulatory scrutiny, investigations, lawsuits and further potential liability.
Risks Related to Indebtedness and Financing
Our indebtedness may adversely affect our financial health.
Our indebtedness could, among other things: increase our vulnerability to general economic and industry conditions, including recessions; require us to use cash flow from operations to service our indebtedness, thereby reducing our ability to fund working capital, capital expenditures, research and development efforts and other expenses; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; place us at a competitive disadvantage compared to competitors that have less indebtedness; or limit our ability to borrow additional funds that may be needed to operate and expand our business.
Our credit facility contains provisions that could materially restrict our business.
Our revolving credit facility contains restrictions limiting our ability to: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; repurchase stock; or make dividend payments above a certain amount.
The restrictions contained in our credit facility could limit our ability to plan for or react to changes in market conditions or meet capital needs or could otherwise restrict our activities or business plans. These restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, fund investments or other capital needs or engage in other business activities that could be in our interest.
Further, our ability to comply with our loan covenants may be affected by events beyond our control that could result in an event of default under our credit facility, or documents governing any other existing or future indebtedness. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under our credit facility. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us, or at all.
The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from such projections, which may adversely affect our future profitability, cash flows and stock price.
Our financial projections, including any sales or earnings guidance or outlook we may provide from time to time, are dependent on certain estimates and assumptions related to, among other things, development and launch of innovative new products, market share projections, product pricing, sales, volume and product mix, foreign exchange rates and volatility, tax rates, interest rates, commodity prices, cost savings, accruals for estimated liabilities, including litigation reserves, and our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, repurchase our stock, make acquisitions, pay dividends and meet debt obligations. There is no assurance that we will fully realize the anticipated cost savings and other benefits of our restructuring activities in the time frames we desire or at all. Our financial projections are based on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances and at the time they are made, and our actual results may differ materially from our financial projections. Any material variation between our financial projections and our actual results may adversely affect our future profitability, cash flows and stock price.
Risks Related to Other External Factors
Loss, operational disruptions or closure of a key facility, including those of our suppliers, due to unforeseen or catastrophic events or otherwise, could have a material adverse effect on our business and financial results.
Our business could be interrupted and our financial results could be materially adversely impacted by physical risks such as earthquakes, fires, hurricanes, floods, acts of war, terrorist attacks, cyberattacks and other disruptions in information systems, disease outbreaks or
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pandemics, and other natural disasters or catastrophic events that damage, disrupt or destroy one of our key facilities or the key facilities of our significant suppliers. If any of our key facilities or the key facilities of our significant suppliers experience a significant operational disruption or catastrophic loss, it could delay, disrupt or reduce production, shipments and revenue, and result in potentially significant expenses to repair or replace these properties. Such significant disruptions could be due to, among other things:
Additionally, certain catastrophes are not covered by our general insurance policies, which could result in significant unrecoverable losses. Our business and results of operations could also be adversely impacted by under-investment in physical assets or production capacity.
Climate-related events and climate change legislation could adversely impact our business.
The effects of climate change and the ongoing efforts to mitigate its impact, including through climate change-related legislation and regulation, could have a material adverse effect on our business, financial condition, and results of operations. The physical effects of climate change, including extreme weather and natural disasters (including those risks discussed under the heading “Loss, operational disruptions or closure of a key facility, including those of our suppliers, due to unforeseen or catastrophic events or otherwise, could have a material adverse effect on our business and financial results”) may disrupt our operations and those of our customers and suppliers. In addition, changes to laws or regulations enacted to address the potential impacts of climate change could have a material adverse impact on our business, financial condition, and results of operations. For example, continuing political and social attention to the issue of climate change has resulted in both existing and pending international agreements and national, regional, or local legislation and regulatory measures to limit greenhouse gas emissions. Any future increased regulation concerning greenhouse gas emissions and other climate-change related laws and regulations, may require equipment modifications, operational changes, payment of increased or additional taxes, or the purchase of emission credits to reduce the emission of greenhouse gases from our operations, which may result in us incurring substantial capital expenditures and compliance, operating, maintenance and remediation costs. In addition, any such future regulatory changes could result in transition risks to our business, including but not limited to (i) the nature and timing of any requirement to lower greenhouse gas emissions and adopt more energy-efficient energy use, which could result in changes or disruptions to the way we operate our business, (ii) the risk of lower demand for our products related to customers who experience business declines or disruptions due to the impact of any requirement to lower greenhouse gas emissions, (iii) financial risks where compliance with such regulations requires unforeseen capital expenditures, (iv) legal risks associated with the implementation of any new technologies required to comply with such regulations, which could impede our ability to innovate new products, meet customer and market demand or compete on pricing and quality in the market, and/or (v) reputational risks associated with our customers’ and investors’ perceptions of our business. We are not able to predict how any future definitive agreements, pacts and/or regulations, if and when they are adopted and required, and the commitments necessary to comply with such requirements, will affect our business, financial condition, and results of operations.
General Risk Factors
Unfavorable outcomes of legal or regulatory matters may adversely affect our business and financial condition and damage our reputation.
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We are from time to time involved in or subject to a variety of litigation, claims, legal or regulatory proceedings or matters related to our business, warranty claims, our intellectual property rights, alleged infringement or misappropriation by us of intellectual property rights of others, tax, environmental, privacy, insurance, ERISA and employment matters. Such matters, even those that are ultimately non-meritorious, can be complex, costly, and highly disruptive to business operations by diverting the attention and energies of management and other key personnel, and may generate adverse publicity that damages our reputation. The assessment of the outcome of such matters, including our potential liability, if any, is a highly subjective process that requires judgments about future events that are not within our control and are based on the information available to management at that time. The outcome of such matters, including amounts ultimately received or paid upon judgment or settlement, may differ materially from management’s outlook or estimates, including any amounts accrued in the financial statements. Actual outcomes, including judgments, awards, settlements or orders, could have a material adverse effect on our business, financial condition, operating results, or cash flows and damage our reputation.
We face risks relating to our international operations.
Because we have significant international operations, our operating results and financial condition could be materially adversely affected by economic, political, health, regulatory and other factors existing in foreign countries in which we operate. Our international operations are subject to inherent risks, which may materially adversely affect us, including: political and economic instability in countries in which our products are manufactured; expropriation or the imposition of government controls; changes in government regulations; export license requirements; trade restrictions; earnings repatriation and expatriation restrictions; exposure to different legal standards, including related to intellectual property; health conditions and standards; currency controls; fluctuations in exchange rates; increases in the duties and taxes we pay; inflation or deflation; greater difficulty in collecting accounts receivable and longer payment cycles; changes in labor conditions and difficulties in staffing and managing our international operations; limitations on insurance coverage against geopolitical risks, natural disasters, and business operations; and communication among and with management of international operations. In addition, these same factors may also place us at a competitive disadvantage compared to some of our foreign competitors.
We may face risks associated with violations of the Foreign Corrupt Practices Act and similar anti-bribery laws (collectively, "Anti-Bribery Laws"). Anti-Bribery Laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our Code of Ethics mandates compliance with these Anti-Bribery Laws. We operate in many parts of the world where strict compliance with Anti-Bribery Laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures always will protect us from the detrimental actions by our employees or agents. If we are found to be liable for violations of Anti-Bribery Laws (either due to our own acts or inadvertence or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.
Public health or safety concerns and governmental restrictions that impact the availability of raw materials, labor, or the movement of goods in some of the countries in which we operate could have a material adverse effect on our business, financial condition, and operating results.
We are exposed to fluctuations in foreign currency exchange rates that may adversely affect our business, financial condition and operating results.
We transact business in various foreign countries. We present our consolidated financial statements in U.S. dollars, but a portion of our revenues and expenditures are transacted in other currencies. As a result, we are exposed to fluctuations in foreign currencies. Additionally, we have currency exposure arising from funds held in local currencies in foreign countries. Volatility in the exchange rates between the foreign currencies and the U.S. dollar could harm our business, financial condition and operating results. Furthermore, to the extent we sell our products in foreign markets, currency fluctuations may result in our products becoming too expensive for foreign customers.
If we are unable to protect our intellectual property or we infringe or are alleged to infringe, on others' intellectual property rights, our business, financial condition and operating results could be materially adversely affected.
The success of our business depends, in part, upon our ability to protect our trade secrets, trademarks, copyrights and patents, obtain or license patents and operate without infringing on the intellectual property rights of others. We rely on a combination of trade secrets, copyrights, patents, nondisclosure agreements and technical and other measures to protect our proprietary rights in our products and technology. The steps we have taken to prevent misappropriation of our technology may be inadequate. In addition, the laws of some foreign countries in which we operate do not protect our proprietary rights to the same extent as do the laws of the United States. Although we continue to evaluate and implement protective measures, there can be no assurance that these efforts will be successful. Our inability to protect our intellectual property rights could diminish or eliminate the competitive advantages that we derive from our technology, cause us to lose sales or otherwise harm our business.
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We believe that patents will continue to play an important role in our business. However, there can be no assurance that we will be successful in securing patents for claims in any pending patent application or that any issued patent will provide us with any
We may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringed on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay penalties and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.
Loss of our key management and other personnel, or an inability to attract key management and other personnel, could materially affect our business.
We depend on our senior executive officers and other key personnel to run our business. We do not have long-term employment contracts with our key personnel. The loss of any of these officers or other key personnel could adversely affect our operations. Competition for qualified employees among companies that rely heavilyOur future success depends on engineering and technology is at times intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activitiesidentify, attract, and develop marketable products successfully.
Ineffective internal control over our financial reporting may harm our business.
We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). Our controls necessary for continued compliance with Sarbanes-Oxley may not operate effectively or at all times and may result in a material weakness. The identification of material weaknesses in internal control over financial reporting could indicate a lack of proper controls to generate accurate financial statements. Further, the effectiveness of our internal controls may be impacted if we are unable to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.
Environmental, social, and governance ("ESG") issues, including those related to climate change and sustainability, may adverselyhave an adverse effect on our business, financial condition and results of operations and damage our reputation.
Companies across all industries are facing increasing scrutiny relating to their ESG practices and policies. Increased focus and activism related to ESG may hinder our access to capital or negatively impact our capabilitystock price, as investors may reconsider their capital investment based on their assessment of our ESG practices and policies. In particular, investor advocacy groups, institutional investors, stockholders, employees, consumers, customers, regulators, proxy advisory services and other market participants have increasingly focused on ESG practices and policies of companies, including sustainability performance and risk mitigation efforts, and their effect on companies from an investor, consumer, customer or employee perspective. If our ESG practices do not meet investor or other stakeholder expectations and standards or evolving regulatory requirements, our stock price, sales, ability to supply productaccess capital markets, reputation and employee retention, among other things, may be negatively affected.
Shareholder activism efforts or unsolicited offers from a third-party could cause a material disruption to our customers.
We may be subject to various legal and business challenges due to actions instituted by shareholder activists or an unsolicited third-party offer. Perceived uncertainties as storms, flooding and associated power outages, occurring at anyto our future direction as a result of our locations or supplier locationsshareholder activism may lead to disruptionthe perception of a change
CTS CORPORATION 18
in the direction of the business or other instability and may affect our relationships with vendors, customers, prospective and current employees and others. Proposed or future laws and regulations may increase the chance we become the target of shareholder activist campaigns, including ESG-related actions. If shareholder activist campaigns are initiated against us, our response to such actions could be costly and time-consuming, which could divert the attention and resources of our manufacturing operationsBoard of Directors, Chief Executive Officer and supply chain, adversely impactingsenior management from the pursuit of our capabilitybusiness strategies, which could harm our business, negatively impact our stock price, and have an adverse effect on our business and financial results.
Future dividends on our common stock may be restricted or eliminated.
Dividends are declared at the discretion of our Board of Directors, and future dividends will depend on our future earnings, cash flow, financial requirements and other factors. Under the most restrictive terms of our credit agreements, our ability to supply productpay cash dividends on our common stock is limited, as described under “Risks Related to Indebtedness and Financing.” There can be no assurance that we will continue to pay dividends in the future.
We may not continue to repurchase our customers. common stock or make repurchases our common stock at favorable prices.
In February 2024, our Board of Directors approved a new share repurchase program that authorizes the eventCompany to repurchase up to $100 million of its common stock. Any purchases will depend on a number of factors, including our evaluation of general market and economic conditions, our financial condition and the trading price of our common stock. The repurchase program may be extended, modified, suspended or discontinued at any time. A reduction in, or the completion of, our repurchase program could have a negative effect on our stock price. We can provide no assurance that we will repurchase our common stock at favorable prices, or at all.
On August 16, 2022, the Inflation Reduction Act of 2022 (“Inflation Reduction Act”) was enacted. The Inflation Reduction Act imposes on publicly-traded companies a new, nondeductible excise tax equal to 1% of the fair market value of any stock of a natural disaster, it maycompany that is repurchased after December 31, 2022, during its taxable year. Because this excise tax would be payable by us, and not be possible for usby a redeeming holder, the imposition of this excise tax could cause a reduction in the cash available on hand to find an alternate manufacturing location for certain product lines, further impactingimplement the repurchase program.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
The Company’s cybersecurity risk management strategy is comprised of several key elements. We assess our capabilityinformation technology and data management/storage systems and related policies and practices and to recover from suchhelp guide and prioritize our cybersecurity and information technology-related investments, activities and risk management strategy. We leverage a disruption.
We have a cybersecurity training program that covers a variety of topics designed to educate our employees about the importance of cybersecurity awareness, highlight typical cybersecurity-related risks and issues (such as phishing attacks and other methods used to attempt to infiltrate our systems) and test that awareness using knowledge assessments and simulations. The training is administered to employees on a rolling basis, and we use a third-party provider for the content periodically update the training to incorporate new cybersecurity-related developments.
The oversight of our cybersecurity risk is integrated into our enterprise-wide risk management process. We annually review cybersecurity risk as part of our enterprise risk management process and evaluate whether to integrate those findings into our overall cybersecurity strategy. We have a Cybersecurity Strategy Committee, which is a cross-functional team of business representatives led by our Vice President of IT & Digitization, which is responsible for spearheading the ongoing development and execution of our cybersecurity strategy. The Cybersecurity Strategy Committee meets regularly and at other times as needed, and periodically updates the Company’s management on its progress and activities.
Like many other companies, from time to time, we detect attempts by third parties to gain access to our systems and networks, and the confidentiality, availabilityfrequency of such attempts could increase in the future. As of the date of this Annual Report on Form 10-K, we are not aware of any cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition. However, there can be no assurance that our efforts to prevent or mitigate
CTS CORPORATION 19
cybersecurity incidents will be successful. Please see “Risks Related to Technology and integrityData Privacy” in “Risk Factors” in Section 1A of this Annual Report on Form 10-K.
Governance
Our cybersecurity program is overseen by a Vice President of IT & Digitization and information technology team (collectively, the “IT Team”) responsible for identifying, assessing, monitoring, managing and communicating the Company’s cybersecurity risks. The IT team includes members with experience developing and implementing enterprise-wide cybersecurity strategies and initiatives, managing risks relating thereto, and evaluating industry standards and regulations.
While our Board has the ultimate oversight responsibility for the risk management process, the Audit Committee is responsible for oversight of our datacybersecurity strategy and communications. While we attemptrisks. The Audit Committee is provided with quarterly and as needed updates on the Company’s cybersecurity strategy and risks. In addition, the Board is provided with an annual cybersecurity update that addresses similar topics to mitigate these risks by employingthose discussed with the Audit Committee on a numberquarterly basis.
In the event of a reported potential cybersecurity incident, our IT Team decides whether such incident triggers our Cybersecurity Threat Evaluation and Response Plan (the “Response Plan”). If triggered, the Company’s cybersecurity response team, as needed under the circumstances (the “Cyber Response Team”), is convened. Members of the Cyber Response Team, as appropriate and as set forth in the Response Plan, are responsible for developing, recommending and implementing measures -to address the cybersecurity incident, including employee training, comprehensivewhen appropriate, assessing, containing and mitigating its impact, notifying members of the Company’s management, the Audit Committee and the full Board of the cybersecurity incident, and coordinating external communications, in each case as appropriate under the circumstances. The IT Team is responsible for implementing and monitoring the effectiveness of our networks and systems, and maintenanceany remediation plan adopted as a result of backup and protective systems - our systems, networks and products remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. Additionally, any updates to or implementation of systems may cause delays or disruptions in our processes or production which could adversely affect our results.
Item 2.
PropertiesAs of February 23, 2018,December 31, 2023, we had manufacturing facilities, administrative, research and development and sales offices in the following locations:
Manufacturing Facilities | Owned/Leased | |
Albuquerque, New Mexico | Leased | |
Boise, Idaho | Leased | |
Calamba, Philippines | Leased | |
Kaohsiung, Taiwan | Leased(1) | |
Kvistgaard, Denmark | Leased | |
Leczna, Poland | Leased | |
Lisle, Illinois | Leased | |
Lublin, Poland | Leased | |
Matamoros, Mexico | Owned | |
Matamoros, Mexico | Leased | |
Tecate, Mexico | Leased | |
Nogales, Mexico | Leased | |
Nupaky, Czech Republic | Leased | |
Ostrava, Czech Republic | Leased | |
Tianjin, China | Owned(2) | |
Zhongshan, China | Leased |
Manufacturing Facilities | Square Footage | Owned/Leased | ||
Albuquerque, New Mexico | 102,800 | Leased | ||
Bolingbrook, Illinois | 30,600 | Leased | ||
Elkhart, Indiana | 319,000 | Owned | ||
Haryana, India | 19,400 | Leased | ||
Hopkinton, Massachusetts | 32,000 | Owned | ||
Hradec Kralove, Czech Republic | 30,680 | Leased | ||
Juarez, Mexico | 114,200 | Leased | ||
Kaohsiung, Taiwan | 75,900 | Owned | (1) | |
Kvistgaard, Denmark | 30,680 | Leased | ||
Matamoros, Mexico | 51,000 | Owned | ||
Nogales, Mexico | 64,000 | Leased | ||
Ostrava, Czech Republic | 67,600 | Leased | ||
Prague, Czech Republic | 13,660 | Leased | ||
Tianjin, China | 225,000 | Owned | (2) | |
Zhongshan, China | 112,600 | Leased | ||
Total manufacturing | 1,289,120 |
CTS CORPORATION 20
A small portion of the China, Czech Republic, and Denmark locations above also maintain sales offices.
Non-Manufacturing Facilities | Owned/Leased | Description | ||
Boise, Idaho | Leased | Warehouse | ||
Brownsville, Texas | Owned | Land | ||
Brownsville, Texas | Leased | Warehouse | ||
El Paso, Texas | Leased(1) | Office and | ||
Elkhart, Indiana | Owned | Idle facility | ||
Elkhart, Indiana | Owned | Administrative and research offices | ||
Farmington Hills, Michigan | Leased | Sales office | ||
Hopkinton, Massachusetts | Owned | Idle facility | ||
Juarez, Mexico | Leased(1) | Idle facility | ||
Kaohsiung, Taiwan | Leased | Administrative | ||
Lisle, Illinois | Leased | Administrative | ||
Matamoros, Mexico | Leased | Warehouse and administrative offices | ||
Nagoya, Japan | Leased | Sales office | ||
Nogales, Mexico | Leased | Warehouse and administrative offices | ||
Singapore | Leased | Sales office | ||
Tecate, Mexico | Leased | Warehouse and administrative offices | ||
Tecate, Mexico | Owned | Idle facility | ||
Yokohama, Japan | Leased | Sales office | ||
Zug, Switzerland | Leased | Administrative, | ||
offices |
We regularly assess the adequacy of our manufacturing facilities for manufacturing capacity, available labor, and proximity to our markets and major customers. Management believes our manufacturing facilities are suitable and adequate and have sufficient capacity to meet our current needs.needs including approximately 1 million square feet of manufacturing and 750 thousand square feet of non-manufacturing spaces. The extent of utilization varies from plant to plant and with general economic conditions. We also review the operating costs of our facilities and may from time-to-time relocate a portion of our manufacturing activities in order to reduce operating costs and improve asset utilization and cash flow.
Item 3.
Legal ProceedingsFrom time to time we are involved in litigation with respect to matters arising from the ordinary conduct of our business, and currently certain claims are pending against us. In the opinion of management, we believe we have established adequate accruals pursuant to U.S. generally accepted accounting principles for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based uponon presently available information, either adequate provision for anticipated costs have been accruedinformation. However, we cannot provide assurance that the final resolution of any existing or the ultimate anticipated costsfuture lawsuits, claims or proceedings will not materially affecthave a material adverse effect on our consolidated financial position,business, results of operations, financial condition, or cash flows.
See NOTE 9Note 11, "Contingencies" in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Item 4.
Mine Safety DisclosuresNot applicable.
PART II
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is listed on the New York Stock Exchange under the symbol "CTS." On February 20, 2018,16, 2024, there were approximately 1,022771 shareholders of record.
On February 9, 2023, the Board of Directors.
Dividends | Net Earnings (Loss) | ||||||||||||||
High(1) | Low(1) | Declared | Basic | Diluted | |||||||||||
2017 | |||||||||||||||
4th quarter | $ | 28.35 | $ | 23.95 | $ | 0.04 | $ | (0.41 | ) | $ | (0.41 | ) | |||
3rd quarter | 24.70 | 21.05 | 0.04 | 0.29 | 0.29 | ||||||||||
2nd quarter | 22.75 | 19.30 | 0.04 | 0.30 | 0.30 | ||||||||||
1st quarter | 23.60 | 20.78 | 0.04 | 0.26 | 0.25 | ||||||||||
2016 | |||||||||||||||
4th quarter | $ | 24.80 | $ | 16.35 | $ | 0.04 | $ | 0.25 | $ | 0.25 | |||||
3rd quarter | 19.79 | 17.10 | 0.04 | 0.11 | 0.11 | ||||||||||
2nd quarter | 19.09 | 15.06 | 0.04 | 0.44 | 0.44 | ||||||||||
1st quarter | 17.39 | 12.87 | 0.04 | 0.24 | 0.24 |
(in thousands, except share data) | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Value of Shares Purchased as Part of Plans or Program | (d) Maximum Value of Shares That May Yet Be Purchased Under the Plans or Programs(1) | |||||||
Balance at December 31, 2016 | $ | 17,554 | |||||||||
January 1, 2017 – December 31, 2017 | — | $ | — | $ | — | $ | 17,554 |
CTS CORPORATION 21
|
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
October 1, 2023 – October 31, 2023 |
|
| 97,982 |
|
| $ | 40.38 |
|
|
| 97,982 |
|
| $ | 24,445,949 |
|
November 1, 2023 – November 30, 2023 |
|
| 171,665 |
|
| $ | 39.53 |
|
|
| 171,665 |
|
| $ | 17,660,741 |
|
December 1, 2023 – December 31, 2023 |
|
| 115,817 |
|
| $ | 41.03 |
|
|
| 115,817 |
|
| $ | 12,908,355 |
|
Total |
|
| 385,464 |
|
|
|
|
|
| 385,464 |
|
|
|
|
On February 2, 2024, the open market.Board approved a new share repurchase program that authorizes the Company to repurchase up to $100 million of its common stock. The authorizationnew share repurchase program has no expiration.
Shareholder Performance Graph
The following graph shows a five-year comparison of the cumulative total shareholder return on CTS common stock with the cumulative total returns of a general market index and a peer group index (S&P 500(Russell 2000 Index and Dow Jones Electrical Components & Equipment Industry Group). The graph tracks the performance of a $100 investment in the Company's common stock and in each of the indexes (with the reinvestment of all dividends) on December 31, 2012.
Item 6.
CTS CORPORATION 22
2017 | % of Sales | 2016 | % of Sales | 2015 | % of Sales | 2014 | % of Sales | 2013 | % of Sales | ||||||||||||||||
Summary of Operations | |||||||||||||||||||||||||
Net sales from continuing operations | $ | 422,993 | 100.0 | $ | 396,679 | 100.0 | $ | 382,310 | 100.0 | $ | 404,021 | 100.0 | $ | 409,461 | 100.0 | ||||||||||
Cost of goods sold | 282,562 | 66.8 | 256,251 | 64.6 | 255,201 | 66.8 | 274,058 | 67.8 | 288,108 | 70.4 | |||||||||||||||
Gross Margin | 140,431 | 33.2 | 140,428 | 35.4 | 127,109 | 33.2 | 129,963 | 32.2 | 121,353 | 29.6 | |||||||||||||||
Selling, general and administrative expenses | 71,943 | 17.0 | 61,624 | 15.5 | 59,586 | 15.6 | 61,051 | 15.1 | 71,646 | 17.5 | |||||||||||||||
Research and development expenses | 25,146 | 5.9 | 24,040 | 6.1 | 22,461 | 5.9 | 22,563 | 5.6 | 23,222 | 5.7 | |||||||||||||||
Non-recurring environmental expense | — | — | — | — | 14,541 | 3.8 | — | — | — | — | |||||||||||||||
Restructuring and impairment charges | 4,139 | 1.0 | 3,048 | 0.8 | 14,564 | 3.8 | 5,941 | 1.5 | 10,455 | 2.5 | |||||||||||||||
Loss (gain) on sale of assets | 708 | (2.9 | ) | (11,450 | ) | (2.9 | ) | (2,156 | ) | (0.6 | ) | (1,915 | ) | (0.5 | ) | (1,657 | ) | (0.4 | ) | ||||||
Operating earnings from continuing operations | 38,495 | 9.1 | 63,166 | 15.9 | 18,113 | 4.7 | 42,323 | 10.5 | 17,687 | 4.3 | |||||||||||||||
Other income (expense) | 1,758 | 0.4 | (5,921 | ) | (1.5 | ) | (5,852 | ) | (1.5 | ) | (2,975 | ) | (0.7 | ) | 376 | 0.1 | |||||||||
Earnings before income taxes from continuing operations | 40,253 | 9.5 | 57,245 | 14.4 | 12,261 | 3.2 | 39,348 | 9.8 | 18,063 | 4.4 | |||||||||||||||
Income tax expense from continuing operations | 25,805 | 6.1 | 22,865 | 5.8 | 5,307 | 1.4 | 12,826 | 3.2 | 16,066 | 3.9 | |||||||||||||||
Earnings from continuing operations | 14,448 | 3.4 | 34,380 | 8.7 | 6,954 | 1.8 | 26,522 | 6.6 | 1,997 | 0.5 | |||||||||||||||
Loss from discontinued operations, net of tax | — | — | — | — | (5,926 | ) | |||||||||||||||||||
Net earnings (loss) | $ | 14,448 | $ | 34,380 | $ | 6,954 | $ | 26,522 | $ | (3,929 | ) | ||||||||||||||
Retained earnings - beginning of year | $ | 410,979 | 381,840 | 380,145 | 358,997 | 367,800 | |||||||||||||||||||
Dividends declared | (5,267 | ) | (5,241 | ) | (5,259 | ) | (5,374 | ) | (4,874 | ) | |||||||||||||||
Retained earnings - end of year | $ | 420,160 | $ | 410,979 | $ | 381,840 | $ | 380,145 | $ | (358,997 | ) | ||||||||||||||
Net earnings (loss) per share: | |||||||||||||||||||||||||
Basic: | |||||||||||||||||||||||||
Continuing operations | $ | 0.44 | $ | 1.05 | $ | 0.21 | $ | 0.79 | $ | 0.06 | |||||||||||||||
Discontinued operations | — | — | — | — | (0.18 | ) | |||||||||||||||||||
Total | $ | 0.44 | $ | 1.05 | $ | 0.21 | $ | 0.79 | $ | (0.12 | ) | ||||||||||||||
Diluted: | |||||||||||||||||||||||||
Continuing operations | $ | 0.43 | $ | 1.03 | $ | 0.21 | $ | 0.78 | $ | 0.06 | |||||||||||||||
Discontinued operations | — | — | — | — | (0.18 | ) | |||||||||||||||||||
Total | $ | 0.43 | $ | 1.03 | $ | 0.21 | $ | 0.78 | $ | (0.12 | ) | ||||||||||||||
Average basic shares outstanding (000s) | 32,892 | 32,728 | 32,959 | 33,618 | 33,601 | ||||||||||||||||||||
Average diluted shares outstanding (000s) | 33,420 | 33,251 | 33,484 | 34,130 | 34,249 | ||||||||||||||||||||
Cash dividends per share (annualized) | $ | 0.160 | $ | 0.160 | $ | 0.160 | $ | 0.160 | $ | 0.145 | |||||||||||||||
Capital expenditures | $ | 18,094 | $ | 20,500 | $ | 9,723 | $ | 12,949 | $ | 13,982 | |||||||||||||||
Depreciation and amortization | $ | 20,674 | $ | 18,992 | $ | 16,254 | $ | 16,971 | $ | 21,169 | |||||||||||||||
Financial Position at Year End | |||||||||||||||||||||||||
Current assets | $ | 233,609 | $ | 215,707 | $ | 245,954 | $ | 240,401 | $ | 236,269 | |||||||||||||||
Current liabilities | 102,412 | 98,129 | 94,620 | 79,982 | 95,120 | ||||||||||||||||||||
Current ratio | 2.3 to 1 | 2.2 to 1 | 2.5 to 1 | 3.0 to 1 | 2.5 to 1 | ||||||||||||||||||||
Working capital | 131,197 | 117,578 | 151,334 | 160,419 | 141,149 | ||||||||||||||||||||
Inventories | 36,596 | 28,652 | 24,600 | 27,887 | 32,226 | ||||||||||||||||||||
Net property, plant and equipment | 88,247 | 82,111 | 69,872 | 71,414 | 74,869 | ||||||||||||||||||||
Total assets | 539,696 | 517,697 | 483,373 | 456,926 | 480,265 | ||||||||||||||||||||
Long-term debt | 76,300 | 89,100 | 90,700 | 75,000 | 75,000 | ||||||||||||||||||||
Long-term obligations, including long-term debt | 93,479 | 101,686 | 107,099 | 87,155 | 88,416 | ||||||||||||||||||||
Shareholders' equity | 343,805 | 317,882 | 281,654 | 289,789 | 296,729 | ||||||||||||||||||||
Common shares outstanding (000s) | 32,938 | 32,762 | 32,548 | 33,392 | 33,559 | ||||||||||||||||||||
Equity (book value) per share | $ | 10.44 | $ | 9.70 | $ | 8.65 | $ | 8.68 | $ | 8.84 | |||||||||||||||
Stock price range | 19.30-28.35 | 12.87-24.80 | 15.30-20.25 | 15.58-21.65 | 9.33-20.10 |
This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Overview
CTS Corporation ("CTS", "we", "our" or "us") is a leading designer and manufacturer of products that Sense, Connect and Move. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products, technologies and technologiestalent within these categories.
We manufacture sensors, actuators and electronicconnectivity components in North America, Europe, and Asia. CTS provides solutionsengineered products to OEMs and tier one suppliers in the aerospace communications,and defense, industrial, information technology, medical, and transportation markets.
There is an increasing proliferation of sensing and motion applications within various markets we serve. In addition, the increasing connectivity of various devices to the internet results in greater demand for communication bandwidth and data storage, increasing the need for our connectivity products. Our success is dependent on the ability to execute our strategy to support these trends. We are subject to challenges including periodic market softness, competition from other suppliers, changes in technology, and the ability to add new customers, launch new products or penetrate new markets.
On February 6, 2023, we acquired 100% of the outstanding shares of maglab AG ("Maglab") for $4,164 in cash subject to additional earnout payments based on future performance. Maglab has deep expertise in magnetic system design and current measurement solutions for use in e-mobility, industrial automation, and renewable energy applications. Maglab's domain expertise coupled with CTS’ commercial, technical and operational capabilities position us to advance our status as a recognized innovator in electric motor sensing and controls markets.
Results of Operations: Fourth Quarter 2017Year Ended December 31, 2023 versus Fourth Quarter 2016
(Amounts in thousands, except percentages and per share amounts):
Three Months Ended December 31, | Percent of Net Sales | |||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | ||||||||
Net sales | $ | 110,910 | $ | 101,584 | 9.2 | 100.0 | 100.0 | |||||
Cost of goods sold | 78,035 | 65,723 | 18.7 | 70.4 | 64.7 | |||||||
Gross margin | 32,875 | 35,861 | (8.3 | ) | 29.6 | 35.3 | ||||||
Selling, general and administrative expenses | 24,973 | 15,165 | 64.7 | 22.5 | 14.9 | |||||||
Research and development expenses | 6,714 | 5,626 | 19.3 | 6.1 | 5.5 | |||||||
Restructuring and impairment charges | 1,197 | 873 | 37.1 | 1.1 | 0.9 | |||||||
Loss on sale of assets | 10 | 51 | (80.4 | ) | — | 0.1 | ||||||
Total operating expenses | 32,894 | 21,715 | 51.5 | 29.7 | 21.4 | |||||||
Operating (loss) earnings | (19 | ) | 14,146 | (100.1 | ) | — | 13.9 | |||||
Other income (expense) | 164 | (2,775 | ) | (105.9 | ) | 0.1 | (2.7 | ) | ||||
Earnings before income tax | 145 | 11,371 | (98.7 | ) | 0.1 | 11.2 | ||||||
Income tax expense | 13,766 | 3,061 | 349.7 | 12.4 | 3.0 | |||||||
Net (loss) earnings | $ | (13,621 | ) | $ | 8,310 | (263.9 | ) | (12.3 | ) | 8.2 | ||
Diluted earnings per share: | ||||||||||||
Diluted net (loss) earnings per share | $ | (0.41 | ) | $ | 0.25 |
Three Months Ended December 31, | ||||||
2017 | 2016 | |||||
Interest expense | $ | (1,134 | ) | $ | (956 | ) |
Interest income | 370 | 223 | ||||
Other income (expense) | 928 | (2,042 | ) | |||
Total other income (expense), net | $ | 164 | $ | (2,775 | ) |
Three Months Ended December 31, | ||||
2017 | 2016 | |||
Effective tax rate | 9,493.8 | % | 26.9 | % |
The following table highlights changes in significant components of the Consolidated Statements of Earnings for the years ended December 31, 2017,2023, and December 31, 2016:
Years Ended December 31, | Percent of Net Sales | ||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | |||||||
Net sales | $ | 422,993 | $ | 396,679 | 6.6 | 100.0 | 100.0 | ||||
Cost of goods sold | 282,562 | 256,251 | 10.3 | 66.8 | 64.6 | ||||||
Gross margin | 140,431 | 140,428 | — | 33.2 | 35.4 | ||||||
Selling, general and administrative expenses | 71,943 | 61,624 | 16.7 | 17.0 | 15.5 | ||||||
Research and development expenses | 25,146 | 24,040 | 4.6 | 5.9 | 6.1 | ||||||
Restructuring and impairment charges | 4,139 | 3,048 | 35.8 | 1.0 | 0.8 | ||||||
Loss (gain) on sale of assets | 708 | (11,450 | ) | (106.2 | ) | 0.2 | (2.9 | ) | |||
Total operating expenses | 101,936 | 77,262 | 31.9 | 24.1 | 19.5 | ||||||
Operating earnings | 38,495 | 63,166 | (39.1 | ) | 9.1 | 15.9 | |||||
Other income (expense) | 1,758 | (5,921 | ) | (129.7 | ) | 0.4 | (1.5 | ) | |||
Earnings before income tax | 40,253 | 57,245 | (29.7 | ) | 9.5 | 14.4 | |||||
Income tax expense | 25,805 | 22,865 | 12.9 | 6.1 | 5.8 | ||||||
Net earnings | 14,448 | 34,380 | (58.0 | ) | 3.4 | 8.7 | |||||
Diluted earnings per share: | |||||||||||
Diluted net earnings per share | $ | 0.43 | $ | 1.03 |
|
| Years Ended December 31, |
|
|
|
|
| Percent of Net Sales |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
| Percent |
|
| 2023 |
|
| 2022 |
| |||||
Net sales |
| $ | 550,422 |
|
| $ | 586,869 |
|
|
| (6.2 | )% |
|
| 100 | % |
|
| 100 | % |
Cost of goods sold |
|
| 359,563 |
|
|
| 376,331 |
|
|
| (4.5 | ) |
|
| 65.3 |
|
|
| 64.1 |
|
Gross margin |
|
| 190,859 |
|
|
| 210,538 |
|
|
| (9.3 | ) |
|
| 34.7 |
|
|
| 35.9 |
|
Selling, general and administrative expenses |
|
| 83,816 |
|
|
| 91,520 |
|
|
| (8.4 | ) |
|
| 15.2 |
|
|
| 15.6 |
|
Research and development expenses |
|
| 24,918 |
|
|
| 24,100 |
|
|
| 3.4 |
|
|
| 4.5 |
|
|
| 4.1 |
|
Restructuring charges |
|
| 7,074 |
|
|
| 1,912 |
|
|
| 270.0 |
|
|
| 1.3 |
|
|
| 0.3 |
|
Total operating expenses |
|
| 115,808 |
|
|
| 117,532 |
|
|
| (1.5 | ) |
|
| 21.0 |
|
|
| 20.0 |
|
Operating earnings |
|
| 75,051 |
|
|
| 93,006 |
|
|
| (19.3 | ) |
|
| 13.6 |
|
|
| 15.8 |
|
Total other income (expense), net |
|
| 102 |
|
|
| (12,269 | ) |
|
| (100.8 | ) |
|
| 0.0 |
|
|
| (2.1 | ) |
Earnings before taxes |
|
| 75,153 |
|
|
| 80,737 |
|
|
| (6.9 | ) |
|
| 13.7 |
|
|
| 13.8 |
|
Income tax expense |
|
| 14,621 |
|
|
| 21,162 |
|
|
| (30.9 | ) |
|
| 2.7 |
|
|
| 3.6 |
|
Net earnings |
| $ | 60,532 |
|
| $ | 59,575 |
|
|
| 1.6 | % |
|
| 11.0 | % |
|
| 10.2 | % |
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diluted net earnings per share |
| $ | 1.92 |
|
| $ | 1.85 |
|
|
|
|
|
|
|
|
|
|
Net sales were $422,993$550,422 for the year ended December 31, 2017, an increase2023, a decrease of $26,314,$36,447, or 6.6%6.2% from 2016. Sales2022. The decline in net sales was primarily driven by decreased volume of industrial and commercial vehicle products. Net sales to the non-transportation markets decreased $34,203 or 12.1%, while net sales to the transportation markets increased $12,586decreased $2,245 or 4.8%0.8%. Other
CTS CORPORATION 23
The TEWA Temperature Sensors SP. Zo.o. (“TEWA”) and Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S, “Ferroperm”) acquisitions, both completed in 2022, added net sales increased $13,728 or 10.2%. The Noliacof $37,460 and $23,477 in 2023 and 2022, respectively, while the Maglab acquisition added $7,084net sales of $1,755 in 2023. Changes in foreign exchange rates decreased net sales in 2017.
Gross margin aswas $190,859 for the year ended December 31, 2023, a percentdecrease of sales was 33.2% in 2017 versus 35.4% in 2016.$19,679 or 9.3% from the year ended December 31, 2022. The pension settlement charge recorded in the fourth quarter of 2017 impacted gross margin unfavorably by $4,796, or 1.1% of sales. The remaining decrease in gross margin resulted from costs relating to certain production rework issues that were resolvedwas driven by lower sales volumes as well as changes in 2017 and an unfavorable impact of foreign exchange rate movements.
Selling, general and administrative ("SG&A") expenses were $71,943,$83,816, or 17.0%15.2% of sales for the year ended December 31, 2017,2023, versus $61,624$91,520 or 15.5%15.6% of sales in the comparable period of 2016.2022. The pension settlement charge recordeddecrease in the fourth quarter of 2017 impacted selling, general and administrativeSG&A expenses unfavorably by $6,557 or 1.6% of sales. The remaining increase was primarily attributable to an increase in stock-baseddriven by lower incentive compensation associated with lower financial performance as well as incremental costs resulting from the Noliac acquisition in 2017 and the single crystal acquisition in 2016, including amortization of intangibles.
Research and development (“R&D”) expenses were $25,146$24,918, or 5.9%4.5% of sales in 20172023 compared to $24,040$24,100, or 6.1%4.1% of sales in 2016. The pension settlement charge recorded2022, in the fourth quarter of 2017 impactedline with our commitment to continue investing in research and development expenses unfavorably by $2,062, or 0.5% of sales. The remaining decrease is related to higher reimbursements from customers for research and development costs in 2017 and timing of certain expenses. Research and development expenses are focused on expanded applications of existing products, new product development and enhancements for current products and processes.
Restructuring and impairment charges were $4,139 for$7,074, or 1.3% of net sales in 2023, compared to $1,912, or 0.3% of net sales in 2022. The restructuring charges in the year ended December 31, 2017. The charges2023 were mainly for building and equipment relocation, severance and travel costsprimarily related to costs associated with our plant closure and consolidation activities. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the restructuring of certain operations as part ofNotes to the 2016 Restructuring Plan. Restructuring charges were $3,048Consolidated Financial Statements in 2016.
Other income and expense items are summarized in the following table:
Years Ended December 31, | ||||||
2017 | 2016 | |||||
Interest expense | $ | (3,343 | ) | $ | (3,702 | ) |
Interest income | 1,284 | 1,305 | ||||
Other income (expense) | 3,817 | (3,524 | ) | |||
Total other income (expense), net | $ | 1,758 | $ | (5,921 | ) |
|
| Years Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Interest expense |
| $ | (3,331 | ) |
| $ | (2,192 | ) |
Interest income |
|
| 4,625 |
|
|
| 1,326 |
|
Other expense |
|
| (1,192 | ) |
|
| (11,403 | ) |
Total other (expense), net |
| $ | 102 |
|
| $ | (12,269 | ) |
Interest income was down slightly in 2017 versus 2016. increased due to investments of available cash into short-term, cash equivalent, high yield deposit accounts.
Other income in the year ended December 31, 2017, wasexpense, net for 2023 is primarily driven mainly by foreign currency translation gains due to the depreciation of the U.S. Dollar comparedlosses primarily related to the Chinese Renminbi andoffset partially by income from the Euro. qualified replacement plan assets.
Other expense, in the year ended December 31, 2016,net for 2022 was primarily driven by foreign currency translation losses, mainly due to the appreciation$6,803 in excise taxes incurred as part of the U.S. Dollar comparedpension plan termination and $1,776 in derivative losses associated with the acquisition of Ferroperm, as well as foreign currency losses primarily related to the Chinese Renminbi andoffset partially by income from the Euro.
Years Ended December 31, | ||||
2017 | 2016 | |||
Effective tax rate | 64.1 | % | 39.9 | % |
|
| Years Ended December 31, | ||
|
| 2023 |
| 2022 |
Effective tax rate |
| 19.5% |
| 26.2% |
The effective income tax rate in 20172023 was 64.1%, which was primarily due19.5% compared to a provisional one-time tax expense of $18,001 resulting from the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. The rate also reflects a decrease26.2% in the valuation allowance on certain non-U.S. losses as a result of changes in the expectation of our abilityprior year. The decrease is primarily attributed to utilize those losses and changes in the mix of earnings by jurisdiction. The effective income2023 tax rate in 2016 was 39.9%, which includes restructuring charges, one-time items, an increase in valuation allowances recorded against certain state net operating losses andbenefits associated with foreign tax credits and the revaluation of U.S. deferred taxes as a result of the June 2016 restructuring activities discussed in Note 7, "Costs Associated with Exit and Restructuring Activities". The rate also reflects an increase in the valuation allowance on certain non-U.S. losses as a result of changes in the expectation of our ability to utilize those losses, changes in the mix of earnings by jurisdiction, our decision to no longer permanently reinvest the earnings of our Canadian and U.K. subsidiaries, tax expense for withholding taxes on earnings in China that are not anticipated to be maintained in China, and various other discrete items.
Years Ended December 31, | Percent of Net Sales | |||||||||||
2016 | 2015 | Percent Change | 2016 | 2015 | ||||||||
Net sales | $ | 396,679 | $ | 382,310 | 3.8 | 100.0 | 100.0 | |||||
Cost of goods sold (1) | 256,251 | 255,201 | 0.4 | 64.6 | 66.8 | |||||||
Gross margin | 140,428 | 127,109 | 10.5 | 35.4 | 33.2 | |||||||
Selling, general and administrative expenses | 61,624 | 59,586 | 3.4 | 15.5 | 15.6 | |||||||
Research and development expenses | 24,040 | 22,461 | 7.0 | 6.1 | 5.9 | |||||||
Non-recurring environmental expense | — | 14,541 | N/M | — | — | |||||||
Restructuring and impairment charges | 3,048 | 14,564 | (79.1 | ) | 0.8 | 3.8 | ||||||
Gain on sale of assets | (11,450 | ) | (2,156 | ) | 431.1 | (2.9 | ) | (0.6 | ) | |||
Total operating expenses | 77,262 | 108,996 | (29.1 | ) | 19.5 | 28.5 | ||||||
Operating earnings | 63,166 | 18,113 | 248.7 | 15.9 | 4.7 | |||||||
Other expense, net | (5,921 | ) | (5,852 | ) | 1.2 | (1.5 | ) | (1.5 | ) | |||
Earnings before income tax | 57,245 | 12,261 | 366.9 | 14.4 | 3.2 | |||||||
Income tax expense | 22,865 | 5,307 | 330.8 | 5.7 | 1.4 | |||||||
Net earnings | 34,380 | 6,954 | 394.4 | 8.7 | 1.8 | |||||||
Diluted earnings per share: | ||||||||||||
Diluted net earnings per share | $ | 1.03 | $ | 0.21 |
Years Ended December 31, | ||||||
2016 | 2015 | |||||
Interest expense | $ | (3,702 | ) | $ | (2,628 | ) |
Interest income | 1,305 | 3,073 | ||||
Other expense | (3,524 | ) | (6,297 | ) | ||
Total other expense, net | $ | (5,921 | ) | $ | (5,852 | ) |
Years Ended December 31, | ||||
2016 | 2015 | |||
Effective tax rate | 39.9 | % | 43.3 | % |
Liquidity and Capital Resources
As of December 31, | ||||||
2017 | 2016 | |||||
Total credit facility | $ | 300,000 | $ | 300,000 | ||
Balance Outstanding | $ | 76,300 | $ | 89,100 | ||
Standby letters of credit | $ | 2,065 | $ | 2,165 | ||
Amount available | $ | 221,635 | $ | 208,735 | ||
Weighted-average interest rate | 2.30 | % | 1.90 | % | ||
Commitment fee percentage per annum | 0.25 | % | 0.25 | % |
We have historically funded our capital and operating needs primarily through cash flows from operating activities, supported by available credit under our Revolving Credit Facility.Facility (as defined below). We believe that cash flows from operating activities and available borrowings under our Revolving Credit Facility will be adequate to fund our working capital needs, capital expenditures, investments, and debt service requirements for at least the next twelve months.months and for the foreseeable future thereafter. However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions.
CTS CORPORATION 24
Cash and cash equivalents were $163,876 at December 31, 2023 and $156,910 at December 31, 2022, of which $99,940 and $90,244, respectively, were held outside the United States. Total debt as of December 31, 2023 and December 31, 2022 was $67,500 and $83,670, respectively.
Cash Flows from Operating Activities
Net cash provided by operating activities was $88,811 during the year ended December 31, 2023. Components of net cash provided by operating activities included net earnings of $60,532, depreciation and amortization expense of $28,710, other net non-cash items totaling $3,108, offset by a net cash outflow from changes in assets and liabilities of $(3,539) primarily driven by reductions in accounts payable and accrued payroll and benefits as a result of lower sales and incentive compensation accruals.
Net cash provided by operating activities was $121,197 during the year ended December 31, 2022. Components of net cash provided by operating activities included net earnings of $59,575, depreciation and amortization expense of $29,753, other net non-cash items totaling $10,260, and a net cash inflow from changes in assets and liabilities of $21,609 primarily driven by $34,016 received from the U.S. pension plan termination.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2023 was $18,097, driven by capital expenditures of $14,738 and $3,359 of acquisition payments, primarily from the Maglab acquisition as well as final working capital adjustments from the TEWA and Ferroperm acquisitions. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Net cash used in investing activities for the year ended December 31, 2022 was $111,188, driven by the acquisition payments for the TEWA and Ferroperm acquisitions of $96,855 and capital expenditures of $14,333. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Cash Flows from Financing Activities
Net cash used by financing activities for the year ended December 31, 2023, was $65,399. The net cash outflow was the result of treasury stock purchases of $40,926, net cash for debt paydowns of $16,170, dividend payments of $5,040, and taxes paid on behalf of equity award participants of $3,263.
Net cash provided by financing activities for the year ended December 31, 2022, was $4,336. The net cash inflow was the result of net cash from debt of $33,638 associated with completed acquisitions, partially offset by treasury stock purchases of $21,447, dividend payments of $5,131, taxes paid on behalf of equity award participants of $1,524, and contingent consideration payments of $1,200.
Capital Resources
Long-term debt was comprised of the following:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Total credit facility availability |
| $ | 400,000 |
|
| $ | 400,000 |
|
Balance outstanding |
|
| 67,500 |
|
|
| 83,670 |
|
Standby letters of credit |
|
| 1,640 |
|
|
| 1,640 |
|
Amount available, subject to covenant restrictions |
| $ | 330,860 |
|
| $ | 314,690 |
|
Weighted-average interest rate |
|
| 6.07 | % |
|
| 2.96 | % |
On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility availability to $400,000 which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sublimits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility. This new unsecured credit facility replaced the prior $300,000 unsecured credit facility, which would have expired February 12, 2024.
Borrowings in U.S. dollars under the Revolving Credit Facility bear interest, at a per annum rate equal to the applicable Term SOFR rate (but not less than 0.0%), plus the Term SOFR adjustment, and plus an applicable margin, which ranges from 1.00% to 1.75%, based
CTS CORPORATION 25
on our net leverage ratio. Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. We use interest rate swaps to convert a portion of our revolving credit facility's outstanding balance from a variable rate of interest to a fixed rate. The contractual rate of these arrangements ranges from 1.49% to 2.49%.
The Revolving Credit Facility includes a swing line sublimit of $20,000 and a letter of credit sublimit of $20,000. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.175% to 0.25% based on our net leverage ratio. We were in compliance with all debt covenants at December 31, 2023.
Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating, our financial performance, and global credit market conditions, as well as a broad range of other factors. In addition, we have $99,940 of foreign cash balances and our ability to repatriate these funds timely and in a tax efficient manner may be restricted. See “Item 1A. Risk Factors” for additional discussion of risks that our business faces.
As of December 31, 2023, our material cash requirements for our known contractual and other obligations were as follows:
We have no off-balance sheet arrangements that have a material current effect or are reasonably likely to have a material future effect on our financial condition or changes in our financial condition.
Acquisitions
On February 28, 2022, we acquired TEWA, a designer and manufacturer of high-quality temperature sensors. The net cash payment of $24,515 for this acquisition was funded by the Company's cash on hand.
On June 30, 2022, we acquired Ferroperm, a designer and manufacturer of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications. The net cash payment of $72,340 for this acquisition was funded by a combination of cash on hand and borrowings under our Revolving Credit Facility.
On February 6, 2023, we acquired 100% of the outstanding shares of Maglab for $4,164 in cash subject to additional earnout payments based on future performance. The acquisition was funded from cash on hand.
Critical Accounting PoliciesEstimates and Estimates
The Securities and Exchange Commission ("SEC") has defined a company’s critical accounting policies as the consolidatedones that are most important to the portrayal of a company’s financial statementscondition and results of operations, and which require a company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
CTS CORPORATION 26
Critical Accounting Estimates
Goodwill, Intangibles and Other Long-Lived Assets
Purchase Accounting
We use the acquisition method of accounting principles generally accepted into allocate costs of acquired businesses to the United Statesassets acquired and liabilities assumed based on their estimated fair values at the dates of America. These principles requireacquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed are recognized as goodwill. The valuations of the acquired assets and liabilities assumed will impact the determination of future operating results. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions we used are reasonable, based upon the information available.
Intangible assets other than goodwill are recognized if the most critical in understanding and evaluating our reported financial results.
Impairment Assessment – Goodwill
Goodwill of a reporting unit is tested for impairment annually,on the first day of its fiscal fourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include, but are not limited to, the following:
If we believe that one or more of the above indicators of impairment have occurred, we perform an impairment test.
We have the option to perform a qualitative assessment (commonly referred to as a "step zero" test) to determine whether further quantitative analysis for impairment of goodwill and indefinite-lived intangible assets is necessary. The test involvesqualitative assessment includes a two-step process. The first stepreview of macroeconomic conditions, industry and market considerations, internal cost factors, and our own overall financial and share price performance, among other factors. If, after assessing the impairment test involves comparing the fair valuestotality of the applicable reporting units with their aggregate carrying values, including goodwill. We generallyevents or circumstances we determine that it is not more-likely-than-not that the fair value of our reporting units using two valuation methods: "Income Approach — Discounted Cash Flow Method" and "Market Approach — Guideline Public Company Method". The approach defined below is based upon our last impairment test conducted as of October 1, 2017.
If a quantitative assessment is required, we estimate the reporting unit's fair value of each reporting unit using a combination of discounted cash flow analysis and market-based valuation methodologies. Determining fair value using a quantitative approach requires significant judgment, including judgments about projected revenues, cash flows over a multi-year period, discount rates and estimated valuation multiples. The discount rate applied to our forecasts of future cash flows is based on our estimated weighted average cost of capital. In assessing the reasonableness of our determined fair values, we performevaluate our results against our market capitalization. Changes in these estimates and assumptions could materially affect the second stepdetermination of fair value and impact the goodwill impairment testassessment.
For 2023, we elected to determineperform the amount of impairment loss, if any. This involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill.
Impairment Assessment – Other Intangible Assets and Other Long-Lived Assets
We evaluate the impairment of identifiable intangibles and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered that may trigger an impairment review consist of, but are not limited to, the following:
CTS CORPORATION 27
If we believe that one or more indicators of impairment have occurred, we perform a recoverability test by comparing the carrying amount of an asset or asset group to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value. No indicators of impairment were identified as of December 31, 2017.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of our consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage our underlying businesses.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASCAccounting Standards Codification (“ASC”) 740 states that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of its technical merits. We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Critical Accounting Policies
Revenue Recognition
We recognize revenue in accordance with the Financial Accounting Standards Board’s (“FASB”) ASC 606, Revenue from Contracts with Customers, net of estimated reserves. Our practicerevenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for price adjustments. We base these estimates on the most likely value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded.
Product Warranties
Provisions for estimated warranty expenses are made at the time products are sold. The expense and corresponding accrual primarily relate to our products sold to our transportation markets. These estimates are established using a quoted industry rate and are based on customer specific circumstances. We adjust our warranty reserve for any known or anticipated warranty claims as new information becomes available. We evaluate our warranty obligations at least quarterly and adjust our accruals if it is probable that future costs will be different than our current reserve.
Over the last three years, product warranty reserves have ranged from 0.4% to recognize interest2.7% of net sales. We believe our reserve level is appropriate considering all facts and penalties relatedcircumstances surrounding any outstanding quality claims and our historical experience selling our products to income tax matters as part of income tax expense.
Inventories
We earn a significant amount ofvalue our operating income outsideinventories at the lower of the U.S., which is generally deemedactual cost to be permanently reinvested in foreign jurisdictions except in Canadapurchase or manufacture using the first-in, first-out ("FIFO") method, or net realizable value. We review inventory quantities on hand and the U.K. In 2015, as a result of changes in the business, the foreign earnings of these two subsidiaries were no longer permanently reinvested. Therefore,record a provision for excess and obsolete inventory based on historical consumption trends as well as forecasts of product demand including related production requirements. Once reserves are established, write-downs of inventory are considered permanent adjustments to the expected taxes on repatriationcost basis of those earnings was recorded. However, as a resultinventory. Our reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, market conditions, and product life cycles. Changes in actual demand or market conditions could adversely impact our reserve calculations.
CTS CORPORATION 28
Over the last three years, our reserves for excess and obsolete inventories have ranged from 13.7% to 17.4% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the Tax Cutsinventories.
Environmental Contingencies
U.S. GAAP requires a liability to be recorded for contingencies when it is probable that a liability has been incurred and Jobs Act, we can repatriate our cumulative undistributed foreign earnings back to the U.S. when needed with minimal U.S. income tax consequences other than the one-time deemed repatriation charge. We will continue to evaluate whether to repatriate all or a portionamount of the cumulative undistributed foreign earningsliability can be reasonably estimated. We record environmental contingent loss accruals on an undiscounted basis. Significant judgment is required to determine the existence and amounts of our environmental liabilities. We regularly consult with attorneys and consultants to determine the relevant facts and circumstances before we record a liability. Changes in the estimates on which the accruals are based, on expansion needs and as circumstances change. We are still evaluating whether to change our indefinite reinvestment assertion in light of the Act and consider that conclusion to be incomplete under guidance issued by SAB 118. If we subsequently change our assertion during the measurement period, we will account for the change in assertion as a change in estimate related to enactment of the Act.
Payments due by period | |||||||||||||||
Total | 2018 | 2019-2020 | 2021-2022 | 2023-beyond | |||||||||||
Long-term debt, including interest | $ | 80,513 | $ | 1,712 | $ | 78,801 | $ | — | $ | — | |||||
Operating lease payments | 21,351 | 3,631 | 4,609 | 1,950 | 11,161 | ||||||||||
Retirement obligations | 7,140 | 855 | 1,603 | 1,472 | 3,210 | ||||||||||
Total | $ | 109,004 | $ | 6,198 | $ | 85,013 | $ | 3,422 | $ | 14,371 |
Recent Accounting Pronouncements
The information set forth under Note 1 - "Summary of Significant Accounting Policies," in the Notes to finance anticipated capital requirements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk(in thousands)
Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates, interest rates and interest rates.commodity prices. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes, and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.
Interest Rate Risk
We are exposed to risk of changes in interest rates on our revolving credit facility.Revolving Credit Facility. There was $76,300$67,500 and $89,100$83,670 outstanding under our revolving credit facilityRevolving Credit Facility at December 31, 2017,2023 and 2016,2022, respectively. As of December 31, 2017,2023, we had interest rate swaps that fix interest costs on $50,000 of our long-term debt. The remaining portiondebt through December 2026 and a cross-currency swap on $17,500 of $26,300 is exposed to interest risk and at December 31, 2017, a one percentageour long-term debt through June 2027. A 100-basis point increasechange in interest rates would increasenot materially impact our total interest expense by approximately $300.
Foreign Currency Risk
We are exposed to foreign currency exchange rate risks. Our significant foreign subsidiaries are located in China, Czech Republic, Denmark, Mexico, and Taiwan. AsDuring 2023, net sales from outside the U.S. were approximately 45% of total net sales. During 2022, net sales to customers from outside the U.S. were approximately 44% of total net sales.
The Company’s foreign exchange exposures result primarily from the sale of products in foreign currencies, foreign currency denominated purchases, and employee-related and other costs of running operations in foreign countries. Changes in foreign exchange rates could affect the Company’s sales, costs, balance sheet values and earnings; therefore, we have entered into foreign currency forward contracts with notional values of $13,548 and $31,787 as of December 31, 2017, we had $33.2 million outstanding foreign currency forward exchange contracts2023 to hedge our exposure against the Euro and Mexican Peso, respectively.
In addition, we entered into a cross currency interest rate swap agreement on June 27, 2022 that synthetically swapped $25,000 of variable rate debt to Krone denominated variable rate debt. Upon completion of the Ferroperm acquisition on June 30, 2022, the transaction was designated as a net investment hedge for accounting purposes and Euro.
Commodity Price Risk
Many of our products require the use of raw materials that are produced in only a limited number of regions around the world or are available from only a limited number of suppliers. Our most significant raw materials and purchased components include conductive
CTS CORPORATION 29
inks and contactors, passive connectivity components, integrated circuits and semiconductors, certain rare earth elements ("REEs"), ceramicpowders, plastic components, molding compounds, printed circuit boards and assemblies, quartz blanks and crystals, wire harness assemblies, copper, brass, silver, gold,platinum, lead, aluminum, and steel-based raw materials and components.
Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price increases for these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or net realizable value.
As the Company is exposed to significant changes in certain commodity prices, we actively monitor these exposures and may take various actions from time to time to mitigate any negative impacts relating thereto.
CTS CORPORATION 30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CTS Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of CTS Corporation (an Indiana corporation) and subsidiaries (the “Company”) as of December 31, 20172023 and 2016,2022, the related consolidated statements of earnings (loss), comprehensive earnings, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes and schedulefinancial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in the 2013
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Ferroperm Piezoceramics A/S acquisition – valuation of acquired customer relationships
As described further in Note 3 to the financial statements, the Company acquired Ferroperm Piezoceramics A/S (“Ferroperm”) on June 30, 2022 for a total purchase price of $72.4 million. Accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of approximately $38.1 million, which is primarily comprised of customer relationships of $31.8 million. The Company estimated the fair value of the customer relationships using the multi-period excess earnings method, which is an income approach that required management to make significant estimates and assumptions related to future revenues and cash flows and the selection of the discount rate. We identified the measurement of the acquisition-date fair value of the acquired customer relationships as a critical audit matter.
The principal considerations for our determination that the acquisition-date fair value of the acquired customer relationships is a critical audit matter were the high degree of auditor judgment and an increased extent of effort, which included utilizing specialists, to test management’s internally developed assumptions for which there was limited observable market information. These assumptions were: 1) the forecasted revenue growth rates for existing customers, 2) the estimated customer attrition rate and 3) the discount rate.
Our audit procedures related to the critical audit matter included the following, among others.
CTS CORPORATION 31
/s/ GRANT THORNTON LLP
We have served as CTS Corporation’sthe Company’s auditor since 2005.
Chicago, Illinois
February 23, 20182024
CTS CORPORATION 32
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands)
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Net sales | $ | 422,993 | $ | 396,679 | $ | 382,310 | |||
Cost of goods sold | 282,562 | 256,251 | 255,201 | ||||||
Gross Margin | 140,431 | 140,428 | 127,109 | ||||||
Selling, general and administrative expenses | 71,943 | 61,624 | 59,586 | ||||||
Research and development expenses | 25,146 | 24,040 | 22,461 | ||||||
Non-recurring environmental expense | — | — | 14,541 | ||||||
Restructuring and impairment charges | 4,139 | 3,048 | 14,564 | ||||||
Loss (gain) on sale of assets | 708 | (11,450 | ) | (2,156 | ) | ||||
Operating earnings | 38,495 | 63,166 | 18,113 | ||||||
Other (expense) income: | |||||||||
Interest expense | (3,343 | ) | (3,702 | ) | (2,628 | ) | |||
Interest income | 1,284 | 1,305 | 3,073 | ||||||
Other income (expense) | 3,817 | (3,524 | ) | (6,297 | ) | ||||
Total other income (expense), net | 1,758 | (5,921 | ) | (5,852 | ) | ||||
Earnings before taxes | 40,253 | 57,245 | 12,261 | ||||||
Income tax expense | 25,805 | 22,865 | 5,307 | ||||||
Net earnings | $ | 14,448 | $ | 34,380 | $ | 6,954 | |||
Net earnings per share: | |||||||||
Basic | 0.44 | 1.05 | 0.21 | ||||||
Diluted | 0.43 | 1.03 | 0.21 | ||||||
Basic weighted-average common shares outstanding | 32,892 | 32,728 | 32,959 | ||||||
Effect of dilutive securities | 528 | 523 | 525 | ||||||
Diluted weighted-average common shares outstanding | 33,420 | 33,251 | 33,484 | ||||||
Cash dividends declared per share | $ | 0.16 | $ | 0.16 | $ | 0.16 |
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net sales |
| $ | 550,422 |
|
| $ | 586,869 |
|
| $ | 512,925 |
|
Cost of goods sold |
|
| 359,563 |
|
|
| 376,331 |
|
|
| 328,306 |
|
Gross margin |
|
| 190,859 |
|
|
| 210,538 |
|
|
| 184,619 |
|
Selling, general and administrative expenses |
|
| 83,816 |
|
|
| 91,520 |
|
|
| 82,597 |
|
Research and development expenses |
|
| 24,918 |
|
|
| 24,100 |
|
|
| 23,856 |
|
Restructuring charges |
|
| 7,074 |
|
|
| 1,912 |
|
|
| 1,687 |
|
Operating earnings |
|
| 75,051 |
|
|
| 93,006 |
|
|
| 76,479 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| (3,331 | ) |
|
| (2,192 | ) |
|
| (2,111 | ) |
Interest income |
|
| 4,625 |
|
|
| 1,326 |
|
|
| 840 |
|
Other (expense) income |
|
| (1,192 | ) |
|
| (11,403 | ) |
|
| (136,088 | ) |
Total other income (expense), net |
|
| 102 |
|
|
| (12,269 | ) |
|
| (137,359 | ) |
Earnings (loss) before taxes |
|
| 75,153 |
|
|
| 80,737 |
|
|
| (60,880 | ) |
Income tax expense (benefit) |
|
| 14,621 |
|
|
| 21,162 |
|
|
| (19,014 | ) |
Net earnings (loss) |
| $ | 60,532 |
|
| $ | 59,575 |
|
| $ | (41,866 | ) |
Net earnings (loss) per share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 1.93 |
|
| $ | 1.86 |
|
| $ | (1.30 | ) |
Diluted |
| $ | 1.92 |
|
| $ | 1.85 |
|
| $ | (1.30 | ) |
Basic weighted-average common shares outstanding |
|
| 31,359 |
|
|
| 31,968 |
|
|
| 32,327 |
|
Effect of dilutive securities |
|
| 220 |
|
|
| 270 |
|
|
| — |
|
Diluted weighted-average common shares outstanding |
|
| 31,579 |
|
|
| 32,238 |
|
|
| 32,327 |
|
Cash dividends declared per share |
| $ | 0.16 |
|
| $ | 0.16 |
|
| $ | 0.16 |
|
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION 33
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
(in thousands)
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Net earnings | $ | 14,448 | $ | 34,380 | $ | 6,954 | |||
Other comprehensive earnings (loss): | |||||||||
Changes in fair market value of hedges, net of tax | 110 | 553 | 157 | ||||||
Changes in unrealized pension cost, net of tax | 13,687 | 6,412 | 6,809 | ||||||
Cumulative translation adjustment, net of tax | 437 | (1,154 | ) | (1,738 | ) | ||||
Other comprehensive earnings | $ | 14,234 | $ | 5,811 | $ | 5,228 | |||
Comprehensive earnings | $ | 28,682 | $ | 40,191 | $ | 12,182 |
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net earnings (loss) |
| $ | 60,532 |
|
| $ | 59,575 |
|
| $ | (41,866 | ) |
Other comprehensive earnings (loss): |
|
|
|
|
|
|
|
|
| |||
Changes in fair market value of derivatives, net of tax |
|
| (505 | ) |
|
| 3,499 |
|
|
| 311 |
|
Changes in unrealized pension cost, net of tax |
|
| 120 |
|
|
| 1,203 |
|
|
| 91,081 |
|
Cumulative translation adjustment, net of tax |
|
| 5,320 |
|
|
| (848 | ) |
|
| 4 |
|
Other comprehensive earnings |
| $ | 4,935 |
|
| $ | 3,854 |
|
| $ | 91,396 |
|
Comprehensive earnings |
| $ | 65,467 |
|
| $ | 63,429 |
|
| $ | 49,530 |
|
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION 34
CTS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
December 31, | ||||||
2017 | 2016 | |||||
ASSETS | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | 113,572 | $ | 113,805 | ||
Accounts receivable, net | 70,584 | 62,612 | ||||
Inventories, net | 36,596 | 28,652 | ||||
Other current assets | 12,857 | 10,638 | ||||
Total current assets | 233,609 | 215,707 | ||||
Property, plant and equipment, net | 88,247 | 82,111 | ||||
Other Assets | ||||||
Prepaid pension asset | 57,050 | 46,183 | ||||
Goodwill | 71,057 | 61,744 | ||||
Other intangible assets, net | 66,943 | 64,370 | ||||
Deferred income taxes | 20,694 | 45,839 | ||||
Other assets | 2,096 | 1,743 | ||||
Total other assets | 217,840 | 219,879 | ||||
Total Assets | $ | 539,696 | $ | 517,697 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current Liabilities | ||||||
Short-term notes payable | $ | — | $ | 1,006 | ||
Accounts payable | 49,201 | 40,046 | ||||
Accrued payroll and benefits | 11,867 | 11,369 | ||||
Accrued expenses and other liabilities | 41,344 | 45,708 | ||||
Total current liabilities | 102,412 | 98,129 | ||||
Long-term debt | 76,300 | 89,100 | ||||
Long-term pension obligations | 7,201 | 7,006 | ||||
Deferred income taxes | 3,802 | 2,367 | ||||
Other long-term obligations | 6,176 | 3,213 | ||||
Total Liabilities | 195,891 | 199,815 | ||||
Commitments and Contingencies (Note 9) | ||||||
Shareholders' Equity | ||||||
Common stock | 304,777 | 302,832 | ||||
Additional contributed capital | 41,084 | 40,521 | ||||
Retained earnings | 420,160 | 410,979 | ||||
Accumulated other comprehensive loss | (78,960 | ) | (93,194 | ) | ||
Total shareholders' equity before treasury stock | 687,061 | 661,138 | ||||
Treasury stock | (343,256 | ) | (343,256 | ) | ||
Total shareholders' equity | 343,805 | 317,882 | ||||
Total Liabilities and Shareholders' Equity | $ | 539,696 | $ | 517,697 |
|
| December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 163,876 |
|
| $ | 156,910 |
|
Accounts receivable, net |
|
| 78,569 |
|
|
| 90,935 |
|
Inventories, net |
|
| 60,031 |
|
|
| 62,260 |
|
Other current assets |
|
| 16,873 |
|
|
| 15,655 |
|
Total current assets |
|
| 319,349 |
|
|
| 325,760 |
|
Property, plant and equipment, net |
|
| 92,592 |
|
|
| 97,300 |
|
Operating lease assets, net |
|
| 26,425 |
|
|
| 22,702 |
|
Other assets |
|
|
|
|
|
| ||
Goodwill |
|
| 157,638 |
|
|
| 152,361 |
|
Other intangible assets, net |
|
| 103,957 |
|
|
| 108,053 |
|
Deferred income taxes |
|
| 25,183 |
|
|
| 23,461 |
|
Other assets |
|
| 16,023 |
|
|
| 18,850 |
|
Total other assets |
|
| 302,801 |
|
|
| 302,725 |
|
Total Assets |
| $ | 741,167 |
|
| $ | 748,487 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
| ||
Current Liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 43,499 |
|
| $ | 53,211 |
|
Operating lease obligations |
|
| 4,394 |
|
|
| 3,936 |
|
Accrued payroll and benefits |
|
| 14,585 |
|
|
| 20,063 |
|
Accrued expenses and other liabilities |
|
| 34,561 |
|
|
| 35,322 |
|
Total current liabilities |
|
| 97,039 |
|
|
| 112,532 |
|
Long-term debt |
|
| 67,500 |
|
|
| 83,670 |
|
Long-term operating lease obligations |
|
| 24,965 |
|
|
| 21,754 |
|
Long-term pension obligations |
|
| 4,655 |
|
|
| 5,048 |
|
Deferred income taxes |
|
| 14,729 |
|
|
| 16,010 |
|
Other long-term obligations |
|
| 5,457 |
|
|
| 3,249 |
|
Total Liabilities |
|
| 214,345 |
|
|
| 242,263 |
|
Commitments and Contingencies (Note 11) |
|
|
|
|
|
| ||
Shareholders' Equity |
|
|
|
|
|
| ||
Common stock |
|
| 319,269 |
|
|
| 316,803 |
|
Additional contributed capital |
|
| 45,097 |
|
|
| 46,144 |
|
Retained earnings |
|
| 602,232 |
|
|
| 546,703 |
|
Accumulated other comprehensive income (loss) |
|
| 4,264 |
|
|
| (671 | ) |
Total shareholders' equity before treasury stock |
|
| 970,862 |
|
|
| 908,979 |
|
Treasury stock |
|
| (444,040 | ) |
|
| (402,755 | ) |
Total shareholders' equity |
|
| 526,822 |
|
|
| 506,224 |
|
Total Liabilities and Shareholders' Equity |
| $ | 741,167 |
|
| $ | 748,487 |
|
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION 35
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Cash flows from operating activities: | |||||||||
Net earnings | $ | 14,448 | $ | 34,380 | $ | 6,954 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 20,674 | 18,992 | 16,254 | ||||||
Stock-based compensation | 4,184 | 2,738 | 3,195 | ||||||
Restructuring loss on pension settlement | — | — | 8,280 | ||||||
Pension and other post-retirement plan expense (income) | 11,570 | (1,599 | ) | (2,451 | ) | ||||
Non-recurring environmental expense | — | — | 14,541 | ||||||
Deferred income taxes | 16,710 | 10,297 | (8,920 | ) | |||||
Loss (gain) on sale of assets | 708 | (11,450 | ) | (2,156 | ) | ||||
Loss (gain) on foreign currency hedges, net of cash received | 94 | (36 | ) | — | |||||
Changes in assets and liabilities, net of acquisitions and divestitures: | |||||||||
Accounts receivable | (5,198 | ) | (7,120 | ) | 1,036 | ||||
Inventories | (5,404 | ) | (2,290 | ) | 2,225 | ||||
Other assets | (1,531 | ) | (289 | ) | 4,090 | ||||
Accounts payable | 5,387 | 537 | (5,126 | ) | |||||
Accrued payroll and benefits | (1,666 | ) | 1,876 | (3,012 | ) | ||||
Accrued expenses | 28 | 451 | 1,184 | ||||||
Income taxes payable | (4,555 | ) | 966 | 5,264 | |||||
Other liabilities | 2,918 | 52 | (2,502 | ) | |||||
Pension and other post-retirement plans | (319 | ) | (303 | ) | 295 | ||||
Total adjustments | 43,600 | 12,822 | 32,197 | ||||||
Net cash provided by operating activities | 58,048 | 47,202 | 39,151 | ||||||
Cash flows from investing activities: | |||||||||
Capital expenditures | (18,094 | ) | (20,500 | ) | (9,723 | ) | |||
Proceeds from sale of assets | 541 | 12,296 | 1,878 | ||||||
Payment for acquisitions, net of cash acquired | (19,121 | ) | (73,063 | ) | (1,285 | ) | |||
Net cash used in investing activities | (36,674 | ) | (81,267 | ) | (9,130 | ) | |||
Cash flows from financing activities: | |||||||||
Payments of long-term debt | (1,518,200 | ) | (2,458,400 | ) | (1,343,500 | ) | |||
Proceeds from borrowings of long-term debt | 1,505,400 | 2,456,800 | 1,359,200 | ||||||
Payments of short-term notes payable | (1,150 | ) | — | (164 | ) | ||||
Proceeds from borrowings of short-term notes payable | — | — | 164 | ||||||
Purchase of treasury stock | — | — | (18,088 | ) | |||||
Dividends paid | (5,260 | ) | (5,234 | ) | (5,291 | ) | |||
Exercise of stock options | — | — | 64 | ||||||
Excess tax benefit on stock-based compensation | — | — | 313 | ||||||
Taxes paid on behalf of equity award participants | (1,604 | ) | (1,809 | ) | (527 | ) | |||
Net cash used in financing activities | (20,814 | ) | (8,643 | ) | (7,829 | ) | |||
Effect of exchange rate on cash and cash equivalents | (793 | ) | (415 | ) | 228 | ||||
Net (decrease) increase in cash and cash equivalents | (233 | ) | (43,123 | ) | 22,420 | ||||
Cash and cash equivalents at beginning of year | 113,805 | 156,928 | 134,508 | ||||||
Cash and cash equivalents at end of year | $ | 113,572 | $ | 113,805 | $ | 156,928 | |||
Supplemental cash flow information: | |||||||||
Cash paid for interest | $ | 2,130 | $ | 2,939 | $ | 2,415 | |||
Cash paid for income taxes, net | $ | 10,884 | $ | 10,471 | $ | 6,779 | |||
Non-Cash Investing and Financing Activities | |||||||||
Purchase of assets with short-term notes payable | $ | — | $ | 1,006 | $ | — | |||
Capital expenditures incurred not paid | $ | 5,914 | $ | 3,214 | $ | 2,813 |
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net earnings (loss) |
| $ | 60,532 |
|
| $ | 59,575 |
|
| $ | (41,866 | ) |
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 28,710 |
|
|
| 29,753 |
|
|
| 26,930 |
|
Non-cash inventory charges |
|
| — |
|
|
| 4,048 |
|
|
| — |
|
Pensions and other post-retirement plan expense (income) |
|
| 135 |
|
|
| (1,792 | ) |
|
| 132,650 |
|
Stock-based compensation |
|
| 5,181 |
|
|
| 7,726 |
|
|
| 6,105 |
|
Restructuring non-cash charges |
|
| 1,484 |
|
|
| — |
|
|
| — |
|
Deferred income taxes |
|
| (4,046 | ) |
|
| 492 |
|
|
| (30,982 | ) |
Change in fair value of contingent consideration liability |
|
| 200 |
|
|
| — |
|
|
| — |
|
Loss (gain) on foreign currency hedges, net of cash |
|
| 154 |
|
|
| (214 | ) |
|
| (35 | ) |
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| 12,590 |
|
|
| (5,913 | ) |
|
| (928 | ) |
Inventories |
|
| 2,353 |
|
|
| (8,211 | ) |
|
| (3,570 | ) |
Operating lease assets |
|
| (3,723 | ) |
|
| 1,266 |
|
|
| 1,687 |
|
Other assets |
|
| 767 |
|
|
| 5,625 |
|
|
| (2,076 | ) |
Accounts payable |
|
| (9,751 | ) |
|
| (2,293 | ) |
|
| 3,136 |
|
Accrued payroll and benefits |
|
| (6,518 | ) |
|
| 450 |
|
|
| 5,023 |
|
Operating lease liabilities |
|
| 3,668 |
|
|
| (1,431 | ) |
|
| (1,709 | ) |
Accrued expenses and other liabilities |
|
| (2,815 | ) |
|
| (1,381 | ) |
|
| (7,937 | ) |
Pension and other post-retirement plans |
|
| (110 | ) |
|
| 33,497 |
|
|
| (287 | ) |
Net cash provided by operating activities |
|
| 88,811 |
|
|
| 121,197 |
|
|
| 86,141 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Capital expenditures |
|
| (14,738 | ) |
|
| (14,333 | ) |
|
| (15,641 | ) |
Payments for acquisitions, net of cash acquired |
|
| (3,359 | ) |
|
| (96,855 | ) |
|
| (255 | ) |
Net cash used in investing activities |
|
| (18,097 | ) |
|
| (111,188 | ) |
|
| (15,896 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Payments of long-term debt |
|
| (774,529 | ) |
|
| (722,942 | ) |
|
| (808,800 | ) |
Proceeds from borrowings of long-term debt |
|
| 758,359 |
|
|
| 756,580 |
|
|
| 804,200 |
|
Purchase of treasury stock |
|
| (40,926 | ) |
|
| (21,447 | ) |
|
| (8,786 | ) |
Dividends paid |
|
| (5,040 | ) |
|
| (5,131 | ) |
|
| (5,173 | ) |
Taxes paid on behalf of equity award participants |
|
| (3,263 | ) |
|
| (1,524 | ) |
|
| (1,503 | ) |
Contingent consideration payments |
|
| — |
|
|
| (1,200 | ) |
|
| (650 | ) |
Net cash (used in) provided by financing activities |
|
| (65,399 | ) |
|
| 4,336 |
|
|
| (20,712 | ) |
Effect of exchange rate on cash and cash equivalents |
|
| 1,651 |
|
|
| 1,100 |
|
|
| 159 |
|
Net increase in cash and cash equivalents |
|
| 6,966 |
|
|
| 15,445 |
|
|
| 49,692 |
|
Cash and cash equivalents at beginning of year |
|
| 156,910 |
|
|
| 141,465 |
|
|
| 91,773 |
|
Cash and cash equivalents at end of year |
| $ | 163,876 |
|
| $ | 156,910 |
|
| $ | 141,465 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
| |||
Cash paid for interest |
| $ | 3,126 |
|
| $ | 2,016 |
|
| $ | 1,950 |
|
Cash paid for income taxes, net |
| $ | 20,235 |
|
| $ | 20,080 |
|
| $ | 16,887 |
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
| |||
Capital expenditures incurred not paid |
| $ | 2,083 |
|
| $ | 2,480 |
|
| $ | 2,348 |
|
Excise taxes on purchase of treasury stock incurred not paid |
| $ | 359 |
|
| $ | — |
|
| $ | — |
|
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION 36
CTS CORPORATION AND SUBSIDIARIES
(in thousands)
Common Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings/(Loss) | Treasury Stock | Total | |||||||||||||
Balances at January 1, 2015 | $ | 299,892 | $ | 39,153 | $ | 380,145 | $ | (104,233 | ) | $ | (325,168 | ) | $ | 289,789 | ||||
Net earnings | — | — | 6,954 | — | — | 6,954 | ||||||||||||
Changes in fair market value of hedges, net of tax | — | — | — | 157 | — | 157 | ||||||||||||
Changes in unrealized pension cost, net of tax | — | — | — | 6,809 | — | 6,809 | ||||||||||||
Cumulative translation adjustment, net of tax | — | — | — | (1,738 | ) | — | (1,738 | ) | ||||||||||
Cash dividends of $0.16 per share | — | — | (5,259 | ) | — | — | (5,259 | ) | ||||||||||
Acquired 984,342 shares for treasury stock | — | — | — | — | (18,088 | ) | (18,088 | ) | ||||||||||
Issued shares on exercise of options — net | 64 | — | — | — | — | 64 | ||||||||||||
Issued shares on vesting of restricted stock units | 953 | (1,495 | ) | — | — | — | (542 | ) | ||||||||||
Tax benefit on vesting of restricted stock units | — | 313 | — | — | — | 313 | ||||||||||||
Stock compensation | — | 3,195 | — | — | — | 3,195 | ||||||||||||
Balances at December 31, 2015 | $ | 300,909 | $ | 41,166 | $ | 381,840 | $ | (99,005 | ) | $ | (343,256 | ) | $ | 281,654 | ||||
Net earnings | — | — | 34,380 | — | — | 34,380 | ||||||||||||
Changes in fair market value of hedges, net of tax | — | — | — | 553 | — | 553 | ||||||||||||
Changes in unrealized pension cost, net of tax | — | — | — | 6,412 | — | 6,412 | ||||||||||||
Cumulative translation adjustment, net of tax | — | — | — | (1,154 | ) | — | (1,154 | ) | ||||||||||
Cash dividends of $0.16 per share | — | — | (5,241 | ) | — | — | (5,241 | ) | ||||||||||
Issued shares on vesting of restricted stock units | 1,923 | (3,307 | ) | — | — | — | (1,384 | ) | ||||||||||
Stock compensation | — | 2,662 | — | — | — | 2,662 | ||||||||||||
Balances at December 31, 2016 | $ | 302,832 | $ | 40,521 | $ | 410,979 | $ | (93,194 | ) | $ | (343,256 | ) | $ | 317,882 | ||||
Net earnings | — | — | 14,448 | — | — | 14,448 | ||||||||||||
Changes in fair market value of hedges, net of tax | — | — | — | 110 | — | 110 | ||||||||||||
Changes in unrealized pension cost, net of tax | — | — | — | 13,687 | — | 13,687 | ||||||||||||
Cumulative translation adjustment, net of tax | — | — | — | 437 | — | 437 | ||||||||||||
Cash dividends of $0.16 per share | — | — | (5,267 | ) | — | — | (5,267 | ) | ||||||||||
Issued shares on vesting of restricted stock units | 1,945 | (3,549 | ) | — | — | — | (1,604 | ) | ||||||||||
Stock compensation | — | 4,112 | — | — | — | 4,112 | ||||||||||||
Balances at December 31, 2017 | $ | 304,777 | $ | 41,084 | $ | 420,160 | $ | (78,960 | ) | $ | (343,256 | ) | $ | 343,805 |
|
| Common |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Treasury |
|
| Total |
| ||||||
Balances at January 1, 2021 |
| $ | 311,190 |
|
| $ | 41,654 |
|
| $ | 539,281 |
|
| $ | (95,921 | ) |
| $ | (372,522 | ) |
| $ | 423,682 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| (41,866 | ) |
|
| — |
|
|
| — |
|
|
| (41,866 | ) |
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 311 |
|
|
| — |
|
|
| 311 |
|
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91,081 |
|
|
| — |
|
|
| 91,081 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Cash dividends of $0.16 per share |
|
| — |
|
|
| — |
|
|
| (5,173 | ) |
|
| — |
|
|
| — |
|
|
| (5,173 | ) |
Acquired 266,722 shares of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,786 | ) |
|
| (8,786 | ) |
Issued shares on vesting of restricted stock units |
|
| 3,430 |
|
|
| (4,932 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,502 | ) |
Stock compensation |
|
| — |
|
|
| 5,827 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,827 |
|
Balances at December 31, 2021 |
| $ | 314,620 |
|
| $ | 42,549 |
|
| $ | 492,242 |
|
| $ | (4,525 | ) |
| $ | (381,308 | ) |
| $ | 463,578 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 59,575 |
|
|
| — |
|
|
| — |
|
|
| 59,575 |
|
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,499 |
|
|
| — |
|
|
| 3,499 |
|
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,203 |
|
|
| — |
|
|
| 1,203 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (848 | ) |
|
| — |
|
|
| (848 | ) |
Cash dividends of $0.16 per share |
|
| — |
|
|
| — |
|
|
| (5,114 | ) |
|
| — |
|
|
| — |
|
|
| (5,114 | ) |
Acquired 583,526 shares for treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,447 | ) |
|
| (21,447 | ) |
Issued shares on vesting of restricted stock units |
|
| 2,183 |
|
|
| (3,708 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,525 | ) |
Stock compensation |
|
| — |
|
|
| 7,303 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,303 |
|
Balances at December 31, 2022 |
| $ | 316,803 |
|
| $ | 46,144 |
|
| $ | 546,703 |
|
| $ | (671 | ) |
| $ | (402,755 | ) |
| $ | 506,224 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| 60,532 |
|
|
| — |
|
|
| — |
|
|
| 60,532 |
|
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (505 | ) |
|
| — |
|
|
| (505 | ) |
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
|
| — |
|
|
| 120 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,320 |
|
|
| — |
|
|
| 5,320 |
|
Cash dividends of $0.16 per share |
|
| — |
|
|
| — |
|
|
| (5,003 | ) |
|
| — |
|
|
| — |
|
|
| (5,003 | ) |
Acquired 970,109 shares for treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (41,285 | ) |
|
| (41,285 | ) |
Issued shares on vesting of restricted stock units |
|
| 2,466 |
|
|
| (5,729 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,263 | ) |
Stock compensation |
|
| — |
|
|
| 4,682 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,682 |
|
Balances at December 31, 2023 |
| $ | 319,269 |
|
| $ | 45,097 |
|
| $ | 602,232 |
|
| $ | 4,264 |
|
| $ | (444,040 | ) |
| $ | 526,822 |
|
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for share and per share data)
NOTE 1 — Summary of Significant Accounting Policies
Description of Business:
CTS Corporation ("CTS", "we", "our", "us" or the "Company") is a global manufacturer of sensors,Principles of Consolidation:
The consolidated financial statements include the accounts of CTS and itsUse of Estimates:
The preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.Cash and Cash Equivalents:
All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.Accounts Receivable and Allowance for Doubtful Accounts:
Concentration of Credit Risk:
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cashTrade receivables subject us to the potential for credit risk with major customers. We sell our products to customers principally in the transportation,aerospace and defense, industrial, medical, defense and aerospace, information technology, and communicationstransportation markets, primarily in North America, Europe, and Asia. We perform ongoing credit evaluations of our customers to minimize credit risk. We do not require collateral. The allowance for doubtful accountscredit losses is based on management's estimates of the collectability of itsour accounts receivable after analyzing historical bad debts,credit losses, customer concentrations, customer creditworthiness, and current economic trends.trends, specific customer collection issues, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual terms of our receivables. Uncollectible trade receivables are charged against the allowance for doubtful accountscredit losses when all reasonable efforts to collect the amounts due have been exhausted.
Our net sales to significant customers as a percentage of total net sales were as follows:
|
| Years Ended December 31, | ||||
|
| 2023 |
| 2022 |
| 2021 |
Cummins Inc. |
| 15.0% |
| 15.3% |
| 15.0% |
Toyota Motor Corporation |
| 12.5% |
| 11.5% |
| 12.4% |
Years Ended December 31, | |||
2017 | 2016 | 2015 | |
Cummins Inc. | 13.4% | 9.9% | 9.3% |
Honda Motor Co. | 11.2% | 10.7% | 10.7% |
Toyota Motor Corporation | 10.2% | 10.4% | 10.1% |
No other customer accounted for 10% or more of total net sales during these periods.
Inventories:
We value our inventories at the lower of the actual cost to purchase or manufactureCTS CORPORATION 38
Property, Plant and Equipment:
Property, plant and equipment is stated atIncome Taxes:
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.We recognize deferred tax assets to the extent that we believe that these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. In 2016, we elected to early adopt ASU 2015-17 "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes", on a retrospective basis allowing for all deferred tax items to be classified as non-current. Certain non-current deferred tax assets and non-current deferred tax liabilities were not netted since these items relate to different tax jurisdictions.
We record uncertain tax positions in accordance with ASCAccounting Standards Codification ("ASC") Topic 740 on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of Operations.Earnings (Loss). Accrued interest and penalties are included onin the related tax liability line in the Consolidated Balance Sheets.
See NOTE 17,Note 19, "Income Taxes" for further information.
Goodwill and Indefinite-lived Intangible Assets:
Goodwill represents the excess of the purchase price over the fair values of the net assets acquired in a business combination.Based upon our fourth quarter. This change did not have a material effect on the results of our impairment test. We completed our annual impairment test during 2017 andlatest assessment, we determined that our goodwill was notnot impaired as of the measurement date.
Other Intangible Assets and Long-lived Assets:
We account for long-lived assets (excluding indefinite-lived intangible assets) in accordance with the provisions of ASCIntangible assets (excluding indefinite-lived intangible assets) consist primarily of technology, customer lists and relationships, patents, and trade names. These assets are recorded at cost and usually amortized on a straight-line basis over their estimated lives. We assess useful lives based on the period over which the asset is expected to contribute to cash flows.
Revenue Recognition:
Product revenue is recognizedCTS CORPORATION 39
Research and Development: Research and development ("R&D") costs include expenditures for planned search and investigation aimed at discovery of new knowledge to be used to develop new products or processes or to significantly enhance existing products or production processes. R&D costs also include the implementation of new knowledge through design, testing of product alternatives, or construction of prototypes. We expense all R&D costs as incurred, net of customer reimbursements for sales of prototypes and non-recurring engineering charges.
We create prototypes and tools related to R&D projects. A prototype is defined as a constructed product not intended for production resulting in a commercial sale. We also incur engineering costs related to R&D activities. Such costs are incurred to support such activities to improve the reliability, performance and cost-effectiveness of our existing products and to design and develop innovative products that meet customer requirements for new applications. Furthermore, we may engage in activities that develop tooling machinery and equipment for our customers.
We occasionally enter into agreements with our customers whereby we receive a contractual guarantee based on achieving milestones to be reimbursed the costs we incur in the product development process or to construct molds, dies, and other tools that are used to make many of the products sold for which we have a contractual guarantee for lump sum reimbursement from the customersell. The costs we incur are included in other current assets on the Consolidated Balance Sheets until reimbursement is received from the customer. A summary of amounts to be received from customers is as follows:
December 31, | ||||||
2017 | 2016 | |||||
Cost of molds, dies and other tools included in other current assets | $ | 3,382 | $ | 2,837 |
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cost of molds, dies and other tools included in other current assets |
| $ | 3,505 |
|
| $ | 2,569 |
|
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Reimbursements received from customers | $ | 4,299 | $ | 2,036 | $ | 1,861 |
Financial Instruments:
We use forward contracts to mitigate currency risk related to forecasted foreign currency revenue and costs. These forward contracts are designed as cash flow hedges. At least quarterly, we assess the effectiveness of these hedging relationships based on the total change in their fair value using regression analysis. In addition, we use interest rate swaps to convert a portion of our revolving credit facility's variable rate of interest into a fixed rate. As a result of the use of these derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected major financial institutions based upon their credit ratings and other factors and by using netting agreements. Our established policies and procedures for mitigating credit risk on principal transactions include reviewing and establishing limits for credit exposure and continually assessing the creditworthiness of counterparties.We estimate the fair value of our cash, cash equivalents, accounts receivable and accounts payable as cost due to the short-term nature of these instruments. Please refer to Note 13, - "Debt" and Note 14, - "Accumulated Other Comprehensive Income (Loss)," for information on the method of determining fair value for our debt and financial instruments as follows:derivatives, respectively.
Stock-Based Compensation:
We recognize expense related to the fair value of stock-based compensation awards, consisting of restricted stock units ("RSUs"), cash-settled restricted stock units, andThe grant date fair values of our service-based and performance-based RSUs are the closing price of our common stock on the date of grant. The grant date fair value of our market-based RSUs is determined by using a simulation, or Monte Carlo, approach. Under this approach, stock returns from a comparative group of companies are simulated over the performance period, considering both stock price volatility and the correlation of returns. The simulated results are then used to estimate the future payout based on the performance and payout relationship established by the conditions of the award. The future payout is discounted to the measurement date using the risk-free interest rate.
Our RSU awards primarily have a graded vesting schedule. We recognize expense on a straight-line basis over the requisite service period for each separately vesting portiontranche of the award as if the award was, in substance, multiple awards. Compensation expense for PSUs is measured by determining the fair value of the award using the closing share price on the grant date and is recognized ratably from the grant date to the vesting date for the number of awards expected to vest. The amount of compensation expense recognized for PSUs is dependent upon a quarterly assessment of the likelihood of achieving the performance conditions and is subject to adjustment based on management's assessment of the Company's performance relative to the target number of shares performance criteria. Forfeitures are recorded as they occur.
See NOTE 15,Note 17, "Stock-Based Compensation" for further information.
CTS CORPORATION 40
Earnings (Loss) Per Share:
Basic earnings (loss) per share excludes any dilution and is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period.Diluted earnings per share is calculated by adding all potentially dilutive shares todividing net earnings by the weighted average number ofshares outstanding assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised, and restricted stock units were settled for common shares during the numerator.period. In addition, dilutive shares include any shares issuable related to performance share units for which the performance conditions would have been met as of the end of the period and therefore would be considered contingently issuable. If the common stock equivalents have an anti-dilutive effect, they are excluded from the computation of diluted earnings per share.
Our antidilutive stock options and RSUssecurities consist of the following:
|
| Years Ended December 31, |
| |||||||||
(units) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Antidilutive securities |
|
| 18,486 |
|
|
| 21,687 |
|
|
| — |
|
Years Ended December 31, | ||||||
(units) | 2017 | 2016 | 2015 | |||
Antidilutive stock options and RSUs | 22,110 | 35,189 | 13,979 |
Foreign Currencies:
The financial statements of the majority of our non-U.S. subsidiariesForeign currency (losses) gains (losses) recorded in the Consolidated StatementStatements of Earnings (Loss) includes the following:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign currency losses |
| $ | (1,982 | ) |
| $ | (4,875 | ) |
| $ | (3,305 | ) |
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Foreign currency gains (losses) | $ | 3,052 | $ | (3,714 | ) | $ | (6,299 | ) |
The assets and liabilities of our U.K. subsidiarynon-U.S. dollar functional subsidiaries are translated into U.S. dollars at the current exchange rate at period end, with the resulting translation adjustments made directly to the "accumulated other comprehensive loss"income (loss)" component of shareholders' equity. Our Consolidated StatementStatements of Earnings (Loss) accounts are translated at the average rates during the period.
Shipping and Handling:
All fees billed to the customer for shipping and handlingSales Taxes:
Reclassifications:
Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The reclassifications had no impact on previously reported net earnings.Recently Issued Accounting Pronouncements
ASU 2017-12
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accountings Standards Update ("ASU") No 2017-12
ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to have an impact on our financial statements.
In January 2017,December 2023, the FASB issued ASU No. 2017-01
CTS CORPORATION 41
NOTE 2 – Revenue Recognition
The core principle of ASU 2014-09ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle.
We adopted this standard on January 1, 2018 usingrecognize revenue when the modified retrospective approach, which requiresperformance obligations specified in our contracts have been satisfied, after considering the impact of variable consideration and other factors that may affect the transaction price. Our contracts normally contain a cumulative effect adjustment to the opening balance of retained earningssingle performance obligation that is fulfilled on the date of adoption.delivery based on shipping terms stipulated in the contract. We have completedusually expect payment within 30 to 90 days from the shipping date, depending on our reviewterms with the customer. None of customerour contracts and agreements foras of December 31, 2023 or 2022 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as contract assets or liabilities. Contract assets will be reviewed for impairment when events or circumstances indicate that they may not be recoverable.
To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in 2017. We have assessed the impacttransaction price utilizing the most likely value method based on an analysis of historical experience and current facts and circumstances, which may require significant judgment. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
Disaggregated Revenue
The following table presents revenues disaggregated by the major markets we serve:
|
| Years Ended |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Transportation |
| $ | 301,451 |
|
| $ | 303,696 |
|
| $ | 284,080 |
|
Industrial |
|
| 129,440 |
|
|
| 170,867 |
|
|
| 133,371 |
|
Medical |
|
| 68,252 |
|
|
| 64,278 |
|
|
| 48,159 |
|
Aerospace & Defense |
|
| 51,279 |
|
|
| 48,028 |
|
|
| 47,315 |
|
Total |
| $ | 550,422 |
|
| $ | 586,869 |
|
| $ | 512,925 |
|
In the above table, Telecommunications and Information Technology net sales are included in the Industrial end-market for all periods presented. The end-market sales for 2022 were adjusted by immaterial amounts to align the classification of certain customers in connection with our recent acquisitions with our enterprise-level end market information.
NOTE 3 - Business Acquisitions
TEWA Temperature Sensors SP. Zo.o. Acquisition
On February 28, 2022, we acquired 100% of the new standard onoutstanding shares of TEWA Temperature Sensors SP. Zo.o. (“TEWA”). TEWA is a designer and manufacturer of high-quality temperature sensors. TEWA has complementary capabilities with our existing revenue recognition policiestemperature sensing platform, and have concluded that the standard will not have a material impact onacquisition supports our financial position or resultsend market diversification strategy and expands our presence in Europe.
The final purchase price of operations. We will include$23,721, net of cash acquired of $2,979, has been allocated to the additional required disclosures beginning with our Form 10-Qfair values of assets and liabilities acquired as of February 28, 2022. The purchase price was reduced by $794 for the final settlement of net working capital during the first quarter of 2018.
The following table summarizes the consideration paid, the fair values of the assets acquired, and the liabilities assumed as of the date of acquisition:
CTS CORPORATION 42
|
| Fair Values at |
| |
Accounts Receivable |
| $ | 2,521 |
|
Inventory |
|
| 3,136 |
|
Other current assets |
|
| 69 |
|
Property, plant and equipment |
|
| 654 |
|
Other assets |
|
| 27 |
|
Goodwill |
|
| 8,473 |
|
Intangible assets |
|
| 13,650 |
|
Fair value of assets acquired |
|
| 28,530 |
|
Less fair value of liabilities acquired |
|
| (4,809 | ) |
Purchase price |
| $ | 23,721 |
|
Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.
The Company recorded a $1,180 step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The step-up was amortized as a non-cash charge to cost of goods sold as the acquired inventory was sold with all of it recognized in the twelve months ended December 31, 2022.
The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:
|
| Carrying Value |
|
| Weighted |
| ||
Customer lists/relationships |
| $ | 13,000 |
|
|
| 12.0 |
|
Trademarks, tradenames, and other intangibles |
|
| 650 |
|
|
| 3.0 |
|
Total |
| $ | 13,650 |
|
|
|
|
Supplemental pro forma disclosures are not included as the amounts are deemed to be immaterial.
Ferroperm Piezoceramics A/S Acquisition
On June 30, 2022, we acquired 100% of the outstanding shares of Ferroperm Piezoceramics A/S (“Ferroperm”). Ferroperm specializes in the design and manufacture of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications. Ferroperm has complementary capabilities with our existing medical diagnostics and imaging product lines. The acquisition supports our end market diversification strategy and expands our presence in European end markets.
The final purchase price of $72,340, net of cash acquired of $5,578, has been allocated to the fair values of assets and liabilities acquired as of June 30, 2022. The valuation of intangible assets and associated deferred tax liability was finalized in the first quarter of 2023.
The following table summarizes the final consideration paid, the fair values of the assets acquired, and the liabilities assumed as of the date of acquisition:
|
| Fair Values at |
| |
Accounts Receivable |
| $ | 3,073 |
|
Inventory |
|
| 6,848 |
|
Other current assets |
|
| 1,003 |
|
Property, plant and equipment |
|
| 3,953 |
|
Other assets |
|
| 158 |
|
Goodwill |
|
| 31,985 |
|
Intangible assets |
|
| 38,100 |
|
Fair value of assets acquired |
|
| 85,120 |
|
Less fair value of liabilities acquired |
|
| (12,780 | ) |
Purchase price |
| $ | 72,340 |
|
CTS CORPORATION 43
Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.
The Company recorded a $3,012 step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The step-up was amortized as a non-cash charge to cost of goods sold as the acquired inventory was sold with all of it recognized in the twelve months ended December 31, 2022.
The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:
|
| Carrying |
|
| Weighted |
| ||
Customer lists/relationships |
| $ | 31,800 |
|
|
| 16.0 |
|
Technology and other intangibles |
|
| 6,300 |
|
|
| 14.0 |
|
Total |
| $ | 38,100 |
|
|
|
|
Supplemental pro forma disclosures are not included as the amounts are deemed to be immaterial.
Maglab AG Acquisition
On February 6, 2023, we acquired 100% of the outstanding shares of maglab AG ("Maglab"). Maglab has deep expertise in magnetic system design and current measurement solutions for use in e-mobility, industrial automation, and renewable energy applications. Maglab's domain expertise coupled with CTS’ commercial, technical and operational capabilities position us to advance our status as a recognized innovator in electric motor sensing and controls markets.
The final purchase price of $7,717 has been allocated to the fair values of assets and liabilities acquired as of February 6, 2023. The purchase price was increased by $3 for the final settlement of net working capital during the second quarter of 2023. The following table summarizes the final consideration paid, the fair values of the assets acquired, and the liabilities assumed as of the date of acquisition:
|
| Consideration Paid |
| |
Cash paid, net of cash acquired of $14 |
| $ | 4,153 |
|
Contingent consideration |
|
| 3,564 |
|
Purchase price |
| $ | 7,717 |
|
|
| Fair Values at |
| |
Accounts receivable |
| $ | 348 |
|
Inventory |
|
| 43 |
|
Other current assets |
|
| 41 |
|
Property, plant and equipment |
|
| 35 |
|
Goodwill |
|
| 4,997 |
|
Intangible assets |
|
| 2,860 |
|
Fair value of assets acquired |
|
| 8,324 |
|
Less fair value of liabilities acquired |
|
| (607 | ) |
Purchase price |
| $ | 7,717 |
|
Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.
The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:
CTS CORPORATION 44
|
| Carrying |
|
| Weighted |
| ||
Customer lists/relationships |
| $ | 2,800 |
|
|
| 13.0 |
|
Technology and other intangibles |
|
| 60 |
|
|
| 3.0 |
|
Total |
| $ | 2,860 |
|
|
|
|
All contingent consideration is payable in cash and is based on success factors related to the integration process as well as upon the achievement of annual revenue and customer order targets through the fiscal year ending December 31, 2025. The Company recorded $3,564 as the acquisition date fair value of the financial statementscontingent consideration based on the estimate of the probability of achieving the performance targets. This amount is also reflected as an addition to the purchase price. The contingent consideration has a maximum payout of $6,300.
Supplemental pro forma disclosures are issued.
NOTE 24 — Accounts Receivable,
The components of accounts receivable, net are as follows:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Accounts receivable, gross |
| $ | 79,500 |
|
| $ | 92,171 |
|
Less: Allowance for credit losses |
|
| (931 | ) |
|
| (1,236 | ) |
Accounts receivable, net |
| $ | 78,569 |
|
| $ | 90,935 |
|
As of December 31, | ||||||
2017 | 2016 | |||||
Accounts receivable, gross | $ | 70,941 | $ | 62,782 | ||
Less: Allowance for doubtful accounts | (357 | ) | (170 | ) | ||
Accounts receivable, net | $ | 70,584 | $ | 62,612 |
NOTE 35 — Inventories,
Inventories, net consist of the following:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Finished goods |
| $ | 20,279 |
|
| $ | 12,865 |
|
Work-in-process |
|
| 19,213 |
|
|
| 22,819 |
|
Raw materials |
|
| 33,187 |
|
|
| 37,362 |
|
Less: Inventory reserves |
|
| (12,648 | ) |
|
| (10,786 | ) |
Inventories, net |
| $ | 60,031 |
|
| $ | 62,260 |
|
As of December 31, | ||||||
2017 | 2016 | |||||
Finished goods | $ | 9,203 | $ | 7,513 | ||
Work-in-process | 12,065 | 9,596 | ||||
Raw materials | 21,150 | 17,680 | ||||
Less: Inventory reserves | (5,822 | ) | (6,137 | ) | ||
Inventories, net | $ | 36,596 | $ | 28,652 |
NOTE 46 — Property, Plant and Equipment,
Property, plant and equipment, net is comprised of the following:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Land and land improvements |
| $ | 536 |
|
| $ | 1,100 |
|
Buildings and improvements |
|
| 74,188 |
|
|
| 71,938 |
|
Machinery and equipment |
|
| 261,435 |
|
|
| 258,159 |
|
Less: Accumulated depreciation |
|
| (243,567 | ) |
|
| (233,897 | ) |
Property, plant and equipment, net |
| $ | 92,592 |
|
| $ | 97,300 |
|
As of December 31, | ||||||
2017 | 2016 | |||||
Land | $ | 1,130 | $ | 2,330 | ||
Buildings and improvements | 64,201 | 63,621 | ||||
Machinery and equipment | 223,650 | 213,198 | ||||
Less: Accumulated depreciation | (200,734 | ) | (197,038 | ) | ||
Property, plant and equipment, net | $ | 88,247 | $ | 82,111 |
Depreciation expense recorded in the Consolidated Statements of Earnings (Loss) includes the following:
|
| For the Years Ended |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Depreciation expense |
| $ | 17,686 |
|
| $ | 18,126 |
|
| $ | 17,517 |
|
CTS CORPORATION 45
For the Years Ended | |||||||||
2017 | 2016 | 2015 | |||||||
Depreciation expense | $ | 14,071 | $ | 13,177 | $ | 12,219 |
NOTE 57 — Retirement Plans
As of December 31, 2023, we have a number oftwo active noncontributory defined benefit pension plans ("pension plans"Pension Plans") covering approximately 5%less than 1% of our active employees. These Pension plans covering salariedPlans consist of a U.S. supplemental retirement plan ("SERP") and a Taiwan pension plan. The SERP is comprised entirely of participants who are former employees provide pension benefits that are based onof the employees´ years of service and compensation prior to retirement. Pension plans covering hourly employees generally provide benefits of stated amounts for each year of service.
We also provide post-retirement life insurance benefits for certain retired employees. Domestic employees who were hired prior to 1982 and certain domesticformer union employees are eligible for life insurance benefits upon retirement. We fund life insurance benefits through term life insurance policies and intend to continue funding all of the premiums on a pay-as-you-go basis.
We recognize the funded status of a benefit plan in our consolidated balance sheets. The funded status is measured as the difference between plan assets at fair value and the projected benefit obligation. We also recognize, as a component of other comprehensive income,earnings, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit/cost.
The measurement dates for the pension plansPension Plans for our U.S. and non-U.S. locations wereand the post-retirement life insurance plan was December 31, 2017,2023 and 2016.
In February 2020, our U.S.Board of Directors authorized management to explore termination of the U.S.-based pension plan ("Plan"), subject to certain conditions. On June 1, 2020, we entered into the fifth amendment to the Plan whereby we set an effective termination date for the Plan of July 31, 2020. In February 2021, we received a one-timedetermination letter from the Internal Revenue Service that allowed us to proceed with the termination process for the Plan. During the second quarter of 2021, the Company offered the option to receiveof receiving a lump sum distributionpayment to eligible participants with vested qualified Plan benefits in lieu of their benefits from pension plan assets. The pension plan made approximately $23,912 inreceiving monthly annuity payments. Approximately 365 participants elected to receive the settlement, and lump sum payments to settle its obligationof approximately $35,594 were made from Plan assets to these participants. Theseparticipants in June 2021.
As required under U.S. GAAP, the Company recognizes a settlement payments decreasedgain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the existing unrealized gain or loss immediately prior to the settlement. In general, both the projected benefit obligation and fair value of plan assets by $23,912,are required to be remeasured in order to determine the settlement gain or loss.
Upon the partial settlement of the pension liability due to the lump sum offering in the second quarter of 2021, the Company recognized a non-cash and resulted in a non-cashnon-operating settlement charge of $13,476$20,063 related to pension losses, reclassified from accumulated other comprehensive loss to other (income) expense in the Company's Condensed Consolidated Statements of Earnings (Loss).
On July 29, 2021, the Plan purchased a group annuity contract that transferred our benefit obligations for approximately 2,700 CTS participants and beneficiaries in the United States (“Transferred Participants”). As part of the purchase of the group annuity contract, Plan benefit obligations and related annuity administration services for Transferred Participants were irrevocably assumed and guaranteed by the insurance company effective as of August 3, 2021. There will be no change to pension benefits for Transferred Participants. The purchase of the group annuity contract was fully funded directly by Plan assets.
As a result of the final settlement of the pension liability with the purchase of annuities, we reclassified the remaining related unrecognized net actuarialpension losses of $106,206 that were previously includedrecorded in accumulated other comprehensive loss.income (loss) to the Consolidated Statements of Earnings (Loss) in the third quarter of 2021.
In January 2022, we transferred approximately $17,500 of funds from Plan assets to a qualified replacement plan (QRP) managed by the Company. The measurement dateQRP requires that these assets be used to fund future annual Company contributions to our U.S. 401(k) program. The remaining Plan assets were transferred to the Company in the third quarter of this settlement2022 as part of the final termination process. As a result, approximately $34,016 was December 31, 2017.
The following table provides a reconciliation of the benefit obligation, plan assets, and the funded status of the pension plans for U.S. and non-U.S. locations at the measurement dates.
CTS CORPORATION 46
U.S. Pension Plans | Non-U.S. Pension Plans | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Accumulated benefit obligation | $ | 228,934 | $ | 247,276 | $ | 2,535 | $ | 2,295 | |||||
Change in projected benefit obligation: | |||||||||||||
Projected benefit obligation at January 1 | $ | 247,276 | $ | 256,924 | $ | 2,866 | $ | 2,796 | |||||
Service cost | — | 87 | 48 | 51 | |||||||||
Interest cost | 8,273 | 11,024 | 34 | 46 | |||||||||
Benefits paid | (39,177 | ) | (20,537 | ) | (210 | ) | (289 | ) | |||||
Actuarial loss (gain) | 12,562 | (222 | ) | 164 | 229 | ||||||||
Foreign exchange impact | — | — | 238 | 33 | |||||||||
Projected benefit obligation at December 31 | $ | 228,934 | $ | 247,276 | $ | 3,140 | $ | 2,866 | |||||
Change in plan assets: | |||||||||||||
Assets at fair value at January 1 | $ | 292,044 | $ | 289,315 | $ | 1,523 | $ | 1,480 | |||||
Actual return on assets | 31,559 | 23,163 | 17 | 11 | |||||||||
Company contributions | 336 | 103 | 319 | 303 | |||||||||
Benefits paid | (39,177 | ) | (20,537 | ) | (210 | ) | (289 | ) | |||||
Foreign exchange impact | — | — | 128 | 18 | |||||||||
Assets at fair value at December 31 | $ | 284,762 | $ | 292,044 | $ | 1,777 | $ | 1,523 | |||||
Funded status (plan assets less projected benefit obligations) | $ | 55,828 | $ | 44,768 | $ | (1,363 | ) | $ | (1,343 | ) |
|
| U.S. |
|
| Non-U.S. |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Accumulated benefit obligation |
| $ | 788 |
|
| $ | 814 |
|
| $ | 1,083 |
|
| $ | 1,771 |
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Projected benefit obligation at January 1 |
| $ | 814 |
|
| $ | 1,008 |
|
| $ | 2,146 |
|
| $ | 2,335 |
|
Service cost |
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 20 |
|
Interest cost |
|
| 38 |
|
|
| 18 |
|
|
| 37 |
|
|
| 13 |
|
Benefits paid |
|
| (103 | ) |
|
| (103 | ) |
|
| (387 | ) |
|
| (238 | ) |
Actuarial (gain) loss |
|
| 39 |
|
|
| (109 | ) |
|
| (394 | ) |
|
| 239 |
|
Foreign exchange impact |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (223 | ) |
Projected benefit obligation at December 31 |
| $ | 788 |
|
| $ | 814 |
|
| $ | 1,422 |
|
| $ | 2,146 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets at fair value at January 1 |
| $ | — |
|
| $ | 49,382 |
|
| $ | 1,376 |
|
| $ | 1,421 |
|
Actual return on assets |
|
| — |
|
|
| 2,134 |
|
|
| 28 |
|
|
| 116 |
|
Company contributions |
|
| 103 |
|
|
| 103 |
|
|
| 184 |
|
|
| 213 |
|
Benefits paid |
|
| (103 | ) |
|
| (103 | ) |
|
| (387 | ) |
|
| (238 | ) |
Qualified replacement plan transfer |
|
| — |
|
|
| (17,500 | ) |
|
| — |
|
|
| — |
|
Asset reversion |
|
| — |
|
|
| (34,016 | ) |
|
| — |
|
|
| — |
|
Foreign exchange impact |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (136 | ) |
Assets at fair value at December 31 |
| $ | — |
|
| $ | — |
|
| $ | 1,199 |
|
| $ | 1,376 |
|
Funded status (plan assets less projected benefit obligations) |
| $ | (788 | ) |
| $ | (814 | ) |
| $ | (223 | ) |
| $ | (770 | ) |
The following table provides a reconciliation of the benefit obligation, plan assets, and the funded status of the post-retirement life insurance plan at those measurement dates.
|
| Post-Retirement |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Accumulated benefit obligation |
| $ | 4,145 |
|
| $ | 4,018 |
|
Change in projected benefit obligation: |
|
|
|
|
|
| ||
Projected benefit obligation at January 1 |
| $ | 4,018 |
|
| $ | 5,231 |
|
Service cost |
|
| 1 |
|
|
| 1 |
|
Interest cost |
|
| 192 |
|
|
| 102 |
|
Benefits paid |
|
| (146 | ) |
|
| (147 | ) |
Actuarial (gain) loss |
|
| 80 |
|
|
| (1,169 | ) |
Projected benefit obligation at December 31 |
| $ | 4,145 |
|
| $ | 4,018 |
|
Change in plan assets: |
|
|
|
|
|
| ||
Assets at fair value at January 1 |
| $ | — |
|
| $ | — |
|
Company contributions |
|
| 146 |
|
|
| 147 |
|
Benefits paid |
|
| (146 | ) |
|
| (147 | ) |
Other |
|
| — |
|
|
| — |
|
Assets at fair value at December 31 |
| $ | — |
|
| $ | — |
|
Funded status (plan assets less projected benefit obligations) |
| $ | (4,145 | ) |
| $ | (4,018 | ) |
Post-Retirement Life Insurance Plan | ||||||
2017 | 2016 | |||||
Accumulated benefit obligation | $ | 5,134 | $ | 4,952 | ||
Change in projected benefit obligation: | ||||||
Projected benefit obligation at January 1 | $ | 4,952 | $ | 4,886 | ||
Service cost | 2 | 3 | ||||
Interest cost | 161 | 207 | ||||
Benefits paid | (165 | ) | (165 | ) | ||
Actuarial loss | 184 | 21 | ||||
Projected benefit obligation at December 31 | $ | 5,134 | $ | 4,952 | ||
Change in plan assets: | ||||||
Assets at fair value at January 1 | $ | — | $ | — | ||
Actual return on assets | — | — | ||||
Company contributions | 165 | 165 | ||||
Benefits paid | (165 | ) | (165 | ) | ||
Other | — | — | ||||
Assets at fair value at December 31 | $ | — | $ | — | ||
Funded status (plan assets less projected benefit obligations) | $ | (5,134 | ) | $ | (4,952 | ) |
The components of the prepaid (accrued)accrued cost of the domestic and foreign pension plans are classified in the following lines in the Consolidated Balance Sheets at December 31:
U.S.Pension Plans | Non-U.S. Pension Plans | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Prepaid pension asset | $ | 57,050 | $ | 46,183 | $ | — | $ | — | |||||
Accrued expenses and other liabilities | (100 | ) | (317 | ) | — | — | |||||||
Long-term pension obligations | (1,122 | ) | (1,098 | ) | (1,363 | ) | (1,343 | ) | |||||
Net prepaid (accrued) cost | $ | 55,828 | $ | 44,768 | $ | (1,363 | ) | $ | (1,343 | ) |
|
| U.S. Pension Plans |
|
| Non-U.S. Pension Plan |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Accrued expenses and other liabilities |
|
| (99 | ) |
|
| (99 | ) |
|
| — |
|
|
| — |
|
Long-term pension obligations |
|
| (689 | ) |
|
| (715 | ) |
|
| (222 | ) |
|
| (770 | ) |
Net accrued cost |
| $ | (788 | ) |
| $ | (814 | ) |
| $ | (222 | ) |
| $ | (770 | ) |
The components of the accrued cost of the post-retirement life insurance plan are classified in the following lines in the Consolidated Balance Sheets at December 31:
CTS CORPORATION 47
|
| Post-Retirement |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Accrued expenses and other liabilities |
| $ | (478 | ) |
| $ | (455 | ) |
Long-term pension obligations |
|
| (3,667 | ) |
|
| (3,563 | ) |
Total accrued cost |
| $ | (4,145 | ) |
| $ | (4,018 | ) |
Post-Retirement Life Insurance Plan | ||||||
2017 | 2016 | |||||
Accrued expenses and other liabilities | $ | (418 | ) | $ | (387 | ) |
Long-term pension obligations | (4,716 | ) | (4,565 | ) | ||
Total accrued cost | $ | (5,134 | ) | $ | (4,952 | ) |
We have also recorded the following amounts to accumulated other comprehensive lossincome (loss) for the U.S. and non-U.S. pension plans, net of tax:
U.S.Pension Plans | Non-U.S. Pension Plans | ||||||||||||
Unrecognized Loss | Prior Service Cost | Total | Unrecognized Loss | ||||||||||
Balance at January 1, 2016 | $ | 96,388 | $ | — | $ | 96,388 | $ | 1,639 | |||||
Amortization of retirement benefits, net of tax | (3,817 | ) | — | (3,817 | ) | 85 | |||||||
Net actuarial (loss) gain | (2,808 | ) | — | (2,808 | ) | 12 | |||||||
Foreign exchange impact | — | — | — | 7 | |||||||||
Balance at January 1, 2017 | $ | 89,763 | $ | — | $ | 89,763 | $ | 1,743 | |||||
Amortization of retirement benefits, net of tax | (3,685 | ) | — | (3,685 | ) | 10 | |||||||
Settlements | (8,585 | ) | — | (8,585 | ) | — | |||||||
Net actuarial (loss) gain | (1,753 | ) | — | (1,753 | ) | 2 | |||||||
Foreign exchange impact | — | — | — | 143 | |||||||||
Balance at December 31, 2017 | $ | 75,740 | $ | — | $ | 75,740 | $ | 1,898 |
|
| U.S. |
|
| Non-U.S. |
| ||
|
| Unrecognized |
|
| Unrecognized |
| ||
Balance at January 1, 2022 |
| $ | 312 |
|
| $ | 1,803 |
|
Amortization of retirement benefits, net of tax |
|
| — |
|
|
| (155 | ) |
Net actuarial (loss) gain |
|
| (108 | ) |
|
| 132 |
|
Foreign exchange impact |
|
| — |
|
|
| (172 | ) |
Balance at January 1, 2023 |
| $ | 204 |
|
| $ | 1,608 |
|
Amortization of retirement benefits, net of tax |
|
| — |
|
|
| (134 | ) |
Net actuarial gain (loss) |
|
| 13 |
|
|
| (396 | ) |
Foreign exchange impact |
|
| — |
|
|
| 77 |
|
Balance at December 31, 2023 |
| $ | 217 |
|
| $ | 1,155 |
|
We have recorded the following amounts to accumulated other comprehensive lossincome (loss) for the post-retirement life insurance plan, net of tax:
|
| Unrecognized |
| |
Balance at January 1, 2022 |
| $ | (109 | ) |
Amortization of retirement benefits, net of tax |
|
| — |
|
Net actuarial loss |
|
| (900 | ) |
Balance at January 1, 2023 |
| $ | (1,009 | ) |
Amortization of retirement benefits, net of tax |
|
| 259 |
|
Net actuarial gain |
|
| 61 |
|
Balance at December 31, 2023 |
| $ | (689 | ) |
Unrecognized Gain | |||
Balance at January 1, 2016 | $ | (669 | ) |
Amortization of retirement benefits, net of tax | 95 | ||
Net actuarial gain | 14 | ||
Balance at January 1, 2017 | $ | (560 | ) |
Amortization of retirement benefits, net of tax | 64 | ||
Net actuarial gain | 117 | ||
Balance at December 31, 2017 | $ | (379 | ) |
The accumulated actuarial gains and losses and prior service costs and credits included in other comprehensive incomeearnings are amortized in the following manner:
The component of unamortized net gains or losses related to our qualified pension plansplan is amortized based on the expected future life expectancy of the plan participants (estimated to be approximately 1811 years at December 31, 2017)2023), because substantially all of the participants in those plans are inactive.former employees who are now retired. The component of unamortized net gains or losses related to our post-retirement life insurance plan is amortized based on the estimated remaining future service period of the plan participants (estimated to be approximately 3three years at December 31, 2017)2023). The Company uses a market-related approach to value plan assets, reflecting changes in the fair value of plan assets over a five-year period. The variance resulting from the difference between the expected and actual return on plan assets is included in the amortization calculation upon reflection in the market-related value of plan assets.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those Pension Planspension plans with accumulated benefit obligation in excess of the fair value of plan assets is shown below:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Projected benefit obligation |
| $ | 2,210 |
|
| $ | 2,961 |
|
Accumulated benefit obligation |
| $ | 1,871 |
|
| $ | 2,585 |
|
Fair value of plan assets |
| $ | 1,199 |
|
| $ | 1,377 |
|
CTS CORPORATION 48
As of December 31, | ||||||
2017 | 2016 | |||||
Projected benefit obligation | $ | 4,361 | $ | 4,281 | ||
Accumulated benefit obligation | 3,757 | 3,710 | ||||
Fair value of plan assets | 1,776 | 1,523 |
Net pension (income) expense includes the following components:
|
| Years Ended |
|
| Years Ended |
| ||||||||||||||||||
|
| U.S. Pension Plans |
|
| Non-U.S. Pension Plan |
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Service cost |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 22 |
|
| $ | 20 |
|
| $ | 26 |
|
Interest cost |
|
| 38 |
|
|
| 18 |
|
|
| 2,861 |
|
|
| 37 |
|
|
| 13 |
|
|
| 17 |
|
Expected return on plan assets(1) |
|
| — |
|
|
| (2,134 | ) |
|
| (474 | ) |
|
| (13 | ) |
|
| (9 | ) |
|
| (17 | ) |
Amortization of unrecognized loss |
|
| 22 |
|
|
| 30 |
|
|
| 3,703 |
|
|
| 172 |
|
|
| 167 |
|
|
| 184 |
|
Settlement charges |
|
| — |
|
|
| — |
|
|
| 126,269 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net expense |
| $ | 60 |
|
| $ | (2,086 | ) |
| $ | 132,359 |
|
| $ | 218 |
|
| $ | 191 |
|
| $ | 210 |
|
Weighted-average actuarial assumptions(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Benefit obligation assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Discount rate |
|
| 4.83 | % |
|
| 5.04 | % |
|
| 2.46 | % |
|
| 1.63 | % |
|
| 1.75 | % |
|
| 0.63 | % |
Rate of compensation increase |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 3.00 | % |
|
| 5.00 | % |
|
| 3.00 | % | |||
Pension income/expense assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Discount rate |
|
| 5.04 | % |
|
| 2.46 | % |
|
| 2.10 | % |
|
| 1.75 | % |
|
| 0.63 | % |
|
| 0.63 | % |
Expected return on plan assets(1) |
| N/A |
|
| N/A |
|
|
| 1.44 | % |
|
| 1.75 | % |
|
| 0.63 | % |
|
| 0.63 | % | ||
Rate of compensation increase |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 5.00 | % |
|
| 5.00 | % |
|
| 3.00 | % |
Years Ended December 31, | Years Ended December 31, | ||||||||||||||||||
U.S. Pension Plans | Non-U.S. Pension Plans | ||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||
Service cost | $ | — | $ | 87 | $ | 171 | $ | 48 | $ | 51 | $ | 63 | |||||||
Interest cost | 8,273 | 11,024 | 11,258 | 34 | 46 | 465 | |||||||||||||
Expected return on plan assets(1) | (16,243 | ) | (18,976 | ) | (20,272 | ) | (20 | ) | (26 | ) | (446 | ) | |||||||
Amortization of unrecognized loss | 5,785 | 5,994 | 6,339 | 155 | 140 | 7,492 | |||||||||||||
Additional cost due to early retirement | — | — | — | — | — | 651 | |||||||||||||
Settlement loss | 13,476 | — | — | — | — | — | |||||||||||||
Net expense (income) | $ | 11,291 | $ | (1,871 | ) | $ | (2,504 | ) | $ | 217 | $ | 211 | $ | 8,225 | |||||
Weighted-average actuarial assumptions(2) | |||||||||||||||||||
Benefit obligation assumptions: | |||||||||||||||||||
Discount rate | 3.63 | % | 4.16 | % | 4.43 | % | 1.38 | % | 1.13 | % | 1.63 | % | |||||||
Rate of compensation increase | 0.00 | % | 0.00 | % | 0.00 | % | 2.00 | % | 2.00 | % | 2.00 | % | |||||||
Pension income/expense assumptions: | |||||||||||||||||||
Discount rate | 4.16 | % | 4.43 | % | 4.07 | % | 1.13 | % | 1.63 | % | 3.13 | % | |||||||
Expected return on plan assets(1) | 5.61 | % | 6.63 | % | 7.00 | % | 1.13 | % | 1.63 | % | 2.00 | % | |||||||
Rate of compensation increase | 0.00 | % | 0.00 | % | 0.00 | % | 2.00 | % | 2.00 | % | 0.48 | % |
Net post-retirement expense includes the following components:
|
| Post-Retirement |
| |||||||||
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Service cost |
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
Interest cost |
|
| 192 |
|
|
| 102 |
|
|
| 80 |
|
Amortization of unrecognized gain |
|
| (336 | ) |
|
| — |
|
|
| — |
|
Net expense |
| $ | (143 | ) |
| $ | 103 |
|
| $ | 81 |
|
Weighted-average actuarial assumptions(1) |
|
|
|
|
|
|
|
|
| |||
Benefit obligation assumptions: |
|
|
|
|
|
|
|
|
| |||
Discount rate |
|
| 4.90 | % |
|
| 5.11 | % |
|
| 2.66 | % |
Rate of compensation increase |
| N/A |
|
| N/A |
|
| N/A |
| |||
Pension income/post-retirement expense assumptions: |
|
|
|
|
|
|
|
|
| |||
Discount rate |
|
| 5.11 | % |
|
| 2.66 | % |
|
| 2.27 | % |
Rate of compensation increase |
| N/A |
|
| N/A |
|
| N/A |
|
Post-Retirement Life Insurance Plan | |||||||||
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Service cost | $ | 2 | $ | 3 | $ | 5 | |||
Interest cost | 161 | 207 | 204 | ||||||
Amortization of unrecognized gain | (101 | ) | (149 | ) | (101 | ) | |||
Net expense | $ | 62 | $ | 61 | $ | 108 | |||
Weighted-average actuarial assumptions (1) | |||||||||
Benefit obligation assumptions: | |||||||||
Discount rate | 3.59 | % | 4.10 | % | 4.43 | % | |||
Rate of compensation increase | 0 | % | 0 | % | 0 | % | |||
Pension income/post-retirement expense assumptions: | |||||||||
Discount rate | 4.10 | % | 4.43 | % | 4.07 | % | |||
Rate of compensation increase | 0 | % | 0 | % | 0 | % |
The discount rate utilized to estimate our pension and post-retirement obligations is based on market conditions at December 31, 2017, and is determined using a model consisting of high quality bond portfolios that match cash flows of the plans' projected benefit payments based on the plan participants' service to date and their expected future compensation. Use of the rate produced
Target Allocations | Percentage of Plan Assets at December 31, | |||
Asset Category | 2018 | 2017 | 2016 | |
Equity securities (1) | 13% | 11% | 25% | |
Debt securities | 83% | 82% | 59% | |
Other | 4% | 7% | 16% | |
Total | 100% | 100% | 100% |
As of December 31, | ||||||
2017 | 2016 | |||||
Equity securities - U.S. holdings(1) | $ | 19,487 | $ | 43,708 | ||
Equity securities - non-U.S. holdings(1) | 1,131 | 819 | ||||
Equity funds - U.S. holdings(1) | 1,314 | 28,052 | ||||
Bond funds - government(5) | 3,126 | 22,237 | ||||
Bond funds - other(6) | 231,710 | 150,712 | ||||
Real estate(7) | 1,235 | 3,812 | ||||
Cash and cash equivalents(2) | 11,145 | 7,823 | ||||
Partnerships(4) | 10,787 | 12,862 | ||||
International hedge funds(3) | 6,604 | 23,542 | ||||
Total fair value of plan assets | $ | 286,539 | $ | 293,567 |
Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Not Leveled | Total | |||||||||||
Equity securities - U.S. holdings(1) | $ | 19,487 | $ | — | $ | — | $ | — | $ | 19,487 | |||||
Equity securities - non-U.S. holdings(1) | 1,131 | — | — | — | 1,131 | ||||||||||
Equity funds - U.S. holdings(1) | — | 1,314 | — | — | 1,314 | ||||||||||
Bond funds - government(5) | — | 3,126 | — | — | 3,126 | ||||||||||
Bond funds - other(6) | — | 231,710 | — | — | 231,710 | ||||||||||
Real estate(7) (8) | — | �� | — | 1,235 | 1,235 | ||||||||||
Cash and cash equivalents(2) | 11,145 | — | — | — | 11,145 | ||||||||||
Partnerships(4) | — | — | 10,787 | — | 10,787 | ||||||||||
International hedge funds(3) (8) | — | — | — | 6,604 | 6,604 | ||||||||||
Total | $ | 31,763 | $ | 236,150 | $ | 10,787 | $ | 7,839 | $ | 286,539 |
Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Not Leveled | Total | |||||||||||
Equity securities - U.S. holdings(1) | $ | 43,708 | $ | — | $ | — | $ | — | $ | 43,708 | |||||
Equity securities - non-U.S. holdings(1) | 819 | — | — | — | 819 | ||||||||||
Equity funds - U.S.holdings(1) | — | 28,052 | — | — | 28,052 | ||||||||||
Bond funds - government(5) | — | 22,237 | — | — | 22,237 | ||||||||||
Bond funds - other(6) | — | 150,712 | — | — | 150,712 | ||||||||||
Real estate(7) (8) | — | — | — | 3,812 | 3,812 | ||||||||||
Cash and cash equivalents(2) | 7,823 | — | — | — | 7,823 | ||||||||||
Partnerships(4) | — | — | 12,862 | — | 12,862 | ||||||||||
International hedge funds(3) (8) | — | — | — | 23,542 | 23,542 | ||||||||||
Total | $ | 52,350 | $ | 201,001 | $ | 12,862 | $ | 27,354 | $ | 293,567 |
Amount | |||
Fair value of Level 3 partnership assets at January 1, 2016 | $ | 13,360 | |
Capital contributions | 1,419 | ||
Realized and unrealized gain | 584 | ||
Capital distributions | (2,501 | ) | |
Fair value of Level 3 partnership assets at December 31, 2016 | 12,862 | ||
Capital contributions | 343 | ||
Realized and unrealized gain | 2,107 | ||
Capital distributions | (4,525 | ) | |
Fair value of Level 3 partnership assets at December 31, 2017 | $ | 10,787 |
We expect to make $101$99 of contributions to the U.S. plans and $331$171 of contributions to the non-U.S. plansplan during 2018.
Expected benefit payments which reflect expected future service,under the Pension Plans and the postretirement benefit plan, for the five years subsequent to 2023 (i.e., 2024-2028, inclusive), and in the aggregate for the five years thereafter (i.e., 2029-2033, inclusive) are as appropriate, are expected to be paid:follows:
CTS CORPORATION 49
|
| U.S. |
|
| Non-U.S. |
|
| Post- |
| |||
2024 |
| $ | 99 |
|
| $ | 50 |
|
| $ | 478 |
|
2025 |
|
| 94 |
|
|
| 56 |
|
|
| 439 |
|
2026 |
|
| 90 |
|
|
| 61 |
|
|
| 406 |
|
2027 |
|
| 85 |
|
|
| 96 |
|
|
| 377 |
|
2028 |
|
| 80 |
|
|
| 64 |
|
|
| 351 |
|
2029-2033 |
|
| 219 |
|
|
| 444 |
|
|
| 1,467 |
|
Total |
| $ | 667 |
|
| $ | 771 |
|
| $ | 3,518 |
|
U.S. Pension Plans | Non-U.S. Pension Plans | Post-Retirement Life Insurance Plan | |||||||
2018 | $ | 15,693 | $ | 67 | $ | 418 | |||
2019 | 15,705 | 72 | 405 | ||||||
2020 | 15,673 | 242 | 392 | ||||||
2021 | 15,548 | 63 | 378 | ||||||
2022 | 15,361 | 69 | 363 | ||||||
2023-2026 | 72,669 | 532 | 1,610 | ||||||
Total | $ | 150,649 | $ | 1,045 | $ | 3,566 |
Defined Contribution Plans
We sponsor a 401(k) plan that covers substantially all of our U.S. employees.employees as well as offer similar defined contribution plans to employees at certain foreign locations. Contributions and costs arewere generally determined as a percentage of the covered employee's annual salary.
Effective January 1, 2022, in connection with the U.S. Plan termination process, we amended our 401(k) plan and transitioned to a non-elective contribution for all U.S. employees that is also determined as a percentage of the covered employee's salary, provides for immediate vesting and is provided regardless of whether the individual employee contributes to the applicable plan. In addition, we began offering a Roth 401(k) option to employees.
Expenses related to defined contribution plans include the following:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
401(k) and other defined contribution plan expense |
| $ | 3,858 |
|
| $ | 3,878 |
|
| $ | 3,242 |
|
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
401(k) and other plan expense | $ | 3,141 | $ | 2,841 | $ | 3,352 |
NOTE 68 — Goodwill and Other Intangible Assets
Other Intangible Assets
Other intangible assets, net consist of the following:following components:
|
| As of December 31, 2023 |
|
|
|
| ||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Weighted |
| ||||
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer lists / relationships |
| $ | 144,671 |
|
| $ | (63,006 | ) |
| $ | 81,665 |
|
|
| 9.6 |
|
Technology and other intangibles |
|
| 54,052 |
|
|
| (31,760 | ) |
|
| 22,292 |
|
|
| 7.4 |
|
Other intangible assets, net |
| $ | 198,723 |
|
| $ | (94,766 | ) |
| $ | 103,957 |
|
|
| 8.1 |
|
Amortization expense for the year ended December 31, 2023 |
|
|
|
| $ | 11,024 |
|
|
|
|
|
|
|
CTS CORPORATION 50
|
| As of December 31, 2022 |
| |||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
| |||
Other intangible assets: |
|
|
|
|
|
|
|
|
| |||
Customer lists / relationships |
| $ | 148,899 |
|
| $ | (59,603 | ) |
| $ | 89,296 |
|
Technology and other intangibles |
|
| 45,255 |
|
|
| (26,498 | ) |
|
| 18,757 |
|
Other intangible assets, net |
| $ | 194,154 |
|
| $ | (86,101 | ) |
| $ | 108,053 |
|
Amortization expense for the year ended December 31, 2022 |
|
|
|
| $ | 11,627 |
|
|
|
| ||
Amortization expense for the year ended December 31, 2021 |
|
|
|
| $ | 9,413 |
|
|
|
|
As of December 31, 2017 | ||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Amount | Weighted Average Remaining Amortization Period (in years) | |||||||||
Other intangible assets: | ||||||||||||
Customer lists / relationships | $ | 64,323 | $ | (33,685 | ) | $ | 30,638 | 10.5 | ||||
Patents | 10,319 | (10,319 | ) | — | — | |||||||
Technology and other intangibles | 44,460 | (10,355 | ) | 34,105 | 8.3 | |||||||
In process research and development | 2,200 | — | 2,200 | — | ||||||||
Other intangible assets, net | $ | 121,302 | $ | (54,359 | ) | $ | 66,943 | 10.5 | ||||
Amortization expense for the year ended December 31, 2017 | $ | 6,603 |
The changes in the gross carrying amounts of intangible assets are primarily due to a business acquisition and purchase accounting activity as discussed in Note 3, "Business Acquisitions," as well as foreign exchange impacts.
The estimated amortization expense for the next five years and thereafter is as follows:
|
| Amortization |
| |
2024 |
| $ | 11,210 |
|
2025 |
|
| 10,716 |
|
2026 |
|
| 10,556 |
|
2027 |
|
| 10,498 |
|
2028 |
|
| 10,463 |
|
Thereafter |
|
| 50,514 |
|
Total future amortization expense |
| $ | 103,957 |
|
Goodwill
Amortization expense | |||
2018 | $ | 6,763 | |
2019 | 6,754 | ||
2020 | 6,624 | ||
2021 | 6,467 | ||
2022 | 6,230 | ||
Thereafter | 34,105 | ||
Total future amortization expense | $ | 66,943 |
As of December 31, 2016 | |||||||||
Gross Carrying Amount | Accumulated Amortization | Net Amount | |||||||
Other intangible assets: | |||||||||
Customer lists / relationships | $ | 63,386 | $ | (30,318 | ) | $ | 33,068 | ||
Patents | 10,319 | (10,319 | ) | — | |||||
Technology and other intangibles | 36,715 | (7,613 | ) | 29,102 | |||||
In process research and development | 2,200 | — | 2,200 | ||||||
Other intangible assets, net | $ | 112,620 | $ | (48,250 | ) | $ | 64,370 | ||
Amortization expense for the year ended December 31, 2016 | $ | 5,815 | |||||||
Amortization expense for the year ended December 31, 2015 | $ | 4,035 |
Changes in the net carrying value amount of goodwill were as follows:
|
| Total |
| |
Goodwill as of December 31, 2021 |
| $ | 109,798 |
|
Increase due to acquisitions |
|
| 42,541 |
|
Decrease from purchase accounting adjustments |
|
| 22 |
|
Goodwill as of December 31, 2022 |
| $ | 152,361 |
|
Increase due to acquisitions |
|
| 2,914 |
|
Foreign exchange impact |
|
| 2,363 |
|
Goodwill as of December 31, 2023 |
| $ | 157,638 |
|
Refer to Note 3 - "Business Acquisitions," for further information on the increase due to acquisitions.
We performed our annual impairment test as of October 1, 2023, our measurement date, and concluded that there was no impairment in any of our reporting units. The fair value estimates used in the goodwill impairment analysis required significant judgment. The Company's fair value estimates for the purposes of determining the goodwill impairment charge are considered Level 3 fair value measurements. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenues and operating margins and assumptions about the overall economic climate and the competitive environment for the business.
Total | |||
Goodwill as of December 31, 2015 | $ | 33,865 | |
Increase from acquisitions | 27,879 | ||
Goodwill as of December 31, 2016 | 61,744 | ||
Increase from acquisition | 9,313 | ||
Goodwill as of December 31, 2017 | $ | 71,057 |
NOTE 79 — Costs Associated with Exit and Restructuring Activities
Restructuring and impairment charges are reported as a separate line within operating earnings in the Consolidated Statements of Earnings. Restructuring-related charges are recorded as a component of cost of goods sold.Earnings (Loss). Total restructuring impairmentcharges were:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Restructuring charges |
| $ | 7,074 |
|
| $ | 1,912 |
|
| $ | 1,687 |
|
September 2020 Plan
CTS CORPORATION 51
In September 2020, we initiated a restructuring plan focused on optimizing our manufacturing footprint and restructuring-related charges were:
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Restructuring-related charges | $ | — | $ | — | $ | 631 | |||
Restructuring and impairment charges | 4,139 | 3,048 | 14,564 | ||||||
Total restructuring, impairment, and restructuring-related charges | $ | 4,139 | $ | 3,048 | $ | 15,195 |
Closure and Consolidation of Juarez Manufacturing Facility and Operations
During the first quarter of 2023, we announced the shutdown of our Juarez manufacturing facility. As a part of this activity, operations from the Juarez plant are being consolidated into our expanded Matamoros facility (collectively, the "Matamoros Consolidation"). We expect the Matamoros Consolidation to be completed in 2024. The total restructuring cost of the Matamoros Consolidation is now estimated to be in the range of $4,000 and $5,000, including workforce reduction charges, building and equipment relocation charges and other contract and asset-related costs. In addition to these charges, we expect to incur an additional $1,500 to $2,500 of other costs relating to the June 2016 Plan was $1,460 at December 31, 2017.
June 2016 Plan | Planned Costs | Actual costs incurred through December 31, 2017 | |||||
Workforce reduction | $ | 3,075 | $ | 2,927 | |||
Building and equipment relocation | 9,025 | 3,574 | |||||
Other charges | 1,300 | 686 | |||||
Restructuring and impairment charges | $ | 13,400 | $ | 7,187 |
Years Ended December 31, | |||||||
2017 | 2016 | ||||||
Restructuring and impairment charges | $ | 4,139 | $ | 3,048 |
April 2014 Plan | Planned Costs | Actual costs incurred through December 31, 2017 | ||||
Inventory write-down | $ | 850 | $ | — | ||
Equipment relocation | 1,800 | 444 | ||||
Other charges | 1,400 | 113 | ||||
Restructuring-related charges, included in cost of goods sold | 4,050 | 557 | ||||
Workforce reduction | 4,200 | 4,423 | ||||
Other charges, including pension termination costs | 1,700 | 3,413 | ||||
Restructuring and impairment charges | 5,900 | 7,836 | ||||
Total restructuring, impairment and restructuring-related charges | $ | 9,950 | $ | 8,393 |
During the year ended December 31, 2015. The total2023, we incurred $3,699 in restructuring liability related to the April 2014 Plan was $453 at December 31, 2017.
June 2013 Plan | Planned Costs | Actual costs incurred through December 31, 2015 | ||||
Inventory write-down | $ | 800 | $ | 1,143 | ||
Equipment relocation | 900 | 1,792 | ||||
Other charges | 100 | 702 | ||||
Restructuring-related charges, included in cost of goods sold | 1,800 | 3,637 | ||||
Workforce reduction | 10,150 | 9,615 | ||||
Asset impairment charge | 3,000 | 4,139 | ||||
Other charges, including pension termination costs | 7,650 | 10,205 | ||||
Restructuring and impairment charges | 20,800 | 23,959 | ||||
Total restructuring and restructuring-related charges | $ | 22,600 | $ | 27,596 |
Other Restructuring Activities
During the year ended December 31, 2015.
The following table displays the restructuring liability activity for all plans for the year ended December 31, 2017:
Restructuring liability at January 1, 2023 |
| $ | 869 |
|
Restructuring charges |
|
| 7,074 |
|
Cost paid |
|
| (6,056 | ) |
Other activities(1) |
|
| (1,364 | ) |
Restructuring liability at December 31, 2023 |
| $ | 523 |
|
June 2013 Plan and April 2014 Plan and June 2016 Plan | Restructuring Liability | ||
Restructuring liability at January 1, 2017 | $ | 2,162 | |
Restructuring charges | 4,139 | ||
Cost paid | (4,445 | ) | |
Other activities (1) | 57 | ||
Restructuring liability at December 31, 2017 | $ | 1,913 |
The remainingtotal liability of $1,726$523 is included in Accruedaccrued expenses and other liabilities at December 31, 2017.2023.
NOTE 810 — Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities are as follows:
|
| December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Accrued product-related costs |
| $ | 2,183 |
|
| $ | 2,368 |
|
Accrued income taxes |
|
| 6,899 |
|
|
| 9,630 |
|
Accrued property and other taxes |
|
| 1,542 |
|
|
| 2,142 |
|
Accrued professional fees |
|
| 1,232 |
|
|
| 1,472 |
|
Accrued customer-related liabilities |
|
| 2,167 |
|
|
| 2,837 |
|
Dividends payable |
|
| 1,233 |
|
|
| 1,272 |
|
Remediation reserves |
|
| 12,044 |
|
|
| 11,048 |
|
Derivative liabilities |
|
| 747 |
|
|
| 357 |
|
Other accrued liabilities |
|
| 6,514 |
|
|
| 4,196 |
|
Total accrued expenses and other liabilities |
| $ | 34,561 |
|
| $ | 35,322 |
|
CTS CORPORATION 52
The increase in Other accrued liabilities is primarily due to a contingent liability accrual associated with the 2023 Maglab acquisition. Refer to Note 3 “Business Acquisitions”, for further discussion.
As of December 31, | ||||||
2017 | 2016 | |||||
Accrued product-related costs | $ | 5,297 | $ | 5,556 | ||
Accrued income taxes | 5,475 | 9,826 | ||||
Accrued property and other taxes | 997 | 1,917 | ||||
Dividends payable | 1,318 | 1,309 | ||||
Remediation reserves | 17,067 | 18,176 | ||||
Other accrued liabilities | 11,190 | 8,924 | ||||
Total accrued expenses and other liabilities | $ | 41,344 | $ | 45,708 |
NOTE 911 — Contingencies
Certain processes in the manufacture of our current and past products may create by-products classified as hazardous waste. WeAs a result, we have been notified by the U.S. Environmental Protection Agency (“EPA”), state environmental agencies and in some cases, groups of potentially responsible parties, that we aremay be potentially liable for environmental contamination at several sites currently andor formerly owned or operated by CTS. Someus. Currently, none of these costs and accruals relate to sites such asthat provide revenue generating activities for the Company. Two of those sites, Asheville, North Carolina (the "Asheville Site") and Mountain View, California, are designated National Priorities List Superfund sites under the U.S. Environmental Protection Agency’sEPA’s Superfund program. We reserveaccrue a liability for probable remediation activities, at these sites and for claims, and proceedings against CTSus with respect to other environmental matters. We record reserves on an undiscounted basis. Inmatters if the opinionamount can be reasonably estimated, and provide disclosures including the nature of management, based upon presently available information relating to such matters, adequate provision for probable and estimable costs have been recorded. We do not have any known environmental obligations where a loss whenever it is probable or reasonably possible of occurring for which we do notthat a potentially material loss may have a reserve, nor do we have any amounts for which we have not reserved because the amount of the lossoccurred but cannot be reasonably estimated. Due to the inherent nature of environmental obligations, we cannot provide assurance that our ultimate environmental liability will not materially exceed the amount of our current reserve. Our reserve and disclosures will be adjusted accordingly if additional information becomes available in the future.
A roll forwardroll-forward of remediation reserves onincluded in accrued expenses and other liabilities in the balance sheetConsolidated Balance Sheets is comprisedcomposed of the following:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Balance at beginning of period |
| $ | 11,048 |
|
| $ | 10,979 |
|
| $ | 10,642 |
|
Remediation expense |
|
| 3,502 |
|
|
| 2,750 |
|
|
| 2,254 |
|
Remediation payments |
|
| (2,497 | ) |
|
| (2,661 | ) |
|
| (1,929 | ) |
Other activity (1) |
|
| (9 | ) |
|
| (20 | ) |
|
| 12 |
|
Balance at end of the period |
| $ | 12,044 |
|
| $ | 11,048 |
|
| $ | 10,979 |
|
(1) Other activity includes currency translation adjustments not recorded through remediation expense.
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Balance at beginning of period | $ | 18,176 | $ | 20,603 | $ | 3,918 | |||
Remediation expense | 307 | 556 | 18,591 | ||||||
Remediation payments | (1,416 | ) | (2,983 | ) | (1,906 | ) | |||
Balance at end of the period | $ | 17,067 | $ | 18,176 | $ | 20,603 |
The Company operates under and in accordance with a federal consent decree, dated March 7, 2017, with the EPA for the Asheville Site. On February 8, 2023, the Company received a letter from the EPA (the “EPA Letter”) seeking reimbursement of its past response costs and interest thereon relating to any release or threatened release of hazardous substances at the Asheville Site in the aggregate amount of $9,955 from the three potentially responsible parties associated with the Asheville Site, including the Company. The Company expects its potential exposure to be between $1,900 and $9,955. We have determined that no point within this range is more likely than another and therefore we have recorded a loss estimate of $1,900 as of December 31, 2023 in the Consolidated Balance Sheets.
Unrelated to the environmental claims described above, certain other legal claims are pending against us with respect to matters arising out of the ordinary conduct of our business. Although
We provide product warranties when we sell our products and accrue for estimated liabilities at the time of sale. Warranty estimates are forecasts based on the best available information and historical claims experience. We accrue for specific warranty claims if we believe that the facts of a specific claim make it probable that a liability in excess of our historical experience has been incurred and provide disclosures for specific claims whenever it is reasonably possible that a material loss may be incurred which cannot be estimated.
We cannot provide assurance that the ultimate outcomedisposition of any potential litigation resulting from theseenvironmental, legal, and product warranty claims cannot be predicted with certainty,will not materially exceed the amount of our accrued losses and some may be disposed of unfavorably to CTS, management believes that adequate provision for anticipated costs have been established based upon all presently available information. Except as noted herein, we do not believe we have any pending loss contingencies that are probable or reasonably possible of having a materialadversely impact on our consolidated financial position, results of operations, or cash flows. Our accrued liabilities and disclosures will be adjusted accordingly if additional information becomes available in the future.
NOTE 1012 — Leases
We lease certain land, buildings and equipment under all non-cancelablenon-cancellable operating leases used in our operations. Operating lease assets represent our right to use an underlying asset for the lease term. Operating lease liabilities represent the present value of lease payments over the lease term, discounted using an estimate of our secured incremental borrowing rate because none of our leases contain a rate implicit in the lease arrangement.
The operating lease assets and liabilities are adjusted to include the impact of any lease incentives and non-lease components. We have elected not to separate lease and non-lease components, which include taxes and common area maintenance in some of our leases. Variable lease payments that depend on an index or a rate are included in lease payments using the prevailing index or rate in effect at lease commencement.
CTS CORPORATION 53
Options to extend or terminate a lease are included in the lease term when it is reasonably likely that we will exercise that option. We occasionally enter into short term operating leases with an initial term of twelve months or less. These leases are not recorded in the Consolidated Balance Sheets.
We determine if an arrangement is a lease or contains a lease at its inception, which normally does not require significant estimates or judgments. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants and we currently have no material sublease agreements.
Components of lease expense for the years ended December 31, 2023, 2022, and 2021 were as follows:
| Years Ended |
| |||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Operating lease cost | $ | 5,762 |
|
| $ | 4,997 |
|
| $ | 5,144 |
|
Short-term lease cost |
| 1,495 |
|
|
| 1,338 |
|
|
| 1,403 |
|
Total lease cost | $ | 7,257 |
|
| $ | 6,335 |
|
| $ | 6,547 |
|
For the years ended December 2023, 2022 and 2021 the Company recorded sublease income of $532, $562 and $589, respectively.
Supplemental cash flow information related to leases was as follows:
|
| Years Ended |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Cash paid for amounts included in the measurement of lease obligations |
| $ | 5,797 |
|
| $ | 5,163 |
|
| $ | 3,666 |
|
Leased assets obtained in exchange for new operating lease obligations |
| $ | 7,831 |
|
| $ | 5,990 |
|
| $ | 1,253 |
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
| ||
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating lease obligations |
| $ | 4,394 |
|
| $ | 3,936 |
|
Long-term operating lease obligations |
|
| 24,965 |
|
|
| 21,754 |
|
Total lease liabilities |
| $ | 29,359 |
|
| $ | 25,690 |
|
Weighted-average remaining lease terms (years) |
|
| 6.22 |
|
|
| 6.46 |
|
Weighted-average discount rate |
|
| 6.30 | % |
|
| 6.08 | % |
Remaining maturity of our existing lease liabilities as of December 31, 2017,2023 is as follows:
|
| Operating Leases(1) |
| |
2024 |
| $ | 6,215 |
|
2025 |
|
| 5,715 |
|
2026 |
|
| 4,052 |
|
2027 |
|
| 3,947 |
|
2028 |
|
| 4,037 |
|
Thereafter |
|
| 13,890 |
|
Total |
| $ | 37,856 |
|
Less: interest |
|
| (8,497 | ) |
Present value of lease payments |
| $ | 29,359 |
|
CTS CORPORATION 54
Operating Leases | |||
2018 | $ | 3,631 | |
2019 | 2,887 | ||
2020 | 1,722 | ||
2021 | 996 | ||
2022 | 954 | ||
Thereafter | 11,161 | ||
Total minimum lease obligations | $ | 21,351 |
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Rent expense | $ | 4,762 | $ | 5,694 | $ | 3,550 |
NOTE 1113 — Debt
Long-term debt was comprised of the following:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Total credit facility availability |
| $ | 400,000 |
|
| $ | 400,000 |
|
Balance outstanding |
|
| 67,500 |
|
|
| 83,670 |
|
Standby letters of credit |
|
| 1,640 |
|
|
| 1,640 |
|
Amount available, subject to covenant restrictions |
| $ | 330,860 |
|
| $ | 314,690 |
|
Weighted-average interest rate |
|
| 6.07 | % |
|
| 2.96 | % |
As of December 31 | ||||||
2017 | 2016 | |||||
Total credit facility | $ | 300,000 | $ | 300,000 | ||
Balance outstanding | $ | 76,300 | $ | 89,100 | ||
Standby letters of credit | $ | 2,065 | $ | 2,165 | ||
Amount available | $ | 221,635 | $ | 208,735 | ||
Weighted-average interest rate | 2.30 | % | 1.90 | % | ||
Commitment fee percentage per annum | 0.25 | % | 0.25 | % |
On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility to $400,000 which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sublimits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility. This new unsecured credit facility replaced the prior $300,000 unsecured credit facility, which would have expired February 12, 2024.
Borrowings in U.S. dollars under the Revolving Credit Facility bear interest, at a per annum rate equal to the applicable Term SOFR rate (but not less than 0.0%), plus the Term SOFR adjustment, and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. We use interest rate swaps to convert a portion of our revolving credit facilityfacility's outstanding balance from a variable rate of interest to a fixed rate. The contractual rate of these arrangements ranges from 1.49% to 2.49%. Refer to Note 14, "Derivatives," for further discussion on the impact of interest rate swaps.
The Revolving Credit Facility includes a swing line sublimit of $20,000 and a letter of credit sublimit of $20,000. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.175% to 0.25% based on our net leverage ratio.
The Revolving Credit Facility requires, among other things,in addition to customary representations and warranties, that we comply with a maximum totalnet leverage ratio and a minimum fixed chargeinterest coverage ratio. Failure to comply with these covenants could reduce the borrowing availability under the revolving credit facility.Revolving Credit Facility. We were in compliance with all debt covenants as ofat December 31, 2017.2023. The revolving credit facilityRevolving Credit Facility requires us tothat we deliver quarterly financial statements, annual financial statements, auditorsauditor certifications, and compliance certificates within a specified number of days after the end of a quarter and year. Additionally, the revolving credit facilityRevolving Credit Facility contains restrictions limiting our ability toto: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; and make stock repurchases and dividend payments. Interest rates on the revolving credit facility fluctuate based upon the London Interbank Offered Rate and the Company's quarterly total leverage ratio. We pay a commitment fee on the undrawn portion of the revolving credit facility. The commitment fee varies based on the quarterly leverage ratio.
We have debt issuance costs related to our long-term debt that are being amortized using the straight-line method over the life of the debt. Amortization expense was approximately $185$194 for the year ended December 31, 2023, $194 in 2017, $1632022 and $169 in 2016, and $1752021. These costs are included in 2015, and was recognized as interest expense.expense in our Consolidated Statements of Earnings (Loss).
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Unrealized (loss) gain | $ | (255 | ) | $ | 593 | $ | (516 | ) | |
Realized gain reclassified to interest expense | $ | 37 | $ | 928 | $ | 768 |
NOTE 1214 — Derivatives
Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We selectively use derivative financial instruments including foreign currency forward contracts and interest rate swaps to manage our exposure to these risks.
The use of derivative financial instruments exposes the Company to credit risk, which relates to the risk of nonperformance by a counterparty to the derivative contracts. We manage our credit risk by entering into derivative contracts with only highly rated financial institutions and by using netting agreements.
The effective portion of derivative gains and losses are recorded in accumulated other comprehensive lossincome (loss) income until the hedged transaction affects earnings upon settlement, at which time they are reclassified to net sales and costcosts of goods sold. Ineffectiveness is recorded in other income (expense) in our Consolidated Statements of Earnings.sold or net sales. If it becomesis probable
CTS CORPORATION 55
that an anticipated hedged transaction that is hedged will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive lossincome (loss) to other income (expense).
We assess hedge effectiveness qualitatively by verifying that the critical terms of the hedging instrument and the forecasted transaction continue to match, and that there have been no adverse developments that have increased the risk that the counterparty will default. No recognition of ineffectiveness was recorded in our Consolidated Statement of Earnings (Loss) for the year ended December 31, 2017, we were hedging2023.
Foreign Currency Hedges
We use forward contracts to mitigate currency risk related to a portion of our forecasted Peso expensesforeign currency revenues and Euro denominated revenue forcosts. The currency forward contracts are designed as cash flow hedges and are recorded in the following twelve months. Consolidated Balance Sheets at fair value.
We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At December 31, 2017,2023, we had a net unrealized lossgain of $683$1,426 in accumulated other comprehensive loss,income (loss), of which $567 is$1,285 in gains are expected to be reclassified to incomeearnings within the next 12 months. The notional amount of foreign currency forward contracts outstanding was $33.2 million$45,335 at December 31, 2017.
Interest Rate Swaps
We use interest rate swaps to convert thea portion of our revolving credit facility’sfacility's outstanding balance from a variable rate of interest intoto a fixed rate on a portionrate.
As of our debt balance. In the second quarter of 2012,December 31, 2023, we entered into four separate one-year interest rate swaphave agreements to fix interest rates on $50,000$50,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2012, we entered into four additional one-year interest rate swap agreements to fix interest rates on $25,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2016, we entered into three additional one-year interest rate swap agreements to fix interest rates on $50,000 of long-term debt for the periods August 2017 to August 2020.through December 2026. The difference to be paid or received under the terms of the swap agreements will be recognized as an adjustment to interest expense when settled.
These swaps are treated as cash flow hedges and consequently, the changes in fair value wereare recorded in other comprehensive income (loss). income. The estimated net amount of the existing gains or losses that are reported in accumulated other comprehensive income (loss) that isare expected to be reclassified into earnings within the next twelve months is approximately $278.
The location and fair values of derivative instruments designated as hedging instruments in the Consolidated Balance Sheets as of December 31, 2017,2023, are shown in the following table:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Interest rate swaps reported in Other current assets |
| $ | 1,121 |
|
| $ | 1,561 |
|
Interest rate swaps reported in Other assets |
| $ | 706 |
|
| $ | 1,434 |
|
Cross-currency swap reported in Accrued expenses and other liabilities |
| $ | (747 | ) |
| $ | (357 | ) |
Foreign currency hedges reported in Other current assets |
| $ | 1,087 |
|
| $ | 945 |
|
As of December 31, | |||||||
2017 | 2016 | ||||||
Foreign currency hedges reported in Accrued expenses and other liabilities | $ | 742 | $ | 601 | |||
Interest rate swaps reported in Other current assets | $ | 278 | $ | 2 | |||
Interest rate swaps reported in Other assets | $ | 693 | $ | 751 |
The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance(Balance Sheet, Offsetting)Offsetting). On a gross basis, there were $97 foreign currency derivative assets of $1,283 and foreign currency derivative liabilities were $839.of $196 at December 31, 2023.
CTS CORPORATION 56
The effect of derivative instruments on the Consolidated Statements of Earnings (Loss) is as follows:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Foreign Exchange Contracts: |
|
|
|
|
|
|
|
|
| |||
Amounts reclassified from AOCI to earnings: |
|
|
|
|
|
|
|
|
| |||
Net sales |
| $ | (130 | ) |
| $ | — |
|
| $ | — |
|
Cost of goods sold |
|
| 2,795 |
|
|
| 924 |
|
|
| 1,384 |
|
Selling, general and administrative expense |
|
| — |
|
|
| — |
|
|
| — |
|
Total amounts reclassified from AOCI to earnings |
|
| 2,665 |
|
|
| 924 |
|
|
| 1,384 |
|
Gain recognized in other expense for hedge ineffectiveness |
|
| — |
|
|
| — |
|
|
| — |
|
Total derivative gains on foreign exchange contracts |
| $ | 2,665 |
|
| $ | 924 |
|
| $ | 1,384 |
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
| |||
Income (Expense) recorded in interest expense |
| $ | 1,789 |
|
| $ | 77 |
|
| $ | (744 | ) |
Cross-Currency Swaps: |
|
|
|
|
|
|
|
|
| |||
Income recorded in interest expense |
| $ | 515 |
|
|
| 461 |
|
|
| — |
|
Total gains on derivatives |
| $ | 4,969 |
|
| $ | 1,462 |
|
| $ | 640 |
|
Cross-Currency Swap
The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. As part of the strategy to limit foreign exchange exposure, the Company entered into a cross currency interest rate swap agreement on June 27, 2022 that synthetically swapped $25,000 of variable rate debt to Krone denominated variable rate debt. Upon completion of the Ferroperm acquisition on June 30, 2022, the transaction was designated as a net investment hedge for accounting purposes and will mature on June 30, 2027. Accordingly, any gains or losses on this derivative instrument will be included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted or liquidated. At December 31, 2023, the variable rate debt associated with the cross-currency swap was $17,500 due to ongoing principle payments. Interest payments received for the cross-currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense in the Condensed Consolidated Statements of Earnings. The assumptions used in measuring fair value of the cross currency-swap are considered Level 2 inputs, which are based upon the Krone to United States Dollar exchange rate market. At December 31, 2023 we had a net unrealized loss of $1,138 in accumulated other comprehensive income (loss).
Prior to designation as a net investment hedge, a gain of $111 was recorded in other expense within the Condensed Consolidated Statements of Earnings during the second quarter of 2022.
Derivative Contracts Not Designated as Hedges
In the second quarter of 2022, the Company used derivative contracts to manage foreign currency exchange risk related to funds to be used for the purchase price of the Ferroperm acquisition. These contracts were not designated as hedges and therefore changes in the fair values of these instruments were recognized directly in earnings. All contracts were settled in conjunction with the closing of the Ferroperm acquisition. As a result of these contracts, the Company recognized a $1,776 loss in other expense in the Consolidated Statements of Earnings (Loss) in 2022.
Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Foreign Exchange Contracts: | |||||||||||
Amounts reclassified from AOCI to earnings | |||||||||||
Net sales | $ | (488 | ) | $ | (124 | ) | $ | — | |||
Cost of goods sold | 497 | 111 | — | ||||||||
Selling, general and administrative | 45 | 1 | — | ||||||||
Total amounts reclassified from AOCI to earnings | 54 | (12 | ) | — | |||||||
Loss recognized in other expense for hedge ineffectiveness | (1 | ) | (1 | ) | — | ||||||
Loss recognized in other expense for derivatives not designated as cash flow hedges | (15 | ) | (5 | ) | — | ||||||
Total derivative gain (loss) on foreign exchange contracts recognized in earnings | 38 | (18 | ) | — | |||||||
Interest Rate Swaps: | |||||||||||
Interest Expense | $ | (37 | ) | $ | (928 | ) | $ | (768 | ) | ||
Total income (loss) on derivatives recognized in earnings | $ | 1 | $ | (946 | ) | $ | (768 | ) |
NOTE 1315 — Accumulated Other Comprehensive Loss
Shareholders’ equity includes certain items classified as accumulated other comprehensive loss ("AOCI"income (loss) (“AOCI”) in the Consolidated Balance Sheets, including:
CTS CORPORATION 57
The components of AOCIaccumulated other comprehensive income (loss) for 2017the year ended December 31, 2023 are as follows:
As of December 31, 2016 | Gain (Loss) Recognized in OCI | Gain (Loss) reclassified from AOCI to income | As of December 31, 2017 | |||||||||
Changes in fair market value of hedges: | ||||||||||||
Gross | $ | 116 | $ | 264 | $ | (91 | ) | $ | 289 | |||
Income tax expense (benefit) | (42 | ) | (96 | ) | 33 | (105 | ) | |||||
Net | 74 | 168 | (58 | ) | 184 | |||||||
Changes in unrealized pension cost: | ||||||||||||
Gross | (151,618 | ) | — | 21,522 | (130,096 | ) | ||||||
Income tax expense (benefit) | 60,672 | — | (7,835 | ) | 52,837 | |||||||
Net | (90,946 | ) | — | 13,687 | (77,259 | ) | ||||||
Cumulative translation adjustment: | ||||||||||||
Gross | (2,414 | ) | 429 | — | (1,985 | ) | ||||||
Income tax expense (benefit) | 92 | 8 | — | 100 | ||||||||
Net | (2,322 | ) | 437 | — | (1,885 | ) | ||||||
Total accumulated other comprehensive (loss) income | $ | (93,194 | ) | $ | 605 | $ | 13,629 | $ | (78,960 | ) |
|
| As of |
|
| Gain (Loss) |
|
| (Gain) Loss |
|
| As of |
| ||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
| $ | 3,911 |
|
| $ | 3,798 |
|
| $ | (4,453 | ) |
| $ | 3,256 |
|
Income tax benefit (expense) |
|
| (899 | ) |
|
| (874 | ) |
|
| 1,024 |
|
|
| (749 | ) |
Net |
|
| 3,012 |
|
|
| 2,924 |
|
|
| (3,429 | ) |
|
| 2,507 |
|
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (1,179 | ) |
|
| 278 |
|
|
| (224 | ) |
|
| (1,125 | ) |
Income tax benefit (expense) |
|
| 376 |
|
|
| 27 |
|
|
| 39 |
|
|
| 442 |
|
Net |
|
| (803 | ) |
|
| 305 |
|
|
| (185 | ) |
|
| (683 | ) |
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,880 | ) |
|
| 5,325 |
|
|
| — |
|
|
| 2,445 |
|
Income tax benefit (expense) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net |
|
| (2,880 | ) |
|
| 5,325 |
|
|
| — |
|
|
| 2,445 |
|
Total accumulated other comprehensive income (loss) |
| $ | (671 | ) |
| $ | 8,554 |
|
| $ | (3,614 | ) |
| $ | 4,269 |
|
The components of AOCIaccumulated other comprehensive income (loss) for 2016the year ended December 31, 2022 are as follows:
|
| As of |
|
| Gain (Loss) |
|
| (Gain) Loss |
|
| As of |
| ||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
| $ | (635 | ) |
| $ | 5,547 |
|
| $ | (1,001 | ) |
| $ | 3,911 |
|
Income tax (expense) benefit |
|
| 147 |
|
|
| (1,276 | ) |
|
| 230 |
|
|
| (899 | ) |
Net |
|
| (488 | ) |
|
| 4,271 |
|
|
| (771 | ) |
|
| 3,012 |
|
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,744 | ) |
|
| 3,308 |
|
|
| (1,743 | ) |
|
| (1,179 | ) |
Income tax (expense) benefit |
|
| 738 |
|
|
| (760 | ) |
|
| 398 |
|
|
| 376 |
|
Net |
|
| (2,006 | ) |
|
| 2,548 |
|
|
| (1,345 | ) |
|
| (803 | ) |
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,032 | ) |
|
| (848 | ) |
|
| — |
|
|
| (2,880 | ) |
Income tax benefit (expense) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net |
|
| (2,032 | ) |
|
| (848 | ) |
|
| — |
|
|
| (2,880 | ) |
Total accumulated other comprehensive income (loss) |
| $ | (4,526 | ) |
| $ | 5,971 |
|
| $ | (2,116 | ) |
| $ | (671 | ) |
CTS CORPORATION 58
As of December 31, 2015 | (Loss) Gain recognized in OCI | Gain (Loss) reclassified from AOCI to income | As of December 31, 2016 | |||||||||
Changes in fair market value of hedges: | ||||||||||||
Gross | $ | (768 | ) | $ | (56 | ) | $ | 940 | $ | 116 | ||
Income tax expense (benefit) | 289 | 20 | (351 | ) | (42 | ) | ||||||
Net | (479 | ) | (36 | ) | 589 | 74 | ||||||
Changes in unrealized pension cost: | ||||||||||||
Gross | (161,719 | ) | — | 10,101 | (151,618 | ) | ||||||
Income tax expense (benefit) | 64,361 | — | (3,689 | ) | 60,672 | |||||||
Net | (97,358 | ) | — | 6,412 | (90,946 | ) | ||||||
Cumulative translation adjustment: | ||||||||||||
Gross | (1,279 | ) | (1,135 | ) | — | (2,414 | ) | |||||
Income tax expense (benefit) | 111 | (19 | ) | — | 92 | |||||||
Net | (1,168 | ) | (1,154 | ) | — | (2,322 | ) | |||||
Total accumulated other comprehensive (loss) income | $ | (99,005 | ) | $ | (1,190 | ) | $ | 7,001 | $ | (93,194 | ) |
NOTE 1416 — Shareholders' Equity
Share count and par value data related to shareholders' equity are as follows:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Preferred Stock |
|
|
|
|
|
| ||
Par value per share |
| No par value |
|
| No par value |
| ||
Shares authorized |
|
| 25,000,000 |
|
|
| 25,000,000 |
|
Shares outstanding |
|
| — |
|
|
| — |
|
Common Stock |
|
|
|
|
|
| ||
Par value per share |
| No par value |
|
| No par value |
| ||
Shares authorized |
|
| 75,000,000 |
|
|
| 75,000,000 |
|
Shares issued |
|
| 57,444,228 |
|
|
| 57,330,761 |
|
Shares outstanding |
|
| 30,824,248 |
|
|
| 31,680,890 |
|
Treasury stock |
|
|
|
|
|
| ||
Shares held |
|
| 26,619,980 |
|
|
| 25,649,871 |
|
As of December 31, | ||
2017 | 2016 | |
Preferred Stock | ||
Par value per share | No par value | No par value |
Shares authorized | 25,000,000 | 25,000,000 |
Shares outstanding | — | — |
Common Stock | ||
Par value per share | No par value | No par value |
Shares authorized | 75,000,000 | 75,000,000 |
Shares issued | 56,632,488 | 56,456,516 |
Shares outstanding | 32,938,466 | 32,762,494 |
Treasury stock | ||
Shares held | 23,694,022 | 23,694,022 |
On February 9, 2023, our Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $50,000 of the Company’s common stock. The repurchase program had no set expiration date and replaced the repurchase program approved by the Board of Directors on May 13, 2021. The purchases under the program were made from time to time in the open market (including, without limitation, the use of Rule 10b5-1 plans), depending on a number of factors, including our evaluation of general market and economic conditions, our financial condition and the cost method to account fortrading price of our common stock purchases. stock. The repurchase program could have been extended, modified, suspended or discontinued at any time.
During the yearsyear ended December 31, 2017, and December 31, 2016, we did not purchase any2023, 970,109 shares of common stock were repurchased for approximately $41,337, including 96,401 shares that were repurchased for approximately $4,245under our board-authorized share repurchasethe May 2021 program. Approximately $17,554 isAs of December 31, 2023 approximately $12,908 was still available for future purchases.
As of 2023, we are subject to a 1% excise tax on stock repurchases under the United States Inflation Reduction Act of 2022 which we include in the cost of stock repurchases as a reduction of shareholders’ equity. As of December 31, 2023, we accrued $359 for 2023 repurchases within Accrued expenses and other liabilities in the Consolidated Balance Sheet.
On February 2, 2024, our Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $100 million of its common stock. The repurchase program has no set expiration date and supersedes and replaces the repurchase program approved by the Board of Directors in February 2023. The purchases may be made from time to time in the open market (including, without limitation, the use of Rule 10b5-1 plans), depending on a number of factors, including our evaluation of general market and economic conditions, our financial condition and the trading price of our common stock. The repurchase program may be extended, modified, suspended or discontinued at any time.
A roll forward of common shares outstanding is as follows:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Balance at beginning of the year |
|
| 31,680,890 |
|
|
| 32,178,715 |
|
Repurchases |
|
| (970,109 | ) |
|
| (583,526 | ) |
Restricted stock unit issuances |
|
| 113,467 |
|
|
| 85,701 |
|
Balance at end of period |
|
| 30,824,248 |
|
|
| 31,680,890 |
|
As of December 31, | ||||
2017 | 2016 | |||
Balance at beginning of the year | 32,762,494 | 32,548,477 | ||
Restricted stock unit issuances | 175,972 | 214,017 | ||
Balance at end of period | 32,938,466 | 32,762,494 |
NOTE 1517 — Stock-Based Compensation
At December 31, 2017,2023, we had fourfive stock-based compensation plans: the Non-Employee Directors' Stock Retirement Plan ("Directors' Plan"), the 2004 Omnibus Long-Term Incentive Plan ("2004 Plan"), the 2009 Omnibus Equity and Performance Incentive Plan ("2009 Plan"), and the 2014 Performance & Incentive Plan ("2014 Plan"), and the 2018 Equity and Incentive Compensation Plan ("2018 Plan"). Future grants can only be made under the 20142018 Plan.
CTS CORPORATION 59
The following table summarizes the compensation expense included in selling, general and administrative expenses in the Consolidated Statements of Earnings (Loss) related to stock-based compensation plans:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Service-Based RSUs |
| $ | 2,869 |
|
| $ | 2,834 |
|
| $ | 2,714 |
|
Performance-Based RSUs |
|
| 1,813 |
|
|
| 4,469 |
|
|
| 3,113 |
|
Cash-settled awards |
|
| 499 |
|
|
| 423 |
|
|
| 278 |
|
Total |
| $ | 5,181 |
|
| $ | 7,726 |
|
| $ | 6,105 |
|
Income tax benefit |
|
| 1,192 |
|
|
| 1,777 |
|
|
| 1,404 |
|
Net |
| $ | 3,989 |
|
| $ | 5,949 |
|
| $ | 4,701 |
|
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Service-Based RSUs | $ | 1,762 | $ | 1,997 | $ | 1,944 | |||
Performance-Based RSUs | 2,350 | 665 | 1,235 | ||||||
Cash-settled awards | 72 | 76 | 16 | ||||||
Total | $ | 4,184 | $ | 2,738 | $ | 3,195 | |||
Income tax benefit | 1,573 | 1,029 | 1,201 | ||||||
Net | $ | 2,611 | $ | 1,709 | $ | 1,994 |
The fair value of all equity awards that vested during the periods ended December 31, 2017, 2016,2023, 2022, and 20152021 were $5,471, $4,959,$8,282, $4,535, and $2,803,$7,063, respectively. We recorded a tax deduction related to equity awards that vested during the year ended December 31, 2017,2023, in the amount of $1,927.
The following table summarizes the unrecognized compensation expense related to non-vested RSUs by type and the weighted-average period in which the expense is to be recognized:
|
| Unrecognized |
|
| Weighted- | |
Service-Based RSUs |
| $ | 2,328 |
|
| 1.32 |
Performance-Based RSUs |
|
| 2,245 |
|
| 1.58 |
Total |
| $ | 4,573 |
|
| 1.45 |
Unrecognized compensation expense at December 31, 2017 | Weighted- average period | |||
Service-Based RSUs | $ | 1,079 | 1.11 years | |
Performance-Based RSUs | 2,313 | 1.62 years | ||
Total | $ | 3,392 | 1.46 years |
We recognize expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.
The following table summarizes the status of these plans as of December 31, 2017:2023:
|
| 2018 Plan |
|
| 2014 Plan |
|
| 2009 Plan |
|
| 2004 Plan |
|
| Directors' Plan |
| |||||
Awards originally available to be granted |
|
| 2,500,000 |
|
|
| 1,500,000 |
|
|
| 3,400,000 |
|
|
| 6,500,000 |
|
| N/A |
| |
Performance stock options outstanding |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Maximum potential RSU and cash settled |
|
| 663,052 |
|
|
| 35,100 |
|
|
| 30,000 |
|
|
| 14,545 |
|
|
| 4,722 |
|
Maximum potential awards outstanding |
|
| 663,052 |
|
|
| 35,100 |
|
|
| 30,000 |
|
|
| 14,545 |
|
|
| 4,722 |
|
RSUs and cash settled awards vested and |
|
| 446,973 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Awards available to be granted |
|
| 1,389,975 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2014 Plan | 2009 Plan | 2004 Plan | Directors' Plan | |||||
Awards originally available to be granted | 1,500,000 | 3,400,000 | 6,500,000 | N/A | ||||
Performance stock options outstanding | 295,000 | — | — | — | ||||
Maximum potential RSU and cash settled awards outstanding | 725,759 | 122,600 | 57,391 | 9,620 | ||||
Maximum potential awards outstanding | 1,020,759 | 122,600 | 57,391 | 9,620 | ||||
RSUs and cash settled awards vested and released | 176,221 | — | — | — | ||||
Awards available to be granted | 303,020 | — | — | — |
Service-Based Restricted Stock Units
Service-based RSUs entitle the holder to receive one share of common stock for each unit when the unit vests. RSUs are issued to officers, key employees, and non-employee directors as compensation. Generally, the RSUs vest over a three-year period. RSUs granted to non-employee directors have historically vested one month after being granted, except beginning in 2016 theygenerally vest one year after being granted. Upon vesting, the non-employee directors may elect to either receive the stock associated with the RSU immediately or defer receipt of the stock to a future date. The fair value of the RSUs is equivalent to the trading value of our common stock on the grant date.
CTS CORPORATION 60
A summary of RSUsRSU activity for all Plansthe year ended December 31, 2023 is presented below:
|
| Units |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
Outstanding at January 1, 2023 |
|
| 282,124 |
|
| $ | 27.44 |
|
|
|
|
|
|
| ||
Granted |
|
| 92,174 |
|
|
| 42.73 |
|
|
|
|
|
|
| ||
Released |
|
| (73,382 | ) |
|
| 32.78 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (19,950 | ) |
|
| 37.31 |
|
|
|
|
|
|
| ||
Outstanding at December 31, 2023 |
|
| 280,966 |
|
| $ | 30.36 |
|
|
| 18.18 |
|
| $ | 12,289 |
|
Releasable at December 31, 2023 |
|
| 144,267 |
|
| $ | 22.21 |
|
|
| 30.02 |
|
| $ | 6,310 |
|
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Weighted-average fair value upon release |
| $ | 45.19 |
|
| $ | 35.38 |
|
| $ | 33.81 |
|
Intrinsic value of RSUs released |
| $ | 3,316 |
|
| $ | 2,794 |
|
| $ | 5,408 |
|
Units | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||
Outstanding at January 1, 2017 | 554,478 | $ | 13.37 | ||||||
Granted | 57,740 | 24.32 | |||||||
Released | (201,918 | ) | 13.85 | ||||||
Forfeited | (10,953 | ) | 17.11 | ||||||
Outstanding at December 31, 2017 | 399,347 | $ | 14.60 | 24.58 | $ | 10,283 | |||
Releasable at December 31, 2017 | 259,811 | $ | 12.48 | 33.88 | $ | 6,690 |
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Weighted-average grant date fair value | $ | 24.32 | $ | 15.07 | $ | 17.31 | |||
Intrinsic value of RSUs released | $ | 4,485 | $ | 1,520 | $ | 2,933 |
A summary of nonvested RSUsnon-vested RSU activity for the year ended December 31, 2023 is presented below:
|
| RSUs |
|
| Weighted |
| ||
Nonvested at January 1, 2023 |
|
| 146,657 |
|
| $ | 33.64 |
|
Granted |
|
| 92,174 |
|
|
| 42.73 |
|
Vested |
|
| (82,182 | ) |
|
| 34.08 |
|
Forfeited |
|
| (19,950 | ) |
|
| 37.31 |
|
Nonvested at December 31, 2023 |
|
| 136,699 |
|
| $ | 38.97 |
|
RSUs | Weighted Average Grant Date Fair Value | ||||
Nonvested at January 1, 2017 | 251,245 | $ | 15.81 | ||
Granted | 57,740 | $ | 24.32 | ||
Vested | (158,496 | ) | $ | 16.40 | |
Forfeited | (10,953 | ) | $ | 17.11 | |
Nonvested at December 31, 2017 | 139,536 | $ | 18.56 |
Performance-Based Restricted Stock Units
We grant performance-based restricted stock unit awards ("PSUs")PRSUs to certain executives and key employees. UnitsPRSUs are usually awarded in the range from zero percent to 200%200% of a targeted number of shares. The award rate for the 2015-2017, 2016-2018,2021-2023, 2022-2024, and 2017-20192023-2025 PSUs is dependent upon our achievement of targets for sales growth, targets, cash flow, targets, and relative total shareholder return ("RTSR") using. We use a matrix based on the percentile ranking of our stock price performance compared to a peer group over a three-year period. These awards are weighted 35% for achievement ofperiod to calculate the sales growth metric, 30% for achievement of the cash flow metric, and 35% for achievement of the RTSR metric.targets. Other PSUsPRSUs are granted from time to time based on other performance criteria.
A summary of PSUsPRSU activity for all Plansthe year ended December 31, 2023 is presented below:
|
| Units |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
Outstanding at January 1, 2022 |
|
| 260,306 |
|
| $ | 33.20 |
|
|
|
|
|
|
| ||
Granted |
|
| 71,832 |
|
|
| 43.80 |
|
|
|
|
|
|
| ||
Added by performance factor |
|
| 53,035 |
|
|
| 32.11 |
|
|
|
|
|
|
| ||
Released |
|
| (113,385 | ) |
|
| 32.11 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (51,132 | ) |
|
| 33.14 |
|
|
|
|
|
|
| ||
Outstanding at December 31, 2022 |
|
| 220,656 |
|
| $ | 36.96 |
|
|
| 1.83 |
|
| $ | 9,651 |
|
Releasable at December 31, 2022 |
|
| — |
|
| $ | — |
|
|
|
|
| $ | — |
|
CTS CORPORATION 61
Units | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||
Outstanding at January 1, 2016 | 201,900 | $ | 16.48 | ||||||
Granted | 123,919 | $ | 23.83 | ||||||
Released | (43,275 | ) | $ | 21.66 | |||||
Forfeited | (26,524 | ) | $ | 22.56 | |||||
Added by performance factor | 15,285 | $ | 21.66 | ||||||
Outstanding at December 31, 2017 | 271,305 | $ | 18.77 | 1.62 | $ | 6,986 | |||
Releasable at December 31, 2017 | — | $ | — | — | $ | — |
The following table summarizes each grant of performance awardsPRSUs outstanding at December 31, 2017:2023:
Description |
| Grant Date |
| Vesting Year |
| Vesting Dependency |
| Target Units |
|
| Maximum Number |
| ||
2021 - 2023 Performance RSUs |
| February 9, 2021 |
| 2023 |
| 25% RTSR, 40% sales growth, |
|
| 58,541 |
|
|
| 117,082 |
|
2022 - 2024 Performance RSUs |
| February 10, 2022 |
| 2024 |
| 35% RTSR, 35% sales growth, |
|
| 65,508 |
|
|
| 131,016 |
|
Focus 2025 Performance RSUs |
| Varies |
| 2024 |
| Cumulative revenues of $750 million over a trailing four-quarter period |
|
| 32,900 |
|
|
| 32,900 |
|
2023-2025 Performance RSUs |
| February 9, 2023 |
| 2025 |
| 60% sales growth, |
|
| 63,707 |
|
|
| 127,414 |
|
Total |
|
|
|
|
|
|
|
| 220,656 |
|
|
| 408,412 |
|
Description | Grant Date | Vesting Year | Vesting Dependency | Target Units Outstanding | Maximum Number of Units to be Granted | ||
2015-2017 Performance RSUs | February 5, 2015 | 2018 | 35% RTSR, 35% sales growth, 30% cash flow | 62,000 | 124,000 | ||
2016-2018 Performance RSUs | February 16, 2016 | 2019 | 35% RTSR, 35% sales growth, 30% cash flow | 92,840 | 185,680 | ||
2017-2019 Performance RSUs | February 9, 2017 | 2020 | 35% RTSR, 35% sales growth, 30% cash flow | 71,796 | 143,592 | ||
2017-2019 Performance RSUs | February 9, 2017 | 2018- 2020 | Operating Income | 40,669 | 40,669 | ||
Single Crystal Performance RSUs | March 31, 2016 | 2019 | Various | 4,000 | 8,000 | ||
Total | 271,305 | 501,941 |
Cash-Settled Restricted Stock Units
Cash-Settled RSUs entitle the holder to receive the cash equivalent of one share of common stock for each unit when the unit vests. These RSUs are issued to key employees residing in foreign locations as direct compensation. Generally, these RSUs vest over a three-year period. Cash-settled RSUs are classified as liabilities and are remeasured at each reporting date until settled. At December 31, 2017,2023, and 2016,2022, we had 14,08242,062 and 12,07446,641 cash-settled RSUs outstanding, respectively. At December 31, 2017,2023 and 2016,2022, liabilities of $241$676 and $170,$566, respectively were included in Accruedaccrued expenses and other liabilities on our Consolidated Balance Sheets.
NOTE 1618 — Fair Value Measurements
The table below summarizes the financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 20172023 and the (gain) lossgain recorded during the year ended December 31, 2017:
Asset (Liability) Carrying Value at December 31, 2017 | Quoted Prices in Active Markets for Identical (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | (Gain) loss for Year Ended December 31, 2017 | |||||||||||
Interest rate swap — cash flow hedge | $ | 971 | $ | — | $ | 971 | $ | — | $ | 37 | |||||
Foreign currency hedges | $ | (742 | ) | $ | — | $ | (742 | ) | $ | — | $ | (38 | ) |
|
| Asset (Liability) Carrying |
|
| Quoted Prices |
|
| Significant |
|
| Significant |
|
| Gain (Loss) for |
| |||||
Interest rate swap |
| $ | 1,827 |
|
| $ | — |
|
| $ | 1,827 |
|
| $ | — |
|
| $ | 1,789 |
|
Foreign currency hedges |
| $ | 1,087 |
|
| $ | — |
|
| $ | 1,087 |
|
| $ | — |
|
| $ | 2,665 |
|
Cross-currency swap |
| $ | (747 | ) |
| $ | — |
|
| $ | (747 | ) |
| $ | — |
|
| $ | 515 |
|
Qualified replacement plan assets |
| $ | 13,392 |
|
| $ | 13,392 |
|
| $ | — |
|
| $ | — |
|
| $ | 710 |
|
Contingent consideration |
| $ | (3,764 | ) |
| $ | — |
|
| $ | — |
|
| $ | (3,764 | ) |
| $ | (200 | ) |
The table below summarizes the financial liabilityassets that waswere measured at fair value on a recurring basis as of December 31, 20162022 and the (gain) lossgain recorded during the year ended December 31, 2016:2022:
|
| Asset (Liability) Carrying |
|
| Quoted Prices |
|
| Significant |
|
| Significant |
|
| Gain for |
| |||||
Interest rate swap |
| $ | 2,995 |
|
| $ | — |
|
| $ | 2,995 |
|
| $ | — |
|
| $ | 77 |
|
Foreign currency hedges |
| $ | 945 |
|
| $ | — |
|
| $ | 945 |
|
| $ | — |
|
| $ | 924 |
|
Cross-currency swap |
| $ | (357 | ) |
| $ | — |
|
| $ | (357 | ) |
| $ | — |
|
| $ | 461 |
|
Qualified replacement plan assets |
| $ | 15,249 |
|
| $ | 15,249 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
We use interest rate swaps to convert a portion of our Revolving Credit Facility’s outstanding balance from a variable rate of interest into a fixed rate and foreign currency forward contracts to hedge the effect of foreign currency changes on certain revenues and costs
CTS CORPORATION 62
Asset (Liability) Carrying Value at December 31, 2016 | Quoted Prices in Active Markets for Identical (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | (Gain) loss for Year Ended December 31, 2016 | |||||||||||
Interest rate swap — cash flow hedge | $ | 753 | $ | — | $ | 753 | $ | — | $ | (928 | ) | ||||
Foreign currency hedges | $ | (601 | ) | $ | (601 | ) | $ | 18 |
denominated in foreign currencies. In addition, the Company entered into a cross currency swap agreement in order to manage its exposure to changes in interest rates related to foreign debt. These derivative financial instruments are measured at fair value on a recurring basis.
The fair value of our interest rate swaps, and foreign currency hedges were measured using standard valuation models using market-based observable inputs over the contractual terms, including forward yield curves, among others. There is a readily determinable market for these derivative instruments, but thethat market is not active and therefore they are classified within levelLevel 2 of the fair value hierarchy.
The fair value of the recurring financial assetscontingent consideration required significant judgment. The Company's fair value estimates used in the contingent consideration valuation are considered Level 3 fair value measurements. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenues and customer order targets. These estimates are highly judgmental and changes to the estimate of expected future contingent consideration payments may occur, from time to time, due to various reasons, including actual results differing from estimates and/or from adjustments to the revenue or customer order target assumptions used as the basis for the liability.
A roll-forward of the contingent consideration is as follows:
|
| Contingent |
| |
|
| Consideration |
| |
Balance at December 31, 2022 |
| $ | — |
|
Acquisition date fair value of contingent consideration |
|
| 3,564 |
|
Change in fair value |
|
| 200 |
|
Balance at December 31, 2023 |
| $ | 3,764 |
|
As of December 31, 2023, approximately $1,076 of contingent consideration was recorded in accrued expenses and other liabilities related to interest rate swaps and foreign currency hedges:with the remainder in other long-term obligations in the Consolidated Balance Sheets.
Interest Rate Swaps | Foreign Currency Hedges | |||||
Balance at January 1, 2016 | $ | (768 | ) | $ | — | |
Settled in cash | — | 54 | ||||
Total gains (losses) for the period: | ||||||
Included in earnings | 928 | (18 | ) | |||
Included in other comprehensive earnings (loss) | 593 | (637 | ) | |||
Balance at January 1, 2017 | $ | 753 | $ | (601 | ) | |
Settled in cash | — | (132 | ) | |||
Total gains (losses) for the period: | ||||||
Included in earnings | — | 38 | ||||
Included in other comprehensive earnings (loss) | 218 | (47 | ) | |||
Balance at December 31, 2017 | $ | 971 | $ | (742 | ) |
Our long-term debt consists of a revolving debt facilityoutstanding under the Revolving Credit Facility, which is recorded at its carrying value. There is a readily determinable market for our revolving creditlong-term debt, and it is classified within Level 2 of the fair value hierarchy as the market is not deemed to be active. The fair value of long-term debt approximates carrying value and was determined by valuing a similar hypothetical coupon bond and attributing that value to our credit facility.long-term debt under the Revolving Credit Facility.
NOTE 1719 — Income Taxes
Earnings (Loss) before income taxes consist of the following:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
U.S. |
| $ | (9,265 | ) |
| $ | 1,005 |
|
| $ | (128,699 | ) |
Non-U.S. |
|
| 84,418 |
|
|
| 79,732 |
|
|
| 67,819 |
|
Total |
| $ | 75,153 |
|
| $ | 80,737 |
|
| $ | (60,880 | ) |
CTS CORPORATION 63
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
U.S. | $ | 9,315 | $ | 25,746 | $ | (141 | ) | ||
Non-U.S. | 30,938 | 31,499 | 12,402 | ||||||
Total | $ | 40,253 | $ | 57,245 | $ | 12,261 |
Significant components of income tax provision/(benefit) are as follows:
|
| Years Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Current: |
|
|
|
|
|
|
|
|
| |||
U.S. |
| $ | (668 | ) |
| $ | 1,365 |
|
| $ | 36 |
|
Non-U.S. |
|
| 16,279 |
|
|
| 19,305 |
|
|
| 11,932 |
|
Total Current |
|
| 15,611 |
|
|
| 20,670 |
|
|
| 11,968 |
|
Deferred: |
|
|
|
|
|
|
|
|
| |||
U.S. |
|
| (1,475 | ) |
|
| 249 |
|
|
| (35,979 | ) |
Non-U.S. |
|
| 485 |
|
|
| 243 |
|
|
| 4,997 |
|
Total Deferred |
|
| (990 | ) |
|
| 492 |
|
|
| (30,982 | ) |
Total provision for income taxes |
| $ | 14,621 |
|
| $ | 21,162 |
|
| $ | (19,014 | ) |
Years Ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Current: | |||||||||
U.S. | $ | 1,635 | $ | (1,312 | ) | $ | 329 | ||
Non-U.S. | 7,150 | 13,729 | 12,482 | ||||||
Total Current | 8,785 | 12,417 | 12,811 | ||||||
Deferred: | |||||||||
U.S. | 17,597 | 13,245 | (15,795 | ) | |||||
Non-U.S. | (577 | ) | (2,797 | ) | 8,291 | ||||
Total Deferred | 17,020 | 10,448 | (7,504 | ) | |||||
Total provision for income taxes | $ | 25,805 | $ | 22,865 | $ | 5,307 |
Significant components of our deferred tax assets and liabilities are as follows:
As of December 31, | ||||||
2017 | 2016 | |||||
Post-retirement benefits | $ | 1,160 | $ | 1,798 | ||
Inventory reserves | 1,128 | 1,834 | ||||
Loss carry-forwards | 5,401 | 7,279 | ||||
Credit carry-forwards | 10,793 | 22,743 | ||||
Nondeductible accruals | 7,062 | 11,629 | ||||
Research expenditures | 20,002 | 31,380 | ||||
Stock compensation | 1,803 | 2,681 | ||||
Foreign exchange loss | 1,373 | 1,780 | ||||
Other | 220 | 648 | ||||
Gross deferred tax assets | 48,942 | 81,772 | ||||
Depreciation and amortization | 9,819 | 9,960 | ||||
Pensions | 12,387 | 16,024 | ||||
Subsidiaries' unremitted earnings | 1,662 | 1,292 | ||||
Gross deferred tax liabilities | 23,868 | 27,276 | ||||
Net deferred tax assets | 25,074 | 54,496 | ||||
Deferred tax asset valuation allowance | (8,182 | ) | (11,024 | ) | ||
Total net deferred tax assets | $ | 16,892 | $ | 43,472 |
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Post-retirement benefits |
| $ | 976 |
|
| $ | 947 |
|
Inventory reserves |
|
| 1,323 |
|
|
| 1,361 |
|
Loss carry-forwards |
|
| 3,911 |
|
|
| 4,547 |
|
Credit carry-forwards |
|
| 13,415 |
|
|
| 10,467 |
|
Accrued expenses |
|
| 4,852 |
|
|
| 4,543 |
|
Research and development expenditures |
|
| 18,980 |
|
|
| 19,448 |
|
Operating lease liabilities |
|
| 6,715 |
|
|
| 5,865 |
|
Stock compensation |
|
| 2,371 |
|
|
| 2,426 |
|
Foreign exchange loss |
|
| 2,010 |
|
|
| 2,075 |
|
Other |
|
| 762 |
|
|
| 835 |
|
Gross deferred tax assets |
|
| 55,315 |
|
|
| 52,514 |
|
Depreciation and amortization |
|
| 23,349 |
|
|
| 23,067 |
|
Statutory inventory adjustments |
|
| 1,359 |
|
|
| 1,110 |
|
Qualified replacement plan |
|
| 3,080 |
|
|
| 3,507 |
|
Operating lease assets |
|
| 6,355 |
|
|
| 5,531 |
|
Subsidiaries' unremitted earnings |
|
| 1,599 |
|
|
| 2,562 |
|
Other |
|
| 749 |
|
|
| 900 |
|
Gross deferred tax liabilities |
|
| 36,491 |
|
|
| 36,677 |
|
Net deferred tax assets |
|
| 18,824 |
|
|
| 15,837 |
|
Deferred tax asset valuation allowance |
|
| (8,370 | ) |
|
| (8,386 | ) |
Total net deferred tax assets |
| $ | 10,454 |
|
| $ | 7,451 |
|
The long-term deferred tax assets and long-term deferred tax liabilities, classified as non-current, are as follows below:follows:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Non-current deferred tax assets |
| $ | 25,183 |
|
| $ | 23,461 |
|
Non-current deferred tax liabilities |
| $ | (14,729 | ) |
| $ | (16,010 | ) |
Total net deferred tax assets |
| $ | 10,454 |
|
| $ | 7,451 |
|
As of December 31, | ||||
2017 | 2016 | |||
Non-current deferred tax assets | 20,694 | 45,839 | ||
Non-current deferred tax liabilities | (3,802 | ) | (2,367 | ) |
Total net deferred tax assets | 16,892 | 43,472 |
At each reporting date, we weigh all available positive and negative evidence to assess whether it is more-likely-than-not that the Company's deferred tax assets, including deferred tax assets associated with accumulated loss carryforwardscarry-forwards and tax credits in the various jurisdictions in which it operates, will be realized. As of December 31, 2017,2023, and 2016,2022, we recorded deferred tax assets related to certain U.S. state and non-U.S. income tax loss carryforwardscarry-forwards of $5,401$3,911 and $7,279,$4,547, respectively, and U.S. and non-U.S. tax credits of $10,793$13,415 and $22,743,$10,467, respectively. The deferred tax assets expire in various years primarily between 20222024 and 2035.
Generally, we assess if it is more-likely-than-not that our net deferred tax assets will be realized during the available carry-forward periods. As a result, we have determined that valuation allowances of $8,182$8,370 and $11,024$8,386 should be provided for certain deferred tax
CTS CORPORATION 64
assets at December 31, 2017,2023 and 2016,2022, respectively. As of December 31, 2017,2023, the valuation allowances relate to certain U.S. state and non-U.S. loss carry-forwards and certain U.S. state tax credits that management does not anticipate will be utilized. The increase in the
A valuation allowance from December 31, 2015, to December 31, 2016, is primarily due to the June 2016 restructuring activitiesfor 2023 and changes in management's judgment regarding realizability2022 of the related assets.
The following table reconciles taxes at the U.S. federal statutory rate to the effective income tax rate:
|
| Years Ended December 31, | ||||
|
| 2023 |
| 2022 |
| 2021 |
Taxes at the U.S. statutory rate |
| 21.0% |
| 21.0% |
| 21.0% |
State income taxes, net of federal income tax benefit |
| (0.1)% |
| 0.2% |
| 4.3% |
Non-U.S. earnings taxed at rates different than the U.S. statutory rate |
| (4.4)% |
| (3.2)% |
| 3.1% |
Foreign source earnings, net of associated foreign tax credits |
| 2.7% |
| (0.6)% |
| 0.1% |
Benefit of tax credits |
| (2.4)% |
| (0.2)% |
| 0.8% |
Non-deductible expenses |
| 0.9% |
| 2.6% |
| (1.6)% |
Stock compensation - excess tax benefits |
| (0.7)% |
| (0.2)% |
| 0.7% |
Adjustment to valuation allowances |
| 1.2% |
| 1.4% |
| (3.1)% |
Change in unrecognized tax benefits |
| (0.2)% |
| (0.1)% |
| 0.4% |
Impacts of unremitted foreign earnings |
| 2.0% |
| 2.7% |
| (4.5)% |
Release of disproportionate tax effects of OCI |
| — |
| — |
| 8.8% |
Excise tax paid upon U.S. pension termination |
| — |
| 1.8% |
| — |
Other |
| (0.5)% |
| 0.8% |
| 1.2% |
Effective income tax rate |
| 19.5% |
| 26.2% |
| 31.2% |
Years Ended December 31, | ||||||
2017 | 2016 | 2015 | ||||
Taxes at the U.S. statutory rate | 35.0 | % | 35.0 | % | 35.0 | % |
State income taxes, net of federal income tax benefit | 1.1 | % | 1.4 | % | (0.1 | )% |
Non-U.S. income taxed at rates different than the U.S. statutory rate | (9.0 | )% | (7.5 | )% | (16.7 | )% |
Foreign source income, net of associated foreign tax credits | 0.1 | % | 5.3 | % | 6.9 | % |
Benefit of tax credits | (1.4 | )% | (1.0 | )% | (4.6 | )% |
Non-deductible expenses | 1.5 | % | 0.7 | % | 1.3 | % |
Stock compensation - excess tax benefits | (1.5 | )% | (0.8 | )% | — | % |
Adjustment to valuation allowances | (4.4 | )% | 3.8 | % | 37.8 | % |
Benefit from prior period foreign tax credits | — | % | — | % | (133.0 | )% |
Change in unrecognized tax benefits | 2.0 | % | 3.3 | % | 59.5 | % |
Impacts of unremitted foreign earnings | 0.9 | % | 0.6 | % | 60.8 | % |
Impacts related to the 2017 Tax Cuts and Jobs Act | 44.7 | % | — | % | — | % |
Other | (4.9 | )% | (0.9 | )% | (3.6 | )% |
Effective income tax rate | 64.1 | % | 39.9 | % | 43.3 | % |
In 2020, the U.S. federal tax treatment of foreign taxes paid. We claimed a foreign tax credit on our 2014 and 2015 U.S. federal income tax returns and filed amended tax returns for 2006 through 2013 in order to claim non-U.S. taxes paid as a credit against income tax, rather than as a deduction. The filingCompany began the termination of the amended returns reduced the deferred tax asset for federal loss carryforwards by $8,214, and increased our available foreign tax credit carryforward by $24,519, resulting in a net tax benefit of $16,305, recorded in 2015.
Under current U.S. tax regulations, in general, repatriation of foreign earnings to the U.S. when neededcan be completed with minimalno incremental U.S. income tax consequencestax. However, there are limited other than the one-time deemed repatriation charge. We willtaxes that continue to evaluate whether to repatriate all orapply such as foreign withholding and certain state taxes. The Company records a portion ofdeferred tax liability for the cumulative undisributedestimated foreign earnings based on expansion needs and as circumstances change. Westate tax cost associated with the undistributed foreign earnings that are still evaluating whether to change our indefinite reinvestment assertion in light of the Act and consider that conclusion to be incomplete undernot permanently reinvested.
In accordance with guidance issued by SAB 118. If we subsequently change our assertion during the measurement period, we will account forFASB staff, the change in assertion as a change in estimate relatedCompany has adopted an accounting policy to the enactment of the Act.
We recognize the financial statement benefit of a tax position when it is more-likely-than-not, based on its technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not threshold is then measured to determine the amount of benefit to be recognized in the financial statements. As of December 31, 2017,2023, we have approximately $7,306$1,943 of unrecognized tax benefits, which if recognized, would impact the effective tax rate. We do not anticipate any significant changes in our unrecognized tax benefits within the next 12 months.
A reconciliation of the beginning and ending unrecognized tax benefits is provided below:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Balance at January 1 |
| $ | 2,079 |
|
| $ | 2,196 |
|
Increase related to current year tax positions |
|
| 208 |
|
|
| 48 |
|
Decrease related to prior year tax positions |
|
| (122 | ) |
|
| (165 | ) |
Decrease related to lapse in statute of limitation |
|
| (222 | ) |
|
| — |
|
Balance at December 31 |
| $ | 1,943 |
|
| $ | 2,079 |
|
CTS CORPORATION 65
2017 | 2016 | |||||
Balance at January 1 | $ | 12,347 | $ | 11,008 | ||
Increase related to current year tax positions | — | 1,088 | ||||
Increase related to prior year tax positions | 1,290 | 251 | ||||
Decrease related to settlements with taxing authorities | (6,331 | ) | — | |||
Balance at December 31 | $ | 7,306 | $ | 12,347 |
Our continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2017,2023 and 2016, $2,5962022, $39 and $1,772,$39, respectively, of interest and penalties were accrued.
We are subject to taxation in the U.S., various states, and in non-U.S. jurisdictions. Our U.S. income tax returns are primarily subject to examination from 20132020 through 2016;2022; however, U.S. tax authorities also have the ability to review prior tax years to the extent loss carryforwardscarry-forwards and tax credit carryforwardscarry-forwards are utilized. The open years for the non-U.S. tax returns range from 20082014 through 20162022 based on local statutes.
NOTE 18 - Business Acquisitions
Fair Values at May 15, 2017 | ||||
Current assets | $ | 2,836 | ||
Property, plant and equipment | 580 | |||
Other assets | 395 | |||
Goodwill | 9,313 | |||
Intangible assets | 9,142 | |||
Fair value of assets acquired | 22,266 | |||
Less fair value of liabilities acquired | (3,145 | ) | ||
Net cash paid | $ | 19,121 |
Carrying Value | Weighted Average Amortization Period (in years) | ||||
Developed technology | $ | 7,581 | 15.0 | ||
Customer relationships | 937 | 10.0 | |||
Other | 624 | 3.0 | |||
Total | $ | 9,142 | 13.7 |
Fair Values at March 11, 2016 | ||||
Current assets | $ | 4,215 | ||
Property, plant and equipment | 6,173 | |||
Other assets | 37 | |||
Goodwill | 27,879 | |||
Intangible assets | 35,427 | |||
Fair value of assets acquired | 73,731 | |||
Less fair value of liabilities acquired | (668 | ) | ||
Net cash paid | $ | 73,063 |
Carrying Value | Weighted Average Amortization Period (in years) | ||||
Developed technology | $ | 23,730 | 15.0 | ||
Customer relationships and contracts | 11,502 | 14.6 | |||
Other | 195 | 0.8 | |||
Total | $ | 35,427 | 14.8 |
Financial information relating to our operations by geographic area were as follows:
Net Sales | Years Ended December 31, | ||||||||
2017 | 2016 | 2015 | |||||||
United States | $ | 287,092 | $ | 276,033 | $ | 238,796 | |||
Singapore | 5,596 | 6,668 | 8,379 | ||||||
China | 66,510 | 59,506 | 55,825 | ||||||
Canada | — | — | 24,519 | ||||||
Czech Republic | 34,476 | 34,767 | 36,348 | ||||||
Other non-U.S. | 29,319 | 19,705 | 18,443 | ||||||
Consolidated net sales | $ | 422,993 | $ | 396,679 | $ | 382,310 |
|
| Years Ended December 31, |
| |||||||||
Net Sales |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
United States |
| $ | 302,530 |
|
| $ | 326,561 |
|
| $ | 297,322 |
|
China |
|
| 108,683 |
|
|
| 115,980 |
|
|
| 106,700 |
|
Czech Republic |
|
| 42,068 |
|
|
| 35,990 |
|
|
| 36,252 |
|
Singapore |
|
| 29,912 |
|
|
| 48,288 |
|
|
| 37,742 |
|
Denmark |
|
| 29,208 |
|
|
| 17,864 |
|
|
| 6,979 |
|
Taiwan |
|
| 22,619 |
|
|
| 30,199 |
|
|
| 27,768 |
|
Other non-U.S. |
|
| 15,402 |
|
|
| 11,987 |
|
|
| 162 |
|
Consolidated net sales |
| $ | 550,422 |
|
| $ | 586,869 |
|
| $ | 512,925 |
|
Sales are attributed to countries based upon the origin of the sale.
|
| Years Ended December 31, |
| |||||
Long-Lived Tangible Assets |
| 2023 |
|
| 2022 |
| ||
United States |
| $ | 28,533 |
|
| $ | 32,694 |
|
China |
|
| 25,847 |
|
|
| 28,255 |
|
Mexico |
|
| 19,693 |
|
|
| 17,050 |
|
Czech Republic |
|
| 7,840 |
|
|
| 8,519 |
|
Taiwan |
|
| 6,321 |
|
|
| 6,446 |
|
Other non-U.S |
|
| 4,358 |
|
|
| 4,336 |
|
Consolidated long-lived assets |
| $ | 92,592 |
|
| $ | 97,300 |
|
Long-Lived Assets | Years Ended December 31, | |||||
2017 | 2016 | |||||
United States | $ | 45,354 | $ | 42,488 | ||
China | 32,464 | 33,013 | ||||
United Kingdom | 590 | 569 | ||||
Taiwan | 3,540 | 2,755 | ||||
Czech Republic | 5,518 | 2,634 | ||||
Other non-U.S | 781 | 652 | ||||
Consolidated long-lived assets | $ | 88,247 | $ | 82,111 |
First | Second | Third | Fourth | |||||||||
2017 | ||||||||||||
Net sales | $ | 100,154 | $ | 105,686 | $ | 106,243 | $ | 110,910 | ||||
Gross margin | $ | 34,224 | $ | 35,794 | $ | 37,538 | $ | 32,875 | ||||
Operating earnings (loss) | $ | 12,196 | $ | 13,208 | $ | 13,111 | $ | (19 | ) | |||
Net earnings (loss) | $ | 8,484 | $ | 9,966 | $ | 9,619 | $ | (13,621 | ) | |||
Basic earnings (loss) per share | $ | 0.26 | $ | 0.30 | $ | 0.29 | $ | (0.41 | ) | |||
Diluted earnings (loss) per share | $ | 0.25 | $ | 0.30 | $ | 0.29 | $ | (0.41 | ) | |||
2016 | ||||||||||||
Net sales | $ | 96,705 | $ | 98,693 | $ | 99,697 | $ | 101,584 | ||||
Gross margin | $ | 33,468 | $ | 34,457 | $ | 36,641 | $ | 35,861 | ||||
Operating earnings | $ | 12,433 | $ | 24,097 | $ | 12,490 | $ | 14,146 | ||||
Net earnings | $ | 7,863 | $ | 14,487 | $ | 3,720 | $ | 8,310 | ||||
Basic earnings per share | $ | 0.24 | $ | 0.44 | $ | 0.11 | $ | 0.25 | ||||
Diluted earnings per share | $ | 0.24 | $ | 0.44 | $ | 0.11 | $ | 0.25 |
CTS CORPORATION 66
CTS CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in thousands) |
| Balance at |
|
| Charged to |
|
| Charged |
|
| Write-offs / |
|
| Balance |
| |||||
Year ended December 31, 2023 Allowance for |
| $ | 1,236 |
|
| $ | 125 |
|
| $ | — |
|
| $ | (430 | ) |
| $ | 931 |
|
Year ended December 31, 2022 Allowance for |
| $ | 1,657 |
|
| $ | 97 |
|
| $ | (22 | ) |
| $ | (496 | ) |
| $ | 1,236 |
|
Year ended December 31, 2021 Allowance for |
| $ | 764 |
|
| $ | 1,020 |
|
| $ | 4 |
|
| $ | (131 | ) |
| $ | 1,657 |
|
CTS CORPORATION 67
(in thousands) | Balance at Beginning of Period | Charged to Expense | Charged to Other Accounts | (Write-offs) / Recoveries | Balance at End of Period | ||||||||||
Year ended December 31, 2017 Allowance for doubtful accounts | $ | 170 | $ | 248 | $ | 9 | $ | (70 | ) | $ | 357 | ||||
Year ended December 31, 2016 Allowance for doubtful accounts | $ | 133 | $ | 44 | $ | — | $ | (7 | ) | $ | 170 | ||||
Year ended December 31, 2015 Allowance for doubtful accounts | $ | 100 | $ | 33 | $ | — | $ | — | $ | 133 |
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.
Item 9A.
Controls and Procedures(a) Evaluation of Disclosure and Controls
Our management, with the Securities Exchange Act of 1934, management, under the directionparticipation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this annual report.Annual Report on Form 10-K. Based on suchthat evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of December 31, 2017.
(b) Management’s Annual Report on its auditInternal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017,2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework).
Based on our assessment under the framework in Internal Control—Integrated Framework (2013 framework), our management concluded that our internal control over financial reporting was effective as of December 31, 2023. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report that is included in Part II, Item 8 of this Annual Report on Form 10-K under the heading "Report of Independent Registered Public Accounting Firm" and is incorporated herein by reference. The Report of Management on Internal Control over Financial Reporting, which can be found following the signature page of this Annual Report on Form 10-K, is incorporated herein by reference.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting for the quarter ended December 31, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CTS CORPORATION 68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CTS Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of CTS Corporation (an Indiana corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023, and our report dated February 23, 2024 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Chicago, Illinois
February 23, 2024
CTS CORPORATION 69
Item 9B. Other Information
During the quarter ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10.
Directors, Executive Officers and Corporate GovernancePlease see Part I, Item 1 of this Annual Report on Form 10-K for information about our executive officers, which is incorporated by reference herein. Information with respect to Directorsour directors and Corporate Governanceour corporate governance policies and practices may be found in our definitive proxy statement to be delivered to shareholders in connection with our 20182024 Annual Meeting of Shareholders. Such information is incorporated herein by reference.
Item 11.
Executive CompensationInformation with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 20182024 Annual Meeting of Shareholders. Such information is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about shares of CTS common stock that could be issued under all of our equity compensation plans as of December 31, 2017:
Plan Category |
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders |
|
| 742,697 |
|
| $ | 33.28 |
|
|
| 1,389,975 |
|
Equity compensation plans not approved by security holders(1) |
|
| 4,722 |
|
|
| — |
|
|
| — |
|
Total |
|
| 747,419 |
|
|
|
|
|
| 1,389,975 |
|
Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, RSUs, Warrants and Rights (2) | (b) Weighted-Average Grant Date Fair Value of Outstanding Options, RSUs, Warrants and Rights | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) | ||||
Equity compensation plans approved by security holders | 1,186,668 | $ | 16.92 | 303,020 | |||
Equity compensation plans not approved by security holders(1) | 9,620 | — | — | ||||
Total | 1,196,288 | $ | 16.92 | 303,020 |
CTS CORPORATION 70
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Information with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 20182024 Annual Meeting of Shareholders. Such information is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director IndependenceInformation with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 20182024 Annual Meeting of Shareholders. Such information is incorporated herein by reference.
Item 14.
Principal Accountant Fees and ServicesInformation with respect to this itemthe aggregate fees billed to us by our principal accountant, Grant Thornton LLP (PCAOB ID No. 248), may be found in our definitive proxy statement to be delivered to shareholders in connection with our 20182024 Annual Meeting of Shareholders. Such information is incorporated herein by reference.
CTS CORPORATION 71
PART IV
Item 15.
Exhibits and Financial Statements SchedulesThe following Consolidatedfinancial statements are filed as part of this Annual Report on Form 10-K under “Item 8. Financial Statements of CTS Corporation and Subsidiaries are included herein:
Schedule II: Valuation and Qualifying Accounts and Reserves
Other schedules have been omitted because they are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto.
(a) (3) Exhibits
All references to documents filed pursuant to the Securities Exchange Act of 1934, including Forms 10-K, 10-Q and 8-K, were filed by CTS, File No. 1-4639.
(3)(i) | |||
(3)(ii) | |||
(4)(1) | |||
(10)(a) | |||
(10)(b) | |||
(10)(c) | |||
(10)(d) | |||
(10)(e) | |||
(10)(f) | |||
(10)(g) | |||
(10)(h) | |||
(10)(i) | |||
(10)(j) | |||
CTS CORPORATION 72
(10)(k) | |||
(10)(l) | |||
(10)(m) | |||
(10)(n) | |||
(10)(o) | |||
(21) | |||
(23) | |||
(31)(a) | |||
(31)(b) | |||
(32)(a) | |||
(32)(b) | |||
97 | |||
101 | The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Earnings (Loss), (ii) Consolidated Statements of Comprehensive Earnings, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | ||
104 | The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL | ||
* Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
CTS CORPORATION 73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CTS Corporation | |||
Date: February 23, | By: | /s/ Ashish Agrawal | |
Ashish Agrawal Vice President and Chief Financial Officer (Principal Financial Officer) | |||
Date: February 23, | By: | /s/ | |
Thomas M. White Corporate Controller (Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 23, | By: | /s/ Kieran O'Sullivan | |
Kieran O'Sullivan Chairman, President, and Chief Executive Officer (Principal Executive Officer) | |||
Date: February 23, | By: | /s/ Robert A. Profusek | |
Robert A. Profusek Lead Director | |||
Date: February 23, | By: | /s/ | |
William S. Johnson Director | |||
Date: February 23, | By: | /s/ | |
Alfonso G. Zulueta Director | |||
Date: February 23, | By: | /s/ | |
Donna M. Costello | |||
Date: February 23, | By: | /s/ | |
Randy Stone | |||
Date: February 23, | By: | /s/ | |
Amy Dodrill | |||
CTS CORPORATION 74