UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended SeptemberJune 30, 20212022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to to
Commission File Number: 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
IN |
| 35-0225010 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification Number) |
4925 Indiana Avenue |
|
|
LisleIL |
| 60532 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: ( (630) 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 |
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☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
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Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of OctoberJuly 21, 2021: 32,224,552.2022: 31,865,314.
CTS CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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| Notes to Condensed Consolidated Financial Statements ‑ (Unaudited) |
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| Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 1. |
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| Item 1A. |
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS)EARNINGS EARNINGS- UNAUDITED
(In thousands of dollars, except per share amounts)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
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| September 30, |
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| June 30, |
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| June 30, |
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| June 30, |
|
| June 30, |
| ||||||||
|
| 2021 |
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| 2020 |
|
| 2021 |
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| 2020 |
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| 2022 |
|
| 2021 |
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| 2022 |
|
| 2021 |
| ||||||||
Net sales |
| $ | 122,382 |
|
| $ | 113,777 |
|
| $ | 380,394 |
|
| $ | 301,049 |
|
| $ | 144,982 |
|
| $ | 129,585 |
|
| $ | 292,677 |
|
| $ | 258,012 |
|
Cost of goods sold |
|
| 76,720 |
|
|
| 76,871 |
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|
| 244,446 |
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| 204,677 |
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|
| 93,134 |
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|
| 81,889 |
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| 186,489 |
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|
| 167,725 |
|
Gross margin |
|
| 45,662 |
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|
| 36,906 |
|
|
| 135,948 |
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|
| 96,372 |
|
|
| 51,848 |
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| 47,696 |
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|
| 106,188 |
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| 90,287 |
|
Selling, general and administrative expenses |
|
| 19,922 |
|
|
| 16,883 |
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|
| 59,184 |
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| 48,310 |
|
|
| 22,238 |
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|
| 20,937 |
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|
| 44,026 |
|
|
| 39,262 |
|
Research and development expenses |
|
| 6,454 |
|
|
| 5,723 |
|
|
| 18,170 |
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| 18,653 |
|
|
| 6,294 |
|
|
| 6,029 |
|
|
| 12,488 |
|
|
| 11,716 |
|
Restructuring charges |
|
| 319 |
|
|
| 1,041 |
|
|
| 551 |
|
|
| 1,416 |
|
|
| 630 |
|
|
| 151 |
|
|
| 942 |
|
|
| 232 |
|
Operating earnings |
|
| 18,967 |
|
|
| 13,259 |
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| 58,043 |
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| 27,993 |
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|
| 22,686 |
|
|
| 20,579 |
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| 48,732 |
|
|
| 39,077 |
|
Other (expense) income: |
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Interest expense |
|
| (514 | ) |
|
| (857 | ) |
|
| (1,577 | ) |
|
| (2,617 | ) |
|
| (602 | ) |
|
| (508 | ) |
|
| (1,148 | ) |
|
| (1,063 | ) |
Interest income |
|
| 230 |
|
|
| 217 |
|
|
| 689 |
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|
| 852 |
|
|
| 263 |
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|
| 257 |
|
|
| 443 |
|
|
| 459 |
|
Other (expense) income, net |
|
| (108,502 | ) |
|
| 1,617 |
|
|
| (132,786 | ) |
|
| (109 | ) | ||||||||||||||||
Total other (expense) income, net |
|
| (108,786 | ) |
|
| 977 |
|
|
| (133,674 | ) |
|
| (1,874 | ) | ||||||||||||||||
(Loss) earnings before income taxes |
|
| (89,819 | ) |
|
| 14,236 |
|
|
| (75,631 | ) |
|
| 26,119 |
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Income tax (benefit) expense |
|
| (25,923 | ) |
|
| 3,163 |
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| (24,600 | ) |
|
| 6,381 |
| ||||||||||||||||
Net (loss) earnings |
| $ | (63,896 | ) |
| $ | 11,073 |
|
| $ | (51,031 | ) |
| $ | 19,738 |
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Loss (earnings) per share: |
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Other expense, net |
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| (5,425 | ) |
|
| (20,929 | ) |
|
| (5,359 | ) |
|
| (24,285 | ) | ||||||||||||||||
Total other expense, net |
|
| (5,764 | ) |
|
| (21,180 | ) |
|
| (6,064 | ) |
|
| (24,889 | ) | ||||||||||||||||
Earnings (loss) before income taxes |
|
| 16,922 |
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|
| (601 | ) |
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| 42,668 |
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| 14,188 |
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Income tax expense (benefit) |
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| 4,324 |
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| (1,476 | ) |
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| 9,831 |
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| 1,323 |
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Net earnings |
| $ | 12,598 |
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| $ | 875 |
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| $ | 32,837 |
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| $ | 12,865 |
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Earnings per share: |
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Basic |
| $ | (1.97 | ) |
| $ | 0.34 |
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| $ | (1.58 | ) |
| $ | 0.61 |
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| $ | 0.39 |
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| $ | 0.03 |
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| $ | 1.02 |
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| $ | 0.40 |
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Diluted |
| $ | (1.97 | ) |
| $ | 0.34 |
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| $ | (1.58 | ) |
| $ | 0.61 |
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| $ | 0.39 |
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| $ | 0.03 |
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| $ | 1.02 |
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| $ | 0.39 |
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Basic weighted – average common shares outstanding: |
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| 32,379 |
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| 32,268 |
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| 32,365 |
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| 32,331 |
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| 32,039 |
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| 32,397 |
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| 32,096 |
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| 32,358 |
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Effect of dilutive securities |
|
| — |
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| 241 |
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| — |
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| 270 |
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| 204 |
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| 229 |
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| 218 |
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|
| 259 |
|
Diluted weighted – average common shares outstanding: |
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| 32,379 |
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| 32,509 |
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| 32,365 |
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| 32,601 |
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| 32,243 |
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| 32,626 |
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| 32,314 |
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| 32,617 |
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Cash dividends declared per share |
| $ | 0.04 |
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| $ | 0.04 |
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| $ | 0.12 |
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| $ | 0.12 |
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| $ | 0.04 |
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| $ | 0.04 |
|
| $ | 0.08 |
|
| $ | 0.08 |
|
See notes to unaudited condensed consolidated financial statements.
3
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS ‑ UNAUDITED
(In thousands of dollars)
|
| Three Months Ended |
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| Nine Months Ended |
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|
| September 30, |
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| September 30, |
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| September 30, |
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| September 30, |
|
| Three Months Ended |
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| Six Months Ended |
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|
| 2021 |
|
| 2020 |
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| 2021 |
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| 2020 |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
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Net (loss) earnings |
| $ | (63,896 | ) |
| $ | 11,073 |
|
| $ | (51,031 | ) |
| $ | 19,738 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
| ||||||||||||||||||||
Net earnings |
| $ | 12,598 |
|
| $ | 875 |
|
| $ | 32,837 |
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| $ | 12,865 |
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Other comprehensive earnings (loss): |
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Changes in fair market value of derivatives, net of tax |
|
| (292 | ) |
|
| 909 |
|
|
| 100 |
|
|
| (2,861 | ) |
|
| 705 |
|
|
| 268 |
|
|
| 1,940 |
|
|
| 392 |
|
Changes in unrealized pension cost, net of tax |
|
| 72,530 |
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|
| 1,239 |
|
|
| 90,976 |
|
|
| 3,733 |
|
|
| 2,082 |
|
|
| 17,024 |
|
|
| 2,176 |
|
|
| 18,446 |
|
Cumulative translation adjustment, net of tax |
|
| (10 | ) |
|
| 99 |
|
|
| 2 |
|
|
| (54 | ) |
|
| (2,012 | ) |
|
| 1 |
|
|
| (2,261 | ) |
|
| 13 |
|
Other comprehensive earnings |
| $ | 72,228 |
|
| $ | 2,247 |
|
| $ | 91,078 |
|
| $ | 818 |
|
| $ | 775 |
|
| $ | 17,293 |
|
| $ | 1,855 |
|
| $ | 18,851 |
|
Comprehensive earnings |
| $ | 8,332 |
|
| $ | 13,320 |
|
| $ | 40,047 |
|
| $ | 20,556 |
|
| $ | 13,373 |
|
| $ | 18,168 |
|
| $ | 34,692 |
|
| $ | 31,716 |
|
See notes to unaudited condensed consolidated financial statements.
4
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
|
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
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|
|
| |||
|
| September 30, |
|
| December 31, |
|
| June 30, |
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| December 31, |
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|
| 2021 |
|
| 2020 |
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| 2022 |
|
| 2021 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
| $ | 128,527 |
|
| $ | 91,773 |
|
| $ | 98,739 |
|
| $ | 141,465 |
|
Accounts receivable, net |
|
| 78,210 |
|
|
| 80,981 |
|
|
| 98,949 |
|
|
| 82,191 |
|
Inventories, net |
|
| 50,867 |
|
|
| 45,870 |
|
|
| 64,158 |
|
|
| 49,506 |
|
Other current assets |
|
| 19,845 |
|
|
| 14,607 |
|
|
| 16,704 |
|
|
| 15,927 |
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Total current assets |
|
| 277,449 |
|
|
| 233,231 |
|
|
| 278,550 |
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|
| 289,089 |
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Property, plant and equipment, net |
|
| 92,533 |
|
|
| 97,437 |
|
|
| 99,637 |
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|
| 96,876 |
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Operating lease assets, net |
|
| 22,456 |
|
|
| 23,281 |
|
|
| 22,452 |
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|
| 21,594 |
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Other Assets |
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Prepaid pension asset |
|
| 50,638 |
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|
| 56,642 |
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|
| 33,860 |
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|
| 49,382 |
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Goodwill |
|
| 109,798 |
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|
| 109,497 |
|
|
| 139,617 |
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|
| 109,798 |
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Other intangible assets, net |
|
| 72,236 |
|
|
| 79,121 |
|
|
| 112,824 |
|
|
| 69,888 |
|
Deferred income taxes |
|
| 24,663 |
|
|
| 24,250 |
|
|
| 23,401 |
|
|
| 25,415 |
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Other |
|
| 2,200 |
|
|
| 2,590 |
|
|
| 19,293 |
|
|
| 2,420 |
|
Total other assets |
|
| 259,535 |
|
|
| 272,100 |
|
|
| 328,995 |
|
|
| 256,903 |
|
Total Assets |
| $ | 651,973 |
|
| $ | 626,049 |
|
| $ | 729,634 |
|
| $ | 664,462 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities |
|
|
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Accounts payable |
| $ | 48,976 |
|
| $ | 50,489 |
|
| $ | 60,662 |
|
| $ | 55,537 |
|
Operating lease obligations |
|
| 3,354 |
|
|
| 3,294 |
|
|
| 3,612 |
|
|
| 3,393 |
|
Accrued payroll and benefits |
|
| 17,069 |
|
|
| 12,978 |
|
|
| 14,931 | �� |
|
| 18,418 |
|
Accrued expenses and other liabilities |
|
| 35,673 |
|
|
| 38,171 |
|
|
| 36,171 |
|
|
| 36,718 |
|
Total current liabilities |
|
| 105,072 |
|
|
| 104,932 |
|
|
| 115,376 |
|
|
| 114,066 |
|
Long-term debt |
|
| 50,000 |
|
|
| 54,600 |
|
|
| 91,027 |
|
|
| 50,000 |
|
Long-term operating lease obligations |
|
| 22,262 |
|
|
| 23,163 |
|
|
| 21,851 |
|
|
| 21,354 |
|
Long-term pension obligations |
|
| 7,114 |
|
|
| 7,466 |
|
|
| 6,361 |
|
|
| 6,886 |
|
Deferred income taxes |
|
| 6,907 |
|
|
| 7,010 |
|
|
| 6,174 |
|
|
| 5,894 |
|
Other long-term obligations |
|
| 3,244 |
|
|
| 5,196 |
|
|
| 2,898 |
|
|
| 2,684 |
|
Total Liabilities |
|
| 194,599 |
|
|
| 202,367 |
|
|
| 243,687 |
|
|
| 200,884 |
|
Commitments and Contingencies (Note 11) |
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Shareholders’ Equity |
|
|
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Common stock |
|
| 314,351 |
|
|
| 311,190 |
|
|
| 316,502 |
|
|
| 314,620 |
|
Additional contributed capital |
|
| 40,958 |
|
|
| 41,654 |
|
|
| 42,585 |
|
|
| 42,549 |
|
Retained earnings |
|
| 484,368 |
|
|
| 539,281 |
|
|
| 522,506 |
|
|
| 492,242 |
|
Accumulated other comprehensive loss |
|
| (4,842 | ) |
|
| (95,921 | ) |
|
| (2,670 | ) |
|
| (4,525 | ) |
Total shareholders’ equity before treasury stock |
|
| 834,835 |
|
|
| 796,204 |
|
|
| 878,923 |
|
|
| 844,886 |
|
Treasury stock |
|
| (377,461 | ) |
|
| (372,522 | ) |
|
| (392,976 | ) |
|
| (381,308 | ) |
Total shareholders’ equity |
|
| 457,374 |
|
|
| 423,682 |
|
|
| 485,947 |
|
|
| 463,578 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 651,973 |
|
| $ | 626,049 |
|
| $ | 729,634 |
|
| $ | 664,462 |
|
See notes to unaudited condensed consolidated financial statements.
5
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ‑ UNAUDITED
(In thousands of dollars)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net (loss) earnings |
| $ | (51,031 | ) |
| $ | 19,738 |
| ||||||||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net earnings |
| $ | 32,837 |
|
| $ | 12,865 |
| ||||||||
Adjustments to reconcile net earnings to net cash provided by operating |
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
|
| 20,231 |
|
|
| 19,819 |
|
|
| 13,765 |
|
|
| 13,512 |
|
Non-cash inventory charges |
|
| 1,113 |
|
|
| — |
| ||||||||
Pension and other post-retirement plan expense |
|
| 131,290 |
|
|
| 2,023 |
|
|
| 182 |
|
|
| 23,823 |
|
Stock-based compensation |
|
| 4,106 |
|
|
| 2,164 |
|
|
| 3,566 |
|
|
| 3,122 |
|
Asset impairment charges |
|
| — |
|
|
| 1,016 |
| ||||||||
Restructuring non-cash charges |
|
| — |
|
|
| 300 |
| ||||||||
Deferred income taxes |
|
| (34,147 | ) |
|
| (627 | ) |
|
| 1,277 |
|
|
| (4,875 | ) |
Gain on foreign currency hedges, net of cash |
|
| (27 | ) |
|
| (58 | ) |
|
| (12 | ) |
|
| (26 | ) |
Changes in assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
| ||||||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
| ||||||||||
Accounts receivable |
|
| 2,587 |
|
|
| 2,085 |
|
|
| (12,861 | ) |
|
| 316 |
|
Inventories |
|
| (5,190 | ) |
|
| 960 |
|
|
| (7,177 | ) |
|
| (2,994 | ) |
Operating lease assets |
|
| 825 |
|
|
| 917 |
|
|
| 1,515 |
|
|
| 131 |
|
Other assets |
|
| (5,334 | ) |
|
| 2,446 |
|
|
| 2,513 |
|
|
| (1,440 | ) |
Accounts payable |
|
| (1,792 | ) |
|
| 1,423 |
|
|
| 5,087 |
|
|
| (3,433 | ) |
Accrued payroll and benefits |
|
| 3,810 |
|
|
| 2,928 |
|
|
| (4,458 | ) |
|
| 1,145 |
|
Operating lease liabilities |
|
| (841 | ) |
|
| (818 | ) |
|
| (1,658 | ) |
|
| (143 | ) |
Accrued expenses and other liabilities |
|
| (4,100 | ) |
|
| (4,826 | ) |
|
| 93 |
|
|
| (3,028 | ) |
Pension and other post-retirement plans |
|
| (270 | ) |
|
| (193 | ) |
|
| (430 | ) |
|
| (190 | ) |
Net cash provided by operating activities |
|
| 60,117 |
|
|
| 49,297 |
|
|
| 35,352 |
|
|
| 38,785 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
|
| (8,140 | ) |
|
| (10,441 | ) |
|
| (6,991 | ) |
|
| (3,970 | ) |
Payments for acquisitions, net of cash acquired |
|
| (255 | ) |
|
| — |
|
|
| (96,528 | ) |
|
| (255 | ) |
Net cash used in investing activities |
|
| (8,395 | ) |
|
| (10,441 | ) |
|
| (103,519 | ) |
|
| (4,225 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Payments of long-term debt |
|
| (597,200 | ) |
|
| (3,322,550 | ) |
|
| (300,000 | ) |
|
| (430,300 | ) |
Proceeds from borrowings of long-term debt |
|
| 592,600 |
|
|
| 3,329,150 |
|
|
| 341,027 |
|
|
| 425,700 |
|
Purchase of treasury stock |
|
| (4,939 | ) |
|
| (8,080 | ) |
|
| (11,668 | ) |
|
| — |
|
Dividends paid |
|
| (3,882 | ) |
|
| (3,888 | ) |
|
| (2,576 | ) |
|
| (2,585 | ) |
Payments of contingent consideration |
|
| (500 | ) |
|
| — |
|
|
| (900 | ) |
|
| (350 | ) |
Taxes paid on behalf of equity award participants |
|
| (1,490 | ) |
|
| (1,911 | ) |
|
| (1,491 | ) |
|
| (1,480 | ) |
Net cash used in financing activities |
|
| (15,411 | ) |
|
| (7,279 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 24,392 |
|
|
| (9,015 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 443 |
|
|
| (78 | ) |
|
| 1,049 |
|
|
| 79 |
|
Net increase in cash and cash equivalents |
|
| 36,754 |
|
|
| 31,499 |
| ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (42,726 | ) |
|
| 25,624 |
| ||||||||
Cash and cash equivalents at beginning of period |
|
| 91,773 |
|
|
| 100,241 |
|
|
| 141,465 |
|
|
| 91,773 |
|
Cash and cash equivalents at end of period |
| $ | 128,527 |
|
| $ | 131,740 |
|
| $ | 98,739 |
|
| $ | 117,397 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 1,047 |
|
| $ | 2,124 |
|
| $ | 969 |
|
| $ | 716 |
|
Cash paid for income taxes, net |
| $ | 10,246 |
|
| $ | 8,295 |
|
| $ | 7,606 |
|
| $ | 7,516 |
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures incurred but not paid |
| $ | 1,153 |
|
| $ | 816 |
|
| $ | 1,397 |
|
| $ | 1,288 |
|
See notes to unaudited condensed consolidated financial statements.
6
CTS CORPORATION AND SUBSIDIARIES
(in thousands of dollars)
The following summarizes the changes in total equity for the three and ninesix months ended SeptemberJune 30, 2021:2022:
|
| Common Stock |
|
| Additional Contributed Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock |
|
| Total |
| ||||||||||||||||||||||||||||||
Balances at December 31, 2020 |
| $ | 311,190 |
|
| $ | 41,654 |
|
| $ | 539,281 |
|
| $ | (95,921 | ) |
| $ | (372,522 | ) |
| $ | 423,682 |
| ||||||||||||||||||||||||
|
| Common |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Treasury |
|
| Total |
| ||||||||||||||||||||||||||||||
Balances at December 31, 2021 |
| $ | 314,620 |
|
| $ | 42,549 |
|
| $ | 492,242 |
|
| $ | (4,525 | ) |
| $ | (381,308 | ) |
| $ | 463,578 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 11,990 |
|
|
| — |
|
|
| — |
|
|
| 11,990 |
|
|
| — |
|
|
| — |
|
|
| 20,239 |
|
|
| — |
|
|
| — |
|
|
| 20,239 |
|
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,235 |
|
|
| — |
|
|
| 1,235 |
|
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,422 |
|
|
| — |
|
|
| 1,422 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| 94 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (249 | ) |
|
| — |
|
|
| (249 | ) |
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,294 | ) |
|
| — |
|
|
| — |
|
|
| (1,294 | ) | ||||||||||||||||||||||||
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,284 | ) |
|
| — |
|
|
| — |
|
|
| (1,284 | ) | ||||||||||||||||||||||||
Acquired 116,176 shares of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,920 | ) |
|
| (3,920 | ) | ||||||||||||||||||||||||
Issued shares on vesting of restricted stock units |
|
| 1,818 |
|
|
| (3,218 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,400 | ) |
|
| 1,876 |
|
|
| (3,289 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,413 | ) |
Stock compensation |
|
| — |
|
|
| 1,180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,180 |
|
|
| — |
|
|
| 1,898 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,898 |
|
Balances at March 31, 2021 |
| $ | 313,008 |
|
| $ | 39,616 |
|
| $ | 549,977 |
|
| $ | (94,363 | ) |
| $ | (372,522 | ) |
| $ | 435,716 |
| ||||||||||||||||||||||||
Balances at March 31, 2022 |
| $ | 316,496 |
|
| $ | 41,158 |
|
| $ | 511,197 |
|
| $ | (3,445 | ) |
| $ | (385,228 | ) |
| $ | 480,178 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 875 |
|
|
| — |
|
|
| — |
|
|
| 875 |
|
|
| — |
|
|
| — |
|
|
| 12,598 |
|
|
| — |
|
|
| — |
|
|
| 12,598 |
|
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 268 |
|
|
| — |
|
|
| 268 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 705 |
|
|
| — |
|
|
| 705 |
|
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,024 |
|
|
| — |
|
|
| 17,024 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,082 |
|
|
| — |
|
|
| 2,082 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,012 | ) |
|
| — |
|
|
| (2,012 | ) |
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,299 | ) |
|
| — |
|
|
| — |
|
|
| (1,299 | ) | ||||||||||||||||||||||||
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,289 | ) |
|
| — |
|
|
| — |
|
|
| (1,289 | ) | ||||||||||||||||||||||||
Acquired 216,252 shares of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,748 | ) |
|
| (7,748 | ) | ||||||||||||||||||||||||
Issued shares on vesting of restricted stock units |
|
| 1,333 |
|
|
| (1,413 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80 | ) |
|
| 6 |
|
|
| (84 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
Stock compensation |
|
| — |
|
|
| 1,804 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,804 |
|
|
| — |
|
|
| 1,511 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,511 |
|
Balances at June 30, 2021 |
| $ | 314,341 |
|
| $ | 40,007 |
|
| $ | 549,553 |
|
| $ | (77,070 | ) |
| $ | (372,522 | ) |
| $ | 454,309 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| (63,896 | ) |
|
| — |
|
|
| — |
|
|
| (63,896 | ) | ||||||||||||||||||||||||
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (292 | ) |
|
| — |
|
|
| (292 | ) | ||||||||||||||||||||||||
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 72,530 |
|
|
| — |
|
|
| 72,530 |
| ||||||||||||||||||||||||
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| (10 | ) | ||||||||||||||||||||||||
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,289 | ) |
|
| — |
|
|
| — |
|
|
| (1,289 | ) | ||||||||||||||||||||||||
Acquired 148,035 shares of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,939 | ) |
|
| (4,939 | ) | ||||||||||||||||||||||||
Issued shares on vesting of restricted stock units |
|
| 10 |
|
|
| (20 | ) |
|
| — |
|
|
| — |
|
|
| ��� |
|
|
| (10 | ) | ||||||||||||||||||||||||
Stock compensation |
|
| — |
|
|
| 971 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 971 |
| ||||||||||||||||||||||||
Balances at September 30, 2021 |
| $ | 314,351 |
|
| $ | 40,958 |
|
| $ | 484,368 |
|
| $ | (4,842 | ) |
| $ | (377,461 | ) |
| $ | 457,374 |
| ||||||||||||||||||||||||
Balances at June 30, 2022 |
| $ | 316,502 |
|
| $ | 42,585 |
|
| $ | 522,506 |
|
| $ | (2,670 | ) |
| $ | (392,976 | ) |
| $ | 485,947 |
|
See notes to unaudited condensed consolidated financial statements.
7
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - UNAUDITED
(in thousands of dollars)
The following summarizes the changes in total equity for the three and ninesix months ended SeptemberJune 30, 2020:2021:
|
| Common Stock |
|
| Additional Contributed Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock |
|
| Total |
| ||||||||||||||||||||||||||||||
Balances at December 31, 2019 |
| $ | 307,932 |
|
| $ | 43,689 |
|
| $ | 509,766 |
|
| $ | (91,726 | ) |
| $ | (364,442 | ) |
| $ | 405,219 |
| ||||||||||||||||||||||||
|
| Common |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Treasury |
|
| Total |
| ||||||||||||||||||||||||||||||
Balances at December 31, 2020 |
| $ | 311,190 |
|
| $ | 41,654 |
|
| $ | 539,281 |
|
| $ | (95,921 | ) |
| $ | (372,522 | ) |
| $ | 423,682 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 3,808 |
|
|
| — |
|
|
| — |
|
|
| 3,808 |
|
|
| — |
|
|
| — |
|
|
| 11,990 |
|
|
| — |
|
|
| — |
|
|
| 11,990 |
|
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,414 | ) |
|
| — |
|
|
| (4,414 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 124 |
|
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,285 |
|
|
| — |
|
|
| 1,285 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,422 |
|
|
| — |
|
|
| 1,422 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (139 | ) |
|
| — |
|
|
| (139 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| 12 |
|
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,298 | ) |
|
| — |
|
|
| — |
|
|
| (1,298 | ) | ||||||||||||||||||||||||
Acquired 220,731 shares of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,304 | ) |
|
| (5,304 | ) | ||||||||||||||||||||||||
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,294 | ) |
|
| — |
|
|
| — |
|
|
| (1,294 | ) | ||||||||||||||||||||||||
Issued shares on vesting of restricted stock units |
|
| 2,166 |
|
|
| (4,069 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,903 | ) |
|
| 1,818 |
|
|
| (3,218 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,400 | ) |
Stock compensation |
|
| — |
|
|
| 212 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 212 |
|
|
| — |
|
|
| 1,180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,180 |
|
Balances at March 31, 2020 |
| $ | 310,098 |
|
| $ | 39,832 |
|
| $ | 512,276 |
|
| $ | (94,994 | ) |
| $ | (369,746 | ) |
| $ | 397,466 |
| ||||||||||||||||||||||||
Balances at March 31, 2021 |
| $ | 313,008 |
|
| $ | 39,616 |
|
| $ | 549,977 |
|
| $ | (94,363 | ) |
| $ | (372,522 | ) |
| $ | 435,716 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 4,857 |
|
|
| — |
|
|
| — |
|
|
| 4,857 |
|
|
| — |
|
|
| — |
|
|
| 875 |
|
|
| — |
|
|
| — |
|
|
| 875 |
|
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 644 |
|
|
| — |
|
|
| 644 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 268 |
|
|
| — |
|
|
| 268 |
|
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,209 |
|
|
| — |
|
|
| 1,209 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,024 |
|
|
| — |
|
|
| 17,024 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
|
| — |
|
|
| (14 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,292 | ) |
|
| — |
|
|
| — |
|
|
| (1,292 | ) | ||||||||||||||||||||||||
Acquired 122,000 shares of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,776 | ) |
|
| (2,776 | ) | ||||||||||||||||||||||||
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,299 | ) |
|
| — |
|
|
| — |
|
|
| (1,299 | ) | ||||||||||||||||||||||||
Issued shares on vesting of restricted stock units |
|
| 855 |
|
|
| (855 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,333 |
|
|
| (1,413 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80 | ) |
Stock compensation |
|
| — |
|
|
| 798 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 798 |
|
|
| — |
|
|
| 1,804 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,804 |
|
Balances at June 30, 2020 |
| $ | 310,953 |
|
| $ | 39,775 |
|
| $ | 515,841 |
|
| $ | (93,155 | ) |
| $ | (372,522 | ) |
| $ | 400,892 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 11,073 |
|
|
| — |
|
|
| — |
|
|
| 11,073 |
| ||||||||||||||||||||||||
Changes in fair market value of derivatives, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 909 |
|
|
| — |
|
|
| 909 |
| ||||||||||||||||||||||||
Changes in unrealized pension cost, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,239 |
|
|
| — |
|
|
| 1,239 |
| ||||||||||||||||||||||||
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 99 |
|
|
| — |
|
|
| 99 |
| ||||||||||||||||||||||||
Cash dividends of $0.04 per share |
|
| — |
|
|
| — |
|
|
| (1,290 | ) |
|
| — |
|
|
| — |
|
|
| (1,290 | ) | ||||||||||||||||||||||||
Issued shares on vesting of restricted stock units |
|
| 23 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) | ||||||||||||||||||||||||
Stock compensation |
|
| — |
|
|
| 1,052 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,052 |
| ||||||||||||||||||||||||
Balances at September 30, 2020 |
| $ | 310,976 |
|
| $ | 40,796 |
|
| $ | 525,624 |
|
| $ | (90,908 | ) |
| $ | (372,522 | ) |
| $ | 413,966 |
| ||||||||||||||||||||||||
Balances at June 30, 2021 |
| $ | 314,341 |
|
| $ | 40,007 |
|
| $ | 549,553 |
|
| $ | (77,070 | ) |
| $ | (372,522 | ) |
| $ | 454,309 |
|
See notes to unaudited condensed consolidated financial statements.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(in thousands except for share and per share data)
SeptemberJune 30, 20212022
NOTE 1 — Basis of Presentation and Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements have been prepared by CTS Corporation (“CTS”, "we", "our", "us" or the "Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, notes thereto, and other information included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2020.2021.
The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. 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.
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Accounting Pronouncements Recently Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of U.S. GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted this ASU on January 1, 2021 and it did not have a material impact on our financial statements.2021.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as it relates to our LIBOR indexed instruments. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022, and an entity may elect to apply ASU 2020-04 for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. As a result of the reference rate reform, we have determined that we will modify our credit agreement and associated hedging relationships in order to effectively transition to an alternative reference rate prior to June 30, 2022. We continue evaluating the impact of the transition from LIBOR to an alternative reference interest rate in our financial instruments including the potential election of certain practical expedients.
NOTE 2 – Revenue Recognition
The core principle of Accounting Standard Codification (“ASC”) Topic 606 Revenue from Contracts with Customers 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:
• Identify the contract(s) with a customer • Identify the performance obligations • Determine the transaction price • Allocate the transaction price • Recognize revenue when the performance obligations are met
|
|
|
|
|
|
|
|
|
|
We recognize revenue when the performance 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 single performance obligation that is fulfilled on the date of delivery or shipment based on shipping terms stipulated in the contract. We usually expect payment within 30 to 90 days from the shipping date, depending on our terms with the customer. None of our contracts as of June 30, 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 the transaction price utilizing the most likely amount method based on an analysis of historical experience and current facts and circumstances, which requires 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.
9
Disaggregated Revenue
The following table presents revenues disaggregated by the major markets we serve:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||||
Transportation |
| $ | 74,690 |
|
| $ | 71,556 |
|
| $ | 153,824 |
|
| $ | 147,410 |
|
Industrial |
|
| 41,402 |
|
|
| 32,448 |
|
|
| 81,409 |
|
|
| 62,075 |
|
Medical |
|
| 17,030 |
|
|
| 12,802 |
|
|
| 32,897 |
|
|
| 24,078 |
|
Aerospace & Defense |
|
| 11,860 |
|
|
| 12,779 |
|
|
| 24,547 |
|
|
| 24,449 |
|
Total |
| $ | 144,982 |
|
| $ | 129,585 |
|
| $ | 292,677 |
|
| $ | 258,012 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Transportation |
| $ | 62,342 |
|
| $ | 65,277 |
|
| $ | 209,750 |
|
| $ | 164,940 |
|
Industrial |
|
| 31,879 |
|
|
| 24,204 |
|
|
| 87,764 |
|
|
| 65,260 |
|
Medical |
|
| 12,409 |
|
|
| 10,201 |
|
|
| 36,487 |
|
|
| 32,609 |
|
Aerospace & Defense |
|
| 11,275 |
|
|
| 11,038 |
|
|
| 35,724 |
|
|
| 29,416 |
|
Telecom & IT |
|
| 4,477 |
|
|
| 3,057 |
|
|
| 10,669 |
|
|
| 8,824 |
|
Total |
| $ | 122,382 |
|
| $ | 113,777 |
|
| $ | 380,394 |
|
| $ | 301,049 |
|
NOTE 3 – Business Acquisitions
TEWA Temperature Sensors SP. Zo.o. Acquisition
On December 30, 2020,February 28, 2022, we acquired 100%100% of the outstanding shares of Sensor Scientific, Inc.TEWA Temperature Sensors SP. Zo.o. (“SSI”TEWA”). SSITEWA is a designer and manufacturer of high-quality thermistors and temperature sensor assemblies serving original equipment manufacturers (“OEMs”) for applications that require precision and reliability in the medical, industrial and defense markets. SSIsensors. TEWA has complementary capabilities with our existing temperature sensing platform and the acquisition expandssupports our end market diversification strategy by expanding our presence in the medical and industrial end markets. It also provides high quality ceramic processing capabilities and valuable customer partnerships that expand our temperature sensing product portfolio and build on our strategy to focus on innovative products that sense, connect and move.Europe.
The final purchase price, which includes assumed changes in working capital, of $10,221$24,484, net of cash acquired of $2,945, has been allocated to the fair values of assets and liabilities acquired as of DecemberFebruary 28, 2022. The allocation of the purchase price continues to be preliminary pending the completion of the valuation of intangible assets and finalization of management's estimates. The final purchase price allocation may result in a materially different allocation than that recorded as of June 30, 2020.2022.
The following table summarizes the consideration paid and the fair values of the assets acquired, and the liabilities assumed as of the date of acquisition of SSI:acquisition:
|
| Consideration Paid |
| |
Cash paid, net of cash acquired of $470 |
| $ | 8,221 |
|
Contingent consideration |
|
| 2,000 |
|
Purchase price |
| $ | 10,221 |
|
|
| Fair Values at |
| |
Current assets |
| $ | 6,451 |
|
Property, plant and equipment |
|
| 2,177 |
|
Other assets |
|
| 28 |
|
Goodwill |
|
| 6,106 |
|
Intangible assets |
|
| 12,503 |
|
Fair value of assets acquired |
|
| 27,265 |
|
Less fair value of liabilities acquired |
|
| (2,781 | ) |
Purchase price |
| $ | 24,484 |
|
|
| Fair Values at December 30, 2020 |
| |
Current assets |
| $ | 2,551 |
|
Property, plant and equipment |
|
| 67 |
|
Other assets |
|
| 14 |
|
Goodwill |
|
| 3,321 |
|
Intangible assets |
|
| 5,340 |
|
Fair value of assets acquired |
|
| 11,293 |
|
Less fair value of liabilities acquired |
|
| (1,072 | ) |
Purchase price |
| $ | 10,221 |
|
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.
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 a revenue performance target through the year ending December 31, 2022, with the possibility of prorated interim payments.
The Company recorded $2,000a $1,113 step-up of inventory to its fair value as of the acquisition date fairbased on the preliminary valuation. The step-up is being amortized as a non-cash charge to cost of goods sold as the acquired inventory was sold with $580 recognized in the first quarter of 2022 and the remaining in the second quarter of 2022.
Intangible assets acquired have been assigned a provisional value of $12,503 and an estimated weighted average amortization period of 12 years. They are included as customer lists/relationships in our Condensed Consolidated Balance Sheets and subsequent notes. Due to the contingent consideration based ontiming of the acquisition, the identification and valuation of all intangible assets remains incomplete; however, management used
10
historical experience and projections to estimate the potential value at June 30, 2022. The amount and assumptions included above remain an estimate that will be adjusted once purchase accounting is complete.
Ferroperm Piezoceramics A/S Acquisition
On June 30, 2022, we acquired 100% of the probabilityoutstanding shares of achievingFerroperm Piezoceramics A/S (“Ferroperm”). Ferroperm specializes in the design and manufacture of high performance targets. This representspiezoceramic 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 expanding our presence in European end markets.
The purchase price of $72,044, which includes assumed changes in working capital, net of cash acquired of $5,578, has been allocated to the maximum amountfair values of contingent consideration payable by the Company. This amount is also reflectedassets and liabilities acquired as an addition toof June 30, 2022. The allocation of the purchase price continues to be preliminary pending the completion of the valuation of intangible assets and will be evaluated quarterly. Refer to Note 17 for further information on contingent consideration.finalization of management's estimates. The final purchase price allocation may result in a materially different allocation than that recorded as of June 30, 2022.
The following table summarizes the carrying amountsconsideration paid and weighted average livesthe 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 |
|
| 1,001 |
|
Property, plant and equipment |
|
| 3,953 |
|
Other assets |
|
| 158 |
|
Goodwill |
|
| 24,285 |
|
Intangible assets |
|
| 36,393 |
|
Fair value of assets acquired |
|
| 75,711 |
|
Less fair value of liabilities acquired |
|
| (3,667 | ) |
Purchase price |
| $ | 72,044 |
|
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 will be amortized as a non-cash charge to cost of goods sold as the acquired inventory is sold.
Intangible assets acquired have been assigned a provisional value of $36,393 and an estimated weighted average amortization period of 12 years. They are included as customer lists/relationships in our Condensed Consolidated Balance Sheets and subsequent notes. Due to the timing of the acquisition, the identification and valuation of all intangible assets:assets remains incomplete; however, management used historical experience and projections to estimate the potential value at June 30, 2022. The amount and assumptions included above remain an estimate that will be adjusted once purchase accounting is complete.
|
| Carrying Value |
|
| Weighted Average Amortization Period |
| ||
Customer lists/relationships |
| $ | 5,200 |
|
|
| 11.0 |
|
Technology and other intangibles |
|
| 140 |
|
|
| 3.0 |
|
Total |
| $ | 5,340 |
|
|
|
|
|
NOTE 4 – Accounts Receivable, net
The components of accounts receivable, net are as follows:
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Accounts receivable, gross |
| $ | 79,628 |
|
| $ | 81,745 |
|
| $ | 100,260 |
|
| $ | 83,848 |
|
Less: Allowance for credit losses |
|
| (1,418 | ) |
|
| (764 | ) |
|
| (1,311 | ) |
|
| (1,657 | ) |
Accounts receivable, net |
| $ | 78,210 |
|
| $ | 80,981 |
|
| $ | 98,949 |
|
| $ | 82,191 |
|
11
NOTE 5 – Inventories, net
Inventories, net consists of the following:
|
| As of |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Finished goods |
| $ | 15,476 |
|
| $ | 11,955 |
|
Work-in-process |
|
| 21,367 |
|
|
| 18,878 |
|
Raw materials |
|
| 37,520 |
|
|
| 28,078 |
|
Less: Inventory reserves |
|
| (10,205 | ) |
|
| (9,405 | ) |
Inventories, net |
| $ | 64,158 |
|
| $ | 49,506 |
|
|
| As of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Finished goods |
| $ | 11,194 |
|
| $ | 10,647 |
|
Work-in-process |
|
| 18,725 |
|
|
| 16,927 |
|
Raw materials |
|
| 30,637 |
|
|
| 24,893 |
|
Less: Inventory reserves |
|
| (9,689 | ) |
|
| (6,597 | ) |
Inventories, net |
| $ | 50,867 |
|
| $ | 45,870 |
|
NOTE 6 – Property, Plant and Equipment, net
Property, plant and equipment, net is comprised of the following:
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Land and land improvements |
| $ | 1,095 |
|
| $ | 1,095 |
|
| $ | 1,100 |
|
| $ | 1,095 |
|
Buildings and improvements |
|
| 69,463 |
|
|
| 69,360 |
|
|
| 74,424 |
|
|
| 69,614 |
|
Machinery and equipment |
|
| 239,329 |
|
|
| 233,743 |
|
|
| 250,718 |
|
|
| 247,708 |
|
Less: Accumulated depreciation |
|
| (217,354 | ) |
|
| (206,761 | ) |
|
| (226,605 | ) |
|
| (221,541 | ) |
Property, plant and equipment, net |
| $ | 92,533 |
|
| $ | 97,437 |
|
| $ | 99,637 |
|
| $ | 96,876 |
|
Depreciation expense for the ninesix months ended SeptemberJune 30, 2022 and June 30, 2021 was $8,847and September 30, 2020 was $13,166 and $13,003,$8,795, respectively.
NOTE 7 – Retirement Plans
Pension Plans
Net pension expense for our domestic and foreign plans included in other (expense) income,expense, net in the Condensed Consolidated Statements of (Loss) Earnings is as follows:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net pension expense |
| $ | 107,447 |
|
| $ | 666 |
|
| $ | 131,227 |
|
| $ | 1,996 |
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net pension expense |
| $ | 65 |
|
| $ | 21,823 |
|
| $ | 130 |
|
| $ | 23,780 |
|
The components of net pension expense for our domestic and foreign plans include the following:
|
| Domestic Pension Plans |
|
| Foreign Pension Plans |
| ||||||||||
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 6 |
|
| $ | 6 |
|
Interest cost |
|
| 5 |
|
|
| 1,218 |
|
|
| 4 |
|
|
| 4 |
|
Expected return on plan assets(1) |
|
| 0 |
|
|
| (1,058 | ) |
|
| (3 | ) |
|
| (3 | ) |
Amortization of loss |
|
| 8 |
|
|
| 1,550 |
|
|
| 45 |
|
|
| 43 |
|
Settlement charges |
|
| 0 |
|
|
| 20,063 |
|
|
| 0 |
|
|
| 0 |
|
Total expense, net |
| $ | 13 |
|
| $ | 21,773 |
|
| $ | 52 |
|
| $ | 50 |
|
|
| Domestic Pension Plans |
|
| Foreign Pension Plans |
| ||||||||||
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 6 |
|
| $ | 8 |
|
Interest cost |
|
| 385 |
|
|
| 1,443 |
|
|
| 4 |
|
|
| 6 |
|
Expected return on plan assets(1) |
|
| 429 |
|
|
| (2,454 | ) |
|
| (3 | ) |
|
| (3 | ) |
Amortization of loss |
|
| 377 |
|
|
| 1,622 |
|
|
| 43 |
|
|
| 44 |
|
Settlement charges |
|
| 106,206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total expense, net |
| $ | 107,397 |
|
| $ | 611 |
|
| $ | 50 |
|
| $ | 55 |
|
|
|
12
|
| Domestic Pension Plans |
|
| Foreign Pension Plans |
| ||||||||||
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 12 |
|
| $ | 12 |
|
Interest cost |
|
| 10 |
|
|
| 2,471 |
|
|
| 8 |
|
|
| 8 |
|
Expected return on plan assets(1) |
|
| 0 |
|
|
| (2,171 | ) |
|
| (6 | ) |
|
| (6 | ) |
Amortization of loss |
|
| 16 |
|
|
| 3,317 |
|
|
| 90 |
|
|
| 86 |
|
Settlement charges |
|
| 0 |
|
|
| 20,063 |
|
|
| 0 |
|
|
| 0 |
|
Total expense, net |
| $ | 26 |
|
| $ | 23,680 |
|
| $ | 104 |
|
| $ | 100 |
|
|
| Domestic Pension Plans |
|
| Foreign Pension Plans |
| ||||||||||
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 18 |
|
| $ | 23 |
|
Interest cost |
|
| 2,856 |
|
|
| 4,329 |
|
|
| 12 |
|
|
| 19 |
|
Expected return on plan assets(1) |
|
| (1,742 | ) |
|
| (7,362 | ) |
|
| (9 | ) |
|
| (10 | ) |
Amortization of loss |
|
| 3,694 |
|
|
| 4,866 |
|
|
| 129 |
|
|
| 131 |
|
Settlement charges |
|
| 126,269 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total expense, net |
| $ | 131,077 |
|
| $ | 1,833 |
|
| $ | 150 |
|
| $ | 163 |
|
|
|
In February 2020, the CTS 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 determination 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 of receiving a lump sum payment to eligible participants with vested qualified Plan benefits in lieu of receiving monthly annuity payments. Approximately 365participants elected to receive the settlement, and lump sum payments of approximately $35,594 were made from Plan assets to these participants in June 2021.
As required under U.S. GAAP, the Company recognizes a settlement gain 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 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 non-operating settlement charge of $20,063$20,063 related to pension losses, reclassified from accumulated other comprehensive loss to other (income) expenseincome (expense) in the Company's Condensed Consolidated Statements of (Loss) Earnings.
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 pension losses of $106,206$106,206 that were previously recorded in accumulated other comprehensive loss to the Condensed Consolidated Statements of (Loss) Earnings.Earnings as a non-cash and non-operating settlement charge 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 QRP requires that these assets be used to fund future annual Company contributions to our U.S. 401(k) program. The Plan assets of $50,638$33,860 as of SeptemberJune 30, 2021,2022, will remain in the Plan until final administrative tasks are completed. This process is now expected to be completed in the firstthird quarter of 2022, whereby the remaining Plan assets will liquidate and revert to CTS. At that time, the funds will be subject to income and excise taxes. We continue to evaluate potential plans to optimize tax implications as well as the use of the surplus cash.
Other Post-retirement Benefit Plan
Net post-retirement expense for our other post-retirement plan includes the following components:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Interest cost |
|
| 26 |
|
|
| 20 |
|
|
| 52 |
|
|
| 43 |
|
Amortization of gain |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total expense, net |
| $ | 26 |
|
| $ | 20 |
|
| $ | 52 |
|
| $ | 43 |
|
13
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Service cost |
| $ | 0 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 1 |
|
Interest cost |
|
| 20 |
|
|
| 30 |
|
|
| 63 |
|
|
| 90 |
|
Amortization of gain |
|
| 0 |
|
|
| (20 | ) |
|
| 0 |
|
|
| (64 | ) |
Total expense, net |
| $ | 20 |
|
| $ | 11 |
|
| $ | 63 |
|
| $ | 27 |
|
NOTE 8 – Goodwill and Other Intangible Assets
Other Intangible Assets
Other intangible assets, net consist of the following components:
|
| As of |
|
| As of |
| ||||||||||||||||||
|
| September 30, 2021 |
|
| June 30, 2022 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Amount |
|
| Gross |
|
| Accumulated |
|
| Net Amount |
| ||||||
Customer lists/relationships |
| $ | 96,889 |
|
| $ | (47,790 | ) |
| $ | 49,099 |
|
| $ | 144,735 |
|
| $ | (52,274 | ) |
| $ | 92,461 |
|
Technology and other intangibles |
|
| 47,441 |
|
|
| (24,304 | ) |
|
| 23,137 |
|
|
| 47,441 |
|
|
| (27,078 | ) |
|
| 20,363 |
|
Other intangible assets, net |
| $ | 144,330 |
|
| $ | (72,094 | ) |
| $ | 72,236 |
|
| $ | 192,176 |
|
| $ | (79,352 | ) |
| $ | 112,824 |
|
Amortization expense for the three months ended September 30, 2021 |
|
|
|
|
| $ | 2,348 |
|
|
|
|
| ||||||||||||
Amortization expense for the nine months ended September 30, 2021 |
|
|
|
|
| $ | 7,065 |
|
|
|
|
| ||||||||||||
Amortization expense for the three months ended |
|
|
|
| $ | 2,536 |
|
|
|
| ||||||||||||||
Amortization expense for the six months ended |
|
|
|
| $ | 4,918 |
|
|
|
|
|
| As of |
| |||||||||
|
| December 31, 2021 |
| |||||||||
|
| Gross |
|
| Accumulated |
|
| Net Amount |
| |||
Customer lists/relationships |
| $ | 96,889 |
|
| $ | (49,213 | ) |
| $ | 47,676 |
|
Technology and other intangibles |
|
| 47,441 |
|
|
| (25,229 | ) |
|
| 22,212 |
|
Other intangible assets, net |
| $ | 144,330 |
|
| $ | (74,442 | ) |
| $ | 69,888 |
|
Amortization expense for the three months ended |
|
|
|
| $ | 2,348 |
|
|
|
| ||
Amortization expense for the six months ended |
|
|
|
| $ | 4,717 |
|
|
|
|
|
| As of |
| |||||||||
|
| December 31, 2020 |
| |||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Amount |
| |||
Customer lists/relationships |
| $ | 97,355 |
|
| $ | (44,002 | ) |
| $ | 53,353 |
|
Technology and other intangibles |
|
| 47,301 |
|
|
| (21,533 | ) |
|
| 25,768 |
|
Other intangible assets, net |
| $ | 144,656 |
|
| $ | (65,535 | ) |
| $ | 79,121 |
|
Amortization expense for the three months ended September 30, 2020 |
|
|
|
|
| $ | 2,253 |
|
|
|
|
|
Amortization expense for the nine months ended September 30, 2020 |
|
|
|
|
| $ | 6,816 |
|
|
|
|
|
Remaining amortization expense for other intangible assets as of SeptemberJune 30, 20212022 is as follows:
|
| Amortization |
| |
2022 |
| $ | 6,538 |
|
2023 |
|
| 11,107 |
|
2024 |
|
| 10,945 |
|
2025 |
|
| 10,723 |
|
2026 |
|
| 10,689 |
|
Thereafter |
|
| 62,822 |
|
Total amortization expense |
| $ | 112,824 |
|
Goodwill
|
| Amortization expense |
| |
2021 |
| $ | 2,348 |
|
2022 |
|
| 9,176 |
|
2023 |
|
| 7,170 |
|
2024 |
|
| 7,008 |
|
2025 |
|
| 6,787 |
|
Thereafter |
|
| 39,747 |
|
Total amortization expense |
| $ | 72,236 |
|
Goodwill
Changes in the net carrying amount of goodwill were as follows:
|
| Total |
| |
Goodwill as of December 31, 2021 |
| $ | 109,798 |
|
Increase from acquisitions |
|
| 30,381 |
|
Foreign exchange impact |
|
| (562 | ) |
Goodwill as of June 30, 2022 |
| $ | 139,617 |
|
14
|
| Total |
| |
Goodwill as of December 31, 2020 |
| $ | 109,497 |
|
Decrease from purchase accounting adjustments |
|
| (129 | ) |
Increase due to acquisition |
|
| 430 |
|
Goodwill as of September 30, 2021 |
| $ | 109,798 |
|
In addition to the purchase accounting adjustments from the SSI transaction, goodwill increased due to an acquisition completed during the second quarter. The purchase price was approximately $510, with $255 paid in the second quarter of 2021 and an additional $255 to be paid in the second quarter of 2022.
NOTE 9 – Costs Associated with Exit and Restructuring Activities
Restructuring charges are reported as a separate line within operating earnings in the Condensed Consolidated StatementsStatement of (Loss) Earnings.
Total restructuring charges are as follows:
|
| Three Months Ended |
| |||||
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||
Restructuring charges |
| $ | 319 |
|
| $ | 1,041 |
|
|
| Three Months Ended |
| |||||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Restructuring charges |
| $ | 630 |
|
| $ | 151 |
|
|
| Six Months Ended |
| |||||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Restructuring charges |
| $ | 942 |
|
| $ | 232 |
|
|
| Nine Months Ended |
| |||||
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||
Restructuring charges |
| $ | 551 |
|
| $ | 1,416 |
|
September 2020 Plan
In September 2020, we initiated a restructuring plan focused on optimizing our manufacturing footprint and improving operational efficiency by better utilizing our systems capabilities (the "September 2020 Plan"). This plan includes transitioning certain administrative functions to a shared service center, realignment of manufacturing locations, and certain other efficiency improvement actions. The restructuring cost of the September 2020 Plan is now estimated to be in the range of $3,500 to $4,500,$3,500 and $4,500, including workforce reduction charges, building and equipment relocation charges and other contract and asset-related costs. We have incurred $1,397$1,555 in program costs to date. There were 0 substantial restructuring charges under the September 2020 PlanWe recorded $158 in workforce reduction costs during the three and ninesix months ended SeptemberJune 30, 2021.2022 under the 2020 Plan. Due to the robust market demand and COVID-19 limitations, some projects have been delayed. The total restructuring liability associated with these actions was $158 as of June 30, 2022. There was 0 restructuring liability related to the September 2020 Plan as of September 30, 2021. As of December 31, 2020 the liability related to the September 2020 Plan was $512.2021.
June 2016 Plan
In June 2016, we announced plans to restructure operations by phasing out production at our Elkhart, Indiana facility and transitioning it into a research and development center supporting our global operations (the "June 2016 Plan"). Additional organizational changes were also implemented in various other locations. In 2017, we revised the June 2016 Plan to include an additional $1,100 in planned costs related to the relocation of our corporate headquarters in Lisle, Illinois and our plant in Bolingbrook, Illinois, both of which have now been consolidated into a single facility. These restructuring actions were completed as of March 31, 2021.
April 2014 Plan
In April 2014, we announced plans to restructure our operations and consolidate our Canadian operations into other existing facilities as part of our overall plan to simplify our business model and rationalize our global footprint (the “April 2014 Plan”). These restructuring actions were substantially completed during 2015 and the remaining liability was settled in the second quarter of 2021.
Other Restructuring Activities
From time to time we undertake other restructuring activities that are not part of a formal plan. Charges associated with these restructuring activities primarily relate to workforce reduction costs. During the three and ninesix months ended SeptemberJune 30, 2022, we incurred restructuring charges of $470 and $782, respectively. During the three and six months ended June 30, 2021, we incurred restructuring charges of $319$161 and $582, respectively. During the three and nine months ended September 30, 2020, we incurred restructuring charges of $33 and $440,$262, respectively. The total restructuring liability associated with these actions was $263$723 at SeptemberJune 30, 20212022 and $9$962 at December 31, 2020.2021.
The following table displays the restructuring liability activity included in accrued expenses and other liabilities for all plans for the ninesix months ended SeptemberJune 30, 2021:2022:
Restructuring liability at January 1, 2022 |
| $ | 962 |
|
Restructuring charges |
|
| 942 |
|
Cost paid |
|
| (1,023 | ) |
Other activity(1) |
|
| — |
|
Restructuring liability at June 30, 2022 |
| $ | 881 |
|
Restructuring liability at January 1, 2021 |
| $ | 1,363 |
|
Restructuring charges |
|
| 551 |
|
Cost paid |
|
| (1,466 | ) |
Other activity(1) |
|
| (185 | ) |
Restructuring liability at September 30, 2021 |
| $ | 263 |
|
15
|
|
NOTE 10 – Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities are as follows:
|
| As of |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Accrued product related costs |
| $ | 2,623 |
|
| $ | 3,188 |
|
Accrued income taxes |
|
| 7,843 |
|
|
| 6,761 |
|
Accrued property and other taxes |
|
| 2,361 |
|
|
| 2,370 |
|
Accrued professional fees |
|
| 1,698 |
|
|
| 1,629 |
|
Accrued customer related liabilities |
|
| 4,767 |
|
|
| 3,254 |
|
Dividends payable |
|
| 1,287 |
|
|
| 1,289 |
|
Remediation reserves |
|
| 11,348 |
|
|
| 10,979 |
|
Derivative liabilities |
|
| — |
|
|
| 437 |
|
Other accrued liabilities |
|
| 4,244 |
|
|
| 6,811 |
|
Total accrued expenses and other liabilities |
| $ | 36,171 |
|
| $ | 36,718 |
|
|
| As of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Accrued product related costs |
| $ | 3,430 |
|
| $ | 4,470 |
|
Accrued income taxes |
|
| 6,213 |
|
|
| 7,320 |
|
Accrued property and other taxes |
|
| 1,892 |
|
|
| 2,478 |
|
Accrued professional fees |
|
| 1,594 |
|
|
| 1,663 |
|
Accrued customer related liabilities |
|
| 4,459 |
|
|
| 3,815 |
|
Dividends payable |
|
| 1,292 |
|
|
| 1,291 |
|
Remediation reserves |
|
| 9,994 |
|
|
| 10,642 |
|
Derivative liabilities |
|
| 684 |
|
|
| 671 |
|
Other accrued liabilities |
|
| 6,115 |
|
|
| 5,821 |
|
Total accrued expenses and other liabilities |
| $ | 35,673 |
|
| $ | 38,171 |
|
NOTE 11 – Commitments and Contingencies
Certain processes in the manufacture of our current and past products create by-products classified as hazardous waste. We have been notified by the U.S. Environmental Protection Agency, state environmental agencies, and in some cases, groups of potentially responsible parties, that we may be potentially liable for environmental contamination at several sites currently and formerly owned or operated by us. NaN of those sites, Asheville, North Carolina and Mountain View, California, are designated National Priorities List sites under the U.S. Environmental Protection Agency’s Superfund program. We accrue a liability for probable remediation activities, claims and proceedings against us with respect to environmental matters if the amount can be reasonably estimated, and provide disclosures including the nature of a loss whenever it is probable or reasonably possible that a potentially material loss may have occurred but cannot be estimated. We record contingent loss accruals on an undiscounted basis.
A roll-forward of remediation reserves included in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets is comprised of the following:
|
| As of |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Balance at beginning of period |
| $ | 10,979 |
|
| $ | 10,642 |
|
Remediation expense |
|
| 1,382 |
|
|
| 2,254 |
|
Net remediation payments |
|
| (1,019 | ) |
|
| (1,929 | ) |
Other activity(1) |
|
| 6 |
|
|
| 12 |
|
Balance at end of the period |
| $ | 11,348 |
|
| $ | 10,979 |
|
|
| As of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Balance at beginning of period |
| $ | 10,642 |
|
| $ | 11,444 |
|
Remediation expense |
|
| 848 |
|
|
| 2,769 |
|
Net remediation payments |
|
| (1,508 | ) |
|
| (3,639 | ) |
Other activity(1) |
|
| 12 |
|
|
| 68 |
|
Balance at end of the period |
| $ | 9,994 |
|
| $ | 10,642 |
|
|
|
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.
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 or will be 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 disposition of environmental, legal, and product warranty claims will not materially exceed the amount of our accrued losses and adversely impact 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.
16
NOTE 12 - Debt
Long-term debt wasis comprised of the following:
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Total credit facility |
| $ | 300,000 |
|
| $ | 300,000 |
|
| $ | 400,000 |
|
| $ | 400,000 |
|
Balance outstanding |
|
| 50,000 |
|
|
| 54,600 |
|
|
| 91,027 |
|
|
| 50,000 |
|
Standby letters of credit |
|
| 1,740 |
|
|
| 1,740 |
|
|
| 1,640 |
|
|
| 1,740 |
|
Amount available, subject to covenant restrictions |
| $ | 248,260 |
|
| $ | 243,660 |
|
| $ | 307,333 |
|
| $ | 348,260 |
|
Weighted-average interest rate |
|
| 1.18 | % |
|
| 1.92 | % |
|
| 1.57 | % |
|
| 1.16 | % |
Commitment fee percentage per annum |
|
| 0.20 | % |
|
| 0.23 | % |
On February 12, 2019,December 15, 2021, we entered into ana second amended and restated five-year Credit Agreement credit agreement with a group of banks (the "Credit Agreement"“Revolving Credit Facility”) to extend(i) increase the term of the facility. The Credit Agreement provides for a revolvingtotal credit facility of $300,000,to $400,000, which may be increased by $150,000$200,000 at the request of the Company, subject to the administrative agent's approval.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.
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.
The revolving credit facilityRevolving Credit Facility includes a swing line sublimit of $15,000$20,000 and a letter of credit sublimit of $10,000. Borrowings under the revolving credit facility bear interest at the base rate defined in the Credit Agreement.$20,000. We also pay a quarterly commitment fee on the unused portion of the revolving credit facility.Revolving Credit Facility. The commitment fee ranges from 0.20%0.175% to 0.30%0.25% based on our totalnet leverage ratio.
The Revolving Credit AgreementFacility 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 compliantin compliance with all debt covenants at SeptemberJune 30, 2021.2022. The Revolving Credit AgreementFacility requires that we deliver quarterly financial statements, annual financial statements, auditor certifications, and compliance certificates within a specified number of days after the end of a quarter and year. Additionally, itthe 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; and make stock repurchases and dividend payments. Interest rates on the credit facility fluctuate based upon LIBOR and the Company’s quarterly total 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.debt, which approximates the effective interest method. Amortization expense for the three and ninesix months ended SeptemberJune 30, 2022 was $48 and $97, respectively. Amortization expense for the three and six months ended June 30, 2021 was $42and 2020 was approximately $42 and $42 and $126 and $126,$84, respectively. These costs are included in interest expense in our Condensed Consolidated Statements of (Loss) Earnings.
We use interest rate swaps to convert the revolving credit facility's variable rate of interest into a fixed rate on a portion of the debt as described more fully in Note 13 "Derivative Financial Instruments". These swaps are treated as cash flow hedges and consequently, the changes in fair value were recorded in other comprehensive earnings.
Note 13 - Derivative Financial Instruments
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 andas well as interest rate and cross-currency 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.
17
The effective portion of derivative gains and losses are recorded in accumulated other comprehensive (loss) incomeloss until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. If it is probable that
an anticipated hedged transaction 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 (loss) incomeloss to other expense,income (expense), net.
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. NaN recognition of ineffectiveness was recorded in our Condensed Consolidated Statements of (Loss) Earnings for the three and ninesix months ended SeptemberJune 30, 2021.2022.
Foreign Currency Hedges
We use forward contracts to mitigate currency risk related to a portion of our forecasted foreign currency revenues and costs. The currency forward contracts are designed as cash flow hedges and are recorded in the Condensed 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 SeptemberJune 30, 2021,2022, we had a net unrealized gain of $388$401 in accumulated other comprehensive (loss) income, all of which $385 is expected to be reclassified to earnings within the next 12 months. At September 30, 2020, we had a net unrealized loss of $458 in accumulated other comprehensive (loss) income. The notional amount of foreign currency forward contracts outstanding was $6,282$9,379 at SeptemberJune 30, 2021.2022.
Interest Rate Swaps
We use interest rate swaps to convert a portion of our revolving credit facility’sRevolving Credit Facility’s outstanding balance from a variable rate of interest to a fixed rate. As of SeptemberJune 30, 2021,2022, we have agreements to fix interest rates on $50,000$50,000 of long-term debt through February 2024.until 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 are recorded in other comprehensive (loss) income. The estimated net amount of the existing lossesgains that are reported in accumulated other comprehensive (loss) income that are expected to be reclassified into earnings within the next twelve months is approximately $527.$523.
Cross-Currency Swap
The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. On June 27, 2022, the Company entered into a cross currency interest rate swap agreement 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. 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.
Prior to designation as a net investment hedge, a gain of $111 was recorded in other expense within the Condensed Consolidated Statements of Earnings for three and six months ended June 30, 2022.
18
The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of SeptemberJune 30, 2021,2022, are shown in the following table:
|
| As of |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Interest rate swaps reported in accrued expenses and other liabilities |
| $ | (684 | ) |
| $ | (671 | ) |
Interest rate swaps reported in other long-term obligations |
| $ | (726 | ) |
| $ | (1,546 | ) |
Foreign currency hedges reported in other current assets |
| $ | 474 |
|
| $ | 1,125 |
|
|
| As of |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Interest rate swaps reported in Other current assets |
| $ | 679 |
|
| $ | 0 |
|
Interest rate swaps reported in Other assets |
| $ | 684 |
|
| $ | 0 |
|
Interest rate swaps reported in Accrued Expenses and other liabilities |
| $ | 0 |
|
| $ | (437 | ) |
Interest rate swaps reported in Other long-term obligations |
| $ | 0 |
|
| $ | (353 | ) |
Foreign currency hedges reported in Other current assets |
| $ | 514 |
|
| $ | 135 |
|
Net investment hedge reported in Other assets |
| $ | 111 |
|
| $ | 0 |
|
The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance Sheet, Offsetting). On a gross basis, there were foreign currency derivative assets of $474$514 and foreign currency derivative liabilities of $0$0 at SeptemberJune 30, 2021.2022.
The effect of derivative instruments on the Condensed Consolidated Statements of (Loss) Earnings is as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Foreign Exchange Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 0 |
|
| $ | (78 | ) |
| $ | 0 |
|
| $ | (5 | ) |
Cost of goods sold |
|
| 442 |
|
|
| (407 | ) |
|
| 992 |
|
|
| (678 | ) |
Selling, general and administrative expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (5 | ) |
Total gain (loss) reclassified from AOCI to earnings |
|
| 442 |
|
|
| (485 | ) |
|
| 992 |
|
|
| (688 | ) |
Gain recognized in other expense for hedge ineffectiveness |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3 |
|
Total derivative gain (loss) on foreign exchange contracts recognized in earnings |
| $ | 442 |
|
| $ | (485 | ) |
| $ | 992 |
|
| $ | (685 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expense) recorded in Interest expense |
| $ | (191 | ) |
| $ | (171 | ) |
| $ | (554 | ) |
| $ | (242 | ) |
Total gains (losses) on derivatives |
| $ | 251 |
|
| $ | (656 | ) |
| $ | 438 |
|
| $ | (927 | ) |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Foreign Exchange Contracts: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amounts reclassified from AOCI to earnings: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold |
|
| 162 |
|
|
| 329 |
|
|
| 308 |
|
|
| 550 |
|
Total gain reclassified from AOCI to earnings |
|
| 162 |
|
|
| 329 |
|
|
| 308 |
|
|
| 550 |
|
Total derivative gain on foreign exchange contracts recognized in earnings |
| $ | 162 |
|
| $ | 329 |
|
| $ | 308 |
|
| $ | 550 |
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (expense) recorded in Interest expense |
| $ | (101 | ) |
| $ | (187 | ) |
| $ | (273 | ) |
| $ | (363 | ) |
Total net gains on derivatives |
| $ | 61 |
|
| $ | 142 |
|
| $ | 35 |
|
| $ | 187 |
|
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 acquisition. As a result of these contracts, the Company recognized a $1,776 loss in other expense in the Condensed Consolidated Statements of Earnings.
NOTE 14 – Accumulated Other Comprehensive (Loss) IncomeLoss
Shareholders’ equity includes certain items classified as accumulated other comprehensive (loss) incomeloss (“AOCI”) in the Condensed Consolidated Balance Sheets, including:
• Unrealized gains (losses) on hedges relate to 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 used to hedge our exposure to changes in exchange rates affecting certain revenues and costs denominated in foreign currencies. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transactions occur, at which time amounts are reclassified into earnings. Further information related to our derivative financial instruments is included in Note 13 - Derivative Financial Instruments and Note 17 – Fair Value Measurements. • Unrealized gains (losses) on pension obligations are deferred from income statement recognition until the gains or losses are realized. Amounts reclassified to income from AOCI are included in net periodic pension income (expense). Further information related to our pension obligations is included in Note 7 – Retirement Plans. 19 • Cumulative translation adjustments relate to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. Dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income.
|
|
|
|
|
|
Changes in exchange rates between the functional currency and the currency in which a transaction is denominated are foreign exchange transaction gains or losses. Transaction losses for the three and ninesix months ended SeptemberJune 30, 20212022 were $(1,011)$3,817 and $(1,412)$3,529, respectively,respectively. Transaction losses and transaction gains(gains) for the three and ninesix months ended SeptemberJune 30, 20202021 were $2,326$928 and $1,947, respectively, which$(401), respectively. The impact of these changes have been included in other income (expense) income in the Condensed Consolidated Statements of (Loss) Earnings.
The components of accumulated other comprehensive (loss) incomeloss for the three months ended SeptemberJune 30, 20212022 are as follows:
|
|
|
|
|
|
|
|
|
| (Gain) Loss |
|
|
|
|
|
|
|
|
|
| (Gain) Loss |
|
|
| ||||||||
|
| As of |
|
| Gain (Loss) |
|
| Reclassified |
|
| As of |
|
| As of |
| Gain (Loss) |
| Reclassified |
| As of |
| |||||||||||
|
| June 30, |
|
| Recognized |
|
| from AOCI |
|
| September 30, |
|
| March 31, |
| Recognized |
| from AOCI |
| June 30, |
| |||||||||||
|
| 2021 |
|
| in OCI |
|
| to Earnings |
|
| 2021 |
|
| 2022 |
|
| in OCI |
|
| to Earnings |
|
| 2022 |
| ||||||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
| $ | (529 | ) |
| $ | (128 | ) |
| $ | (251 | ) |
| $ | (908 | ) |
| $ | 969 |
|
| $ | 976 |
|
| $ | (61 | ) |
| $ | 1,884 |
|
Income tax benefit (expense) |
|
| 123 |
|
|
| 29 |
|
|
| 58 |
|
|
| 210 |
|
|
| (221 | ) |
|
| (224 | ) |
|
| 14 |
|
|
| (431 | ) |
Net |
|
| (406 | ) |
|
| (99 | ) |
|
| (193 | ) |
|
| (698 | ) |
|
| 748 |
|
|
| 752 |
|
|
| (47 | ) |
|
| 1,453 |
|
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (104,052 | ) |
|
| (5,450 | ) |
|
| 106,622 |
|
|
| (2,880 | ) |
|
| (2,624 | ) |
|
| 1,977 |
|
|
| 143 |
|
|
| (504 | ) |
Income tax benefit (expense) |
|
| 29,411 |
|
|
| 1,254 |
|
|
| (29,896 | ) |
|
| 769 |
|
|
| 712 |
|
|
| 0 |
|
|
| (38 | ) |
|
| 674 |
|
Net |
|
| (74,641 | ) |
|
| (4,196 | ) |
|
| 76,726 |
|
|
| (2,111 | ) |
|
| (1,912 | ) |
|
| 1,977 |
|
|
| 105 |
|
|
| 170 |
|
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,023 | ) |
|
| (10 | ) |
|
| 0 |
|
|
| (2,033 | ) |
|
| (2,281 | ) |
|
| (2,012 | ) |
|
| 0 |
|
|
| (4,293 | ) |
Income tax benefit (expense) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||
Net |
|
| (2,281 | ) |
|
| (2,012 | ) |
|
| 0 |
|
|
| (4,293 | ) | ||||||||||||||||
Total accumulated other comprehensive (loss) income |
| $ | (77,070 | ) |
| $ | (4,305 | ) |
| $ | 76,533 |
|
| $ | (4,842 | ) |
| $ | (3,445 | ) |
| $ | 717 |
|
| $ | 58 |
|
| $ | (2,670 | ) |
The components of accumulated other comprehensive (loss) incomeloss for the three months ended SeptemberJune 30, 2020,2021, are as follows:
|
|
|
|
|
|
|
|
|
| Loss |
|
|
|
|
|
|
|
|
|
| (Gain) Loss |
|
|
| ||||||||
|
| As of |
|
| Gain (Loss) |
|
| Reclassified |
|
| As of |
|
| As of |
| Gain (Loss) |
| Reclassified |
| As of |
| |||||||||||
|
| June 30, |
|
| Recognized |
|
| from AOCI |
|
| September 30, |
|
| March 31, |
| Recognized |
| from AOCI |
| June 30, |
| |||||||||||
|
| 2020 |
|
| in OCI |
|
| to Earnings |
|
| 2020 |
|
| 2021 |
|
| in OCI |
|
| to Earnings |
|
| 2021 |
| ||||||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
| $ | (4,239 | ) |
| $ | 525 |
|
| $ | 656 |
|
| $ | (3,058 | ) |
| $ | (877 | ) |
| $ | 490 |
|
| $ | (142 | ) |
| $ | (529 | ) |
Income tax benefit (expense) |
|
| 978 |
|
|
| (122 | ) |
|
| (150 | ) |
|
| 706 |
| ||||||||||||||||
Income tax (expense) benefit |
|
| 203 |
|
|
| (113 | ) |
|
| 33 |
|
|
| 123 |
| ||||||||||||||||
Net |
|
| (3,261 | ) |
|
| 403 |
|
|
| 506 |
|
|
| (2,352 | ) |
|
| (674 | ) |
|
| 377 |
|
|
| (109 | ) |
|
| (406 | ) |
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (120,906 | ) |
|
| 0 |
|
|
| 1,606 |
|
|
| (119,300 | ) |
|
| (126,157 | ) |
|
| 499 |
|
|
| 21,606 |
|
|
| (104,052 | ) |
Income tax benefit (expense) |
|
| 33,278 |
|
|
| 0 |
|
|
| (367 | ) |
|
| 32,911 |
|
|
| 34,492 |
|
|
| (115 | ) |
|
| (4,966 | ) |
|
| 29,411 |
|
Net |
|
| (87,628 | ) |
|
| 0 |
|
|
| 1,239 |
|
|
| (86,389 | ) |
|
| (91,665 | ) |
|
| 384 |
|
|
| 16,640 |
|
|
| (74,641 | ) |
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,266 | ) |
|
| 99 |
|
|
| 0 |
|
|
| (2,167 | ) |
|
| (2,024 | ) |
|
| 1 |
|
|
| 0 |
|
|
| (2,023 | ) |
Income tax benefit (expense) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||
Net |
|
| (2,024 | ) |
|
| 1 |
|
|
| 0 |
|
|
| (2,023 | ) | ||||||||||||||||
Total accumulated other comprehensive (loss) income |
| $ | (93,155 | ) |
| $ | 502 |
|
| $ | 1,745 |
|
| $ | (90,908 | ) |
| $ | (94,363 | ) |
| $ | 762 |
|
| $ | 16,531 |
|
| $ | (77,070 | ) |
20
The components of accumulated other comprehensive (loss) incomeloss for the ninesix months ended SeptemberJune 30, 2021,2022, are as follows:
|
|
|
|
|
|
|
|
|
| (Gain) Loss |
|
|
|
|
|
|
|
|
|
| (Gain) Loss |
|
|
| ||||||||
|
| As of |
|
| Gain (Loss) |
|
| Reclassified |
|
| As of |
|
| As of |
| Gain (Loss) |
| Reclassified |
| As of |
| |||||||||||
|
| December 31, |
|
| Recognized |
|
| from AOCI |
|
| September 30, |
|
| December 31, |
| Recognized |
| from AOCI |
| June 30, |
| |||||||||||
|
| 2020 |
|
| in OCI |
|
| to Earnings |
|
| 2021 |
|
| 2021 |
|
| in OCI |
|
| to Earnings |
|
| 2022 |
| ||||||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
| $ | (1,038 | ) |
| $ | 568 |
|
|
| (438 | ) |
| $ | (908 | ) |
| $ | (635 | ) |
| $ | 2,554 |
|
|
| (35 | ) |
| $ | 1,884 |
|
Income tax benefit (expense) |
|
| 240 |
|
|
| (131 | ) |
|
| 101 |
|
|
| 210 |
| ||||||||||||||||
Income tax (expense) benefit |
|
| 147 |
|
|
| (587 | ) |
|
| 9 |
|
|
| (431 | ) | ||||||||||||||||
Net |
|
| (798 | ) |
|
| 437 |
|
|
| (337 | ) |
|
| (698 | ) |
|
| (488 | ) |
|
| 1,967 |
|
|
| (26 | ) |
|
| 1,453 |
|
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (128,004 | ) |
|
| (4,951 | ) |
|
| 130,075 |
|
|
| (2,880 | ) |
|
| (2,744 | ) |
|
| 1,977 |
|
|
| 263 |
|
|
| (504 | ) |
Income tax benefit (expense) |
|
| 34,917 |
|
|
| 1,139 |
|
|
| (35,287 | ) |
|
| 769 |
|
|
| 738 |
|
|
| 0 |
|
|
| (64 | ) |
|
| 674 |
|
Net |
|
| (93,087 | ) |
|
| (3,812 | ) |
|
| 94,788 |
|
|
| (2,111 | ) |
|
| (2,006 | ) |
|
| 1,977 |
|
|
| 199 |
|
|
| 170 |
|
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,036 | ) |
|
| 3 |
|
|
| 0 |
|
|
| (2,033 | ) |
|
| (2,032 | ) |
|
| (2,261 | ) |
|
| 0 |
|
|
| (4,293 | ) |
Income tax benefit (expense) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||
Net |
|
| (2,032 | ) |
|
| (2,261 | ) |
|
| 0 |
|
|
| (4,293 | ) | ||||||||||||||||
Total accumulated other comprehensive (loss) income |
| $ | (95,921 | ) |
| $ | (3,372 | ) |
| $ | 94,451 |
|
| $ | (4,842 | ) |
| $ | (4,526 | ) |
| $ | 1,683 |
|
| $ | 173 |
|
| $ | (2,670 | ) |
The components of accumulated other comprehensive (loss) incomeloss for the ninesix months ended SeptemberJune 30, 2020,2021, are as follows:
|
|
|
|
|
|
|
| (Gain) Loss |
|
|
|
| ||||
|
| As of |
|
| Gain |
|
| Reclassified |
|
| As of |
| ||||
|
| December 31, |
|
| Recognized |
|
| from AOCI |
|
| June 30, |
| ||||
|
| 2020 |
|
| in OCI |
|
| to Earnings |
|
| 2021 |
| ||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
| $ | (1,038 | ) |
| $ | 696 |
|
|
| (187 | ) |
| $ | (529 | ) |
Income tax (expense) benefit |
|
| 240 |
|
|
| (160 | ) |
|
| 43 |
|
|
| 123 |
|
Net |
|
| (798 | ) |
|
| 536 |
|
|
| (144 | ) |
|
| (406 | ) |
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (128,004 | ) |
|
| 499 |
|
|
| 23,453 |
|
|
| (104,052 | ) |
Income tax benefit (expense) |
|
| 34,917 |
|
|
| (115 | ) |
|
| (5,391 | ) |
|
| 29,411 |
|
Net |
|
| (93,087 | ) |
|
| 384 |
|
|
| 18,062 |
|
|
| (74,641 | ) |
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross |
|
| (2,036 | ) |
|
| 13 |
|
|
| 0 |
|
|
| (2,023 | ) |
Income tax benefit (expense) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Net |
|
| (2,036 | ) |
|
| 13 |
|
|
| 0 |
|
|
| (2,023 | ) |
Total accumulated other comprehensive (loss) income |
| $ | (95,921 | ) |
| $ | 933 |
|
| $ | 17,918 |
|
| $ | (77,070 | ) |
|
|
|
|
|
|
|
|
|
| Loss |
|
|
|
|
| |
|
| As of |
|
| Gain |
|
| Reclassified |
|
| As of |
| ||||
|
| December 31, |
|
| Recognized |
|
| from AOCI |
|
| September 30, |
| ||||
|
| 2019 |
|
| in OCI |
|
| to Earnings |
|
| 2020 |
| ||||
Changes in fair market value of derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
| $ | 659 |
|
| $ | (4,647 | ) |
| $ | 930 |
|
| $ | (3,058 | ) |
Income tax benefit (expense) |
|
| (150 | ) |
|
| 1,059 |
|
|
| (203 | ) |
|
| 706 |
|
Net |
|
| 509 |
|
|
| (3,588 | ) |
|
| 727 |
|
|
| (2,352 | ) |
Changes in unrealized pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
| (124,140 | ) |
|
| 0 |
|
|
| 4,840 |
|
|
| (119,300 | ) |
Income tax benefit (expense) |
|
| 34,018 |
|
|
| 0 |
|
|
| (1,107 | ) |
|
| 32,911 |
|
Net |
|
| (90,122 | ) |
|
| 0 |
|
|
| 3,733 |
|
|
| (86,389 | ) |
Cumulative translation adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
| (2,211 | ) |
|
| 44 |
|
|
| 0 |
|
|
| (2,167 | ) |
Income tax benefit (expense) |
|
| 98 |
|
|
| (98 | ) |
|
| 0 |
|
|
| 0 |
|
Net |
|
| (2,113 | ) |
|
| (54 | ) |
|
| 0 |
|
|
| (2,167 | ) |
Total accumulated other comprehensive (loss) income |
| $ | (91,726 | ) |
| $ | (3,642 | ) |
| $ | 4,460 |
|
| $ | (90,908 | ) |
NOTE 15 – Shareholders’ Equity
Share count and par value data related to shareholders’ equity are as follows:
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Par value per share |
| No par value |
|
| No par value |
|
| No par value |
|
| No par value |
| ||||
Shares authorized |
|
| 25,000,000 |
|
|
| 25,000,000 |
|
|
| 25,000,000 |
|
|
| 25,000,000 |
|
Shares outstanding |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Par value per share |
| No par value |
|
| No par value |
|
| No par value |
|
| No par value |
| ||||
Shares authorized |
|
| 75,000,000 |
|
|
| 75,000,000 |
|
|
| 75,000,000 |
|
|
| 75,000,000 |
|
Shares issued |
|
| 57,235,807 |
|
|
| 57,076,410 |
|
|
| 57,310,174 |
|
|
| 57,245,060 |
|
Shares outstanding |
|
| 32,288,149 |
|
|
| 32,276,787 |
|
|
| 31,911,401 |
|
|
| 32,178,715 |
|
Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Shares held |
|
| 24,947,658 |
|
|
| 24,799,623 |
|
|
| 25,398,773 |
|
|
| 25,066,345 |
|
21
On May 13, 2021, the Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50,000$50,000 of the Company’s common stock. The repurchase program has no set expiration date and replaces the repurchase program approved by the Board of Directors on February 7, 2019. During the ninethree and six months ended SeptemberJune 30, 2021, 148,0352022, 216,252 and 332,428 shares of common stock were repurchased for $4,939.$7,748 and $11,668, respectively. During the ninethree and six months ended SeptemberJune 30, 2020, 342,7312021, there were 0 shares of common stock that were repurchased for $8,080. Approximately $45,061 isrepurchased. As of June 30, 2022, approximately $29,546 remains available for future purchases.
A roll-forward of common shares outstanding is as follows:
|
| Nine months ended |
|
| Six months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at the beginning of the year |
|
| 32,276,787 |
|
|
| 32,472,406 |
|
|
| 32,178,715 |
|
|
| 32,276,787 |
|
Repurchases |
|
| (148,035 | ) |
|
| (342,731 | ) |
|
| (332,428 | ) |
|
| — |
|
Restricted share issuances |
|
| 159,397 |
|
|
| 138,276 |
|
|
| 65,114 |
|
|
| 158,969 |
|
Balance at the end of the period |
|
| 32,288,149 |
|
|
| 32,267,951 |
|
|
| 31,911,401 |
|
|
| 32,435,756 |
|
Certain potentially dilutive restricted stock units are excluded from diluted (loss) earnings per share because they are anti-dilutive. The number of outstanding awards that were anti-dilutive for the nine months ended September 30, 2021 and 2020 were 1,029 and 68,198, respectively. There were 462 anti-dilutive awards outstanding for the three months ended SeptemberJune 30, 2022 and 2021 were 2,500and 093, respectively. The number of outstanding awards that were anti-dilutive awards outstandingfor the threesix months ended SeptemberJune 30, 2020. 2022 and 2021 were 2,500 and 46,810, respectively
NOTE 16 -16- Stock-Based Compensation
At SeptemberJune 30, 2021,2022, we had 5 active 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”), the 2014 Performance and Incentive Compensation Plan (“2014 Plan”), and the 2018 Equity and Incentive Compensation Plan ("2018 Plan"). Future grants can only be made under the 2018 Plan.
These plans allow for grants of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance shares, performance units, and other stock awards subject to the terms of the specific plans under which the awards are granted.
The following table summarizes the compensation expense included in selling, general and administrative expenses in the Condensed Consolidated Statements of (Loss) Earnings related to stock-based compensation plans:
|
| Three months ended |
|
| Nine months ended |
|
| Three months ended |
|
| Six months ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Service-based RSUs |
| $ | 588 |
|
| $ | 580 |
|
| $ | 2,013 |
|
| $ | 1,939 |
|
| $ | 691 |
|
| $ | 738 |
|
| $ | 1,368 |
|
| $ | 1,425 |
|
Performance-based RSUs |
|
| 383 |
|
|
| 472 |
|
|
| 1,942 |
|
|
| 123 |
|
|
| 820 |
|
|
| 1,066 |
|
|
| 2,041 |
|
|
| 1,559 |
|
Cash-settled RSUs |
|
| 16 |
|
|
| 67 |
|
|
| 151 |
|
|
| 102 |
|
|
| 105 |
|
|
| 99 |
|
|
| 157 |
|
|
| 138 |
|
Total |
| $ | 987 |
|
| $ | 1,119 |
|
| $ | 4,106 |
|
| $ | 2,164 |
|
| $ | 1,616 |
|
| $ | 1,903 |
|
| $ | 3,566 |
|
| $ | 3,122 |
|
Income tax benefit |
|
| 227 |
|
|
| 257 |
|
|
| 945 |
|
|
| 497 |
|
|
| 372 |
|
|
| 438 |
|
|
| 820 |
|
|
| 718 |
|
Net expense |
| $ | 760 |
|
| $ | 862 |
|
| $ | 3,161 |
|
| $ | 1,667 |
|
| $ | 1,244 |
|
| $ | 1,465 |
|
| $ | 2,746 |
|
| $ | 2,404 |
|
22
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 |
|
|
|
|
|
| Unrecognized |
|
|
|
| |||
|
| Compensation |
|
| Weighted- |
|
| Compensation |
|
| Weighted- |
| ||||
|
| Expense at |
|
| Average |
|
| Expense at |
|
| Average |
| ||||
|
| September 30, 2021 |
|
| Period (years) |
|
| June 30, 2022 |
|
| Period (years) |
| ||||
Service-based RSUs |
| $ | 1,818 |
|
|
| 1.38 |
|
| $ | 2,711 |
|
|
| 1.44 |
|
Performance-based RSUs |
|
| 2,988 |
|
|
| 1.80 |
|
|
| 5,117 |
|
|
| 1.89 |
|
Total |
| $ | 4,806 |
|
|
| 1.64 |
|
| $ | 7,828 |
|
|
| 1.73 |
|
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 SeptemberJune 30, 2021:2022:
|
| 2018 Plan |
|
| 2014 Plan |
|
| 2009 Plan |
|
| 2004 Plan |
|
| Directors' Plan |
| |||||
Awards originally available |
|
| 2,500,000 |
|
|
| 1,500,000 |
|
|
| 3,400,000 |
|
|
| 6,500,000 |
|
| N/A |
| |
Maximum potential RSU and cash settled awards outstanding |
|
| 611,278 |
|
|
| 35,100 |
|
|
| 45,200 |
|
|
| 14,545 |
|
|
| 4,722 |
|
Maximum potential awards outstanding |
|
| 611,278 |
|
|
| 35,100 |
|
|
| 45,200 |
|
|
| 14,545 |
|
|
| 4,722 |
|
RSUs and cash settled awards vested and released |
|
| 117,633 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Awards available for grant |
|
| 1,771,089 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2018 Plan |
|
| 2014 Plan |
|
| 2009 Plan |
|
| 2004 Plan |
|
| Directors' |
| |||||
Awards originally available |
|
| 2,500,000 |
|
|
| 1,500,000 |
|
|
| 3,400,000 |
|
|
| 6,500,000 |
|
| N/A |
| |
Maximum potential awards outstanding |
|
| 716,826 |
|
|
| 35,100 |
|
|
| 45,200 |
|
|
| 14,545 |
|
|
| 4,722 |
|
RSUs and cash settled awards vested and released |
|
| 117,828 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Awards available for grant |
|
| 1,665,346 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Service-Based Restricted Stock Units
The following table summarizes the service-based RSU activity for the ninethree months ended SeptemberJune 30, 2021:2022:
|
| Units |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||
Outstanding at December 31, 2020 |
|
| 367,428 |
|
| $ | 21.28 |
| ||||||||
|
| Units |
|
| Weighted |
| ||||||||||
Outstanding at December 31, 2021 |
|
| 283,216 |
|
| $ | 24.91 |
| ||||||||
Granted |
|
| 68,065 |
|
|
| 32.93 |
|
|
| 68,124 |
|
|
| 33.70 |
|
Vested and released |
|
| (151,946 | ) |
|
| 20.91 |
|
|
| (58,144 | ) |
|
| 29.96 |
|
Forfeited |
|
| (15,506 | ) |
|
| 29.17 |
|
|
| (7,838 | ) |
|
| 30.35 |
|
Outstanding at September 30, 2021 |
|
| 268,041 |
|
| $ | 24.00 |
| ||||||||
Releasable at September 30, 2021 |
|
| 116,933 |
|
| $ | 15.86 |
| ||||||||
Outstanding at June 30, 2022 |
|
| 285,358 |
|
| $ | 25.83 |
| ||||||||
Releasable at June 30, 2022 |
|
| 132,834 |
|
| $ | 17.55 |
|
Performance and Market-Based Restricted Stock Units
The following table summarizes the performance and market-based RSU activity for the ninethree months ended SeptemberJune 30, 2021:2022:
|
| Units |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||
Outstanding at December 31, 2020 |
|
| 225,559 |
|
| $ | 28.97 |
| ||||||||
|
| Units |
|
| Weighted |
| ||||||||||
Outstanding at December 31, 2021 |
|
| 237,767 |
|
| $ | 31.35 |
| ||||||||
Granted |
|
| 83,237 |
|
|
| 34.44 |
|
|
| 81,702 |
|
|
| 37.15 |
|
Attained by performance |
|
| 18,107 |
|
|
| 28.33 |
|
|
| 5,136 |
|
|
| 29.50 |
|
Released |
|
| (53,137 | ) |
|
| 28.33 |
|
|
| (51,848 | ) |
|
| 30.64 |
|
Forfeited |
|
| (43,099 | ) |
|
| 27.71 |
|
|
| (14,351 | ) |
|
| 32.62 |
|
Outstanding at September 30, 2021 |
|
| 230,667 |
|
| $ | 31.28 |
| ||||||||
Releasable at September 30, 2021 |
|
| 196,748 |
|
| $ | 32.62 |
| ||||||||
Outstanding at June 30, 2022 |
|
| 258,406 |
|
| $ | 33.20 |
| ||||||||
Releasable at June 30, 2022 |
|
| 0 |
|
| $ | 0 |
|
23
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 SeptemberJune 30, 20212022 and December 31, 20202021, we had 32,08546,524 and 30,00932,085 cash-settled RSUs outstanding, respectively. At SeptemberJune 30, 20212022 and December 31, 2020,2021, liabilities of $276$299 and $396,$400, respectively, were included in accrued expenses and other liabilities on our Condensed Consolidated Balance Sheets.
NOTE 17 — Fair Value Measurements
The table below summarizes our financial assets and liabilities that were measured at fair value on a recurring basis at SeptemberJune 30, 2021:2022:
|
|
|
|
|
| Quoted |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
| Prices |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| (Liability) Asset |
|
| in Active |
|
| Significant |
|
|
|
|
| |||||||||||||||||||
|
| Carrying |
|
| Markets for |
|
| Other |
|
| Significant |
| ||||||||||||||||||||
|
| Value at |
|
| Identical |
|
| Observable |
|
| Unobservable |
| ||||||||||||||||||||
|
| September 30, |
|
| Instruments |
|
| Inputs |
|
| Inputs |
| ||||||||||||||||||||
|
| 2021 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Asset (Liability) Carrying |
|
| Quoted Prices |
|
| Significant |
|
| Significant |
| ||||||||
Interest rate swaps |
| $ | (1,410 | ) |
| $ | — |
|
| $ | (1,410 | ) |
| $ | — |
|
| $ | 1,363 |
|
| $ | — |
|
| $ | 1,363 |
|
| $ | — |
|
Foreign currency hedges |
| $ | 474 |
|
| $ | — |
|
| $ | 474 |
|
| $ | — |
|
| $ | 514 |
|
| $ | — |
|
| $ | 514 |
|
| $ | — |
|
Cross-currency swap |
| $ | 111 |
|
| $ | — |
|
| $ | 111 |
|
| $ | — |
| ||||||||||||||||
Qualified replacement plan assets |
| $ | 16,149 |
|
| $ | 16,149 |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||
Contingent consideration |
| $ | (1,350 | ) |
| $ | — |
|
| $ | — |
|
| $ | (1,350 | ) |
| $ | (300 | ) |
| $ | — |
|
| $ | — |
|
| $ | (300 | ) |
The table below summarizes the financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2020:2021:
|
|
|
|
|
| Quoted |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
| Prices |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| (Liability) Asset |
|
| in Active |
|
| Significant |
|
|
|
|
| |||||||||||||||||||
|
| Carrying |
|
| Markets for |
|
| Other |
|
| Significant |
| ||||||||||||||||||||
|
| Value at |
|
| Identical |
|
| Observable |
|
| Unobservable |
| ||||||||||||||||||||
|
| December 31, |
|
| Instruments |
|
| Inputs |
|
| Inputs |
| ||||||||||||||||||||
|
| 2020 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| (Liability) Asset Carrying |
|
| Quoted Prices |
|
| Significant |
|
| Significant |
| ||||||||
Interest rate swaps |
| $ | (2,217 | ) |
| $ | — |
|
| $ | (2,217 | ) |
| $ | — |
|
| $ | (790 | ) |
| $ | — |
|
| $ | (790 | ) |
| $ | — |
|
Foreign currency hedges |
| $ | 1,125 |
|
| $ | — |
|
| $ | 1,125 |
|
| $ | — |
|
| $ | 135 |
|
| $ | — |
|
| $ | 135 |
|
| $ | — |
|
Contingent consideration |
| $ | (2,000 | ) |
| $ | — |
|
| $ | — |
|
| $ | (2,000 | ) |
| $ | (1,200 | ) |
| $ | — |
|
| $ | — |
|
| $ | (1,200 | ) |
We use interest rate swaps to convert a portion of our revolving credit facility’sRevolving 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 denominated in foreign currencies. 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 that market is not active and therefore they are classified within Level 2 of the fair value hierarchy.
The fair value of the contingent consideration requires 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 timing of events and activities that are expected to take place. Refer to Note 3 for further discussion on contingent consideration.
A roll-forward of the contingent consideration is as follows:
24
|
| Contingent |
| |
|
| Consideration |
| |
Balance at December 31, 2020 |
| $ | 2,000 |
|
Settled in cash |
|
| (500 | ) |
Reclassified to payable in accrued expenses and other liabilities |
|
| (150 | ) |
Balance at September 30, 2021 |
| $ | 1,350 |
|
Less current portion in accrued expenses and other liabilities |
|
| (1,200 | ) |
Total long-term portion in other long-term obligations |
| $ | 150 |
|
|
|
|
| |
|
|
|
| |
|
| Contingent |
| |
Balance at December 31, 2021 |
| $ | 1,200 |
|
Settled in cash |
|
| (900 | ) |
Balance at June 30, 2022 in accrued expenses and other liabilities |
| $ | 300 |
|
Our long-term debt consists of debt outstanding under the revolving credit facilityRevolving Credit Facility, which is recorded at its carrying value. There is a readily determinable market for our long-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 long-term debt under the revolving credit facility.Revolving Credit Facility.
The QRP assets consist of investment funds maintained for future contributions to the Company’s U.S. 401(k) program. See Note 7 for further information on the QRP. The investments are Level 1 marketable securities and are recorded in Other assets on our Condensed Consolidated Balance Sheets.
NOTE 18 — Income Taxes
The effective tax rates for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Effective tax rate |
|
| 28.9 | % |
|
| 22.2 | % |
|
| 32.5 | % |
|
| 24.4 | % |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Effective tax rate |
|
| 25.6 | % |
|
| 245.6 | % |
|
| 23.0 | % |
|
| 9.3 | % |
Our effective income tax rate was 28.9%25.6% and 22.2%245.6% in the thirdsecond quarters of 2022 and 2021, and 2020, respectively. This increaseThe decrease in effective income tax is primarily attributed to a one-time non-cash settlement expense related to the final annuity purchase madelump sum payments for the CTS Corporation U.S. pension plan.plan that occurred in the second quarter of 2021. The thirdsecond quarter 2021 tax rate was higher than the U.S. statutory federal tax rate for the same reason noted above. The third quarter 2020 tax rate was higher than the U.S. statutory federal tax rate due to foreign withholding taxes, state taxes, and foreign earnings that are taxed at higher rates.
Our2022 effective income tax rate was 32.5% and 24.4% in the nine months ended September 30, 2021 and 2020, respectively. This increase is primarily attributed to the settlement expenses related to lump sum payments made for the CTS Corporation U.S. Pension Plan termination process in the second and third quarters of 2021. The tax rate in the first nine months of 2021 was higher than the U.S. statutory federal tax rate for the same reason noted above. The tax rate in the first nine months of 2020 was higher than the U.S. statutory federal tax rate primarily due to the establishmentimpact of valuation allowances on certainforeign withholding taxes and state taxes. The second quarter 2021 effective tax rate was higher, primarily due to the one-time non-cash settlement expense in the U.S. pension plan outlined above.
Our effective income tax creditsrate was 23.0% and 9.3% in the Company’s decisionfirst half of 2022 and 2021, respectively. The increase is primarily attributed to no longer reinvesta one-time non-cash settlement expense related to lump sum payments made for the earningsCTS Corporation U.S. pension plan that occurred in Q2 2021. The tax rate in the first half of its Taiwan subsidiary.2022 was higher than the U.S. statutory federal tax rate primarily due to the impact of foreign withholding taxes and state taxes. The tax rate in the first half of 2021 was lower than the U.S. statutory federal tax rate, primarily due to the one-time non-cash settlement expense in the U.S. pension plan outlined above.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
(in thousands of dollars, except percentages and per share amounts)
The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included under Item 1, as well as our Consolidated Financial Statements and notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
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, and technologies and talent within these categories.
We manufacture sensors, actuators, and connectivity components in North America, Europe, and Asia. CTS provides engineered products to OEMsoriginal equipment manufacturers (“OEMs”) and tier one suppliers in the aerospace and defense, industrial, information technology, medical, telecommunications, and transportation markets.
There is an increasing proliferation of sensing, connectivity, 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, without limitation, 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 28, 2022, we acquired 100% of the outstanding shares of TEWA Temperature Sensors SP. Zo.o. (“TEWA”) for $24,484. TEWA is a designer and manufacturer of high-quality temperature sensors. TEWA has complementary capabilities with our existing temperature sensing platform and the acquisition supports our end market diversification strategy by expanding our presence in Europe.
On June 30, 2022, we acquired 100% of the outstanding shares of Ferroperm Piezoceramics A/S (“Ferroperm”) for $72,044. 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 and the acquisition also supports our end market diversification strategy by expanding our presence in Europe end markets.
COVID-19 Impact and Supply Chain Uncertainties
The COVID-19 pandemic and subsequent supply chain uncertainties have had a significant negative impact on the global economy in 2020, 2021, and 2021. This hasinto 2022. These events have disrupted the financial markets, negatively impacted the global supply chain and increased the cost of materials and operations, particularly within the global automotive industry. Key semiconductor chip and other critical part shortages continue to force original equipment manufacturers (“OEMs”)OEMs to shut down production, often on short notice. With customers changing orders on short notice, we run the risk of carrying excess inventory in these situations. These developments are outside of our control, remain highly uncertain, and cannot be predicted. In addition, the supply chain shortages continue to put pressure on our manufacturing costs and our gross margins. We continue to actively monitor the ongoing impacts of the COVID-19 pandemic and supply chain issues and will seek to mitigate and minimize their impact on our business.business, when possible. We anticipate these challenges to continue to impact our results in 2021 and intofor the remainder of 2022 and we remain cautious about the financial impact of these potential disruptions on our business.
26
Results of Operations: ThirdSecond Quarter 20212022 versus ThirdSecond Quarter 20202021
The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of (Loss) Earnings for the quarters ended SeptemberJune 30, 2021,2022, and SeptemberJune 30, 2020:2021:
|
| Three Months Ended |
|
|
|
|
|
| Percent of |
|
| Percent of |
|
| Three Months Ended |
|
|
|
|
| Percent of |
|
| Percent of |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| Percent |
|
| Net Sales – |
|
| Net Sales – |
|
| June 30, |
|
| June 30, |
|
| Percent |
|
| Net Sales – |
|
| Net Sales – |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
| ||||||||||
Net sales |
| $ | 122,382 |
|
| $ | 113,777 |
|
|
| 7.6 | % |
|
| 100.0 | % |
|
| 100.0 | % |
| $ | 144,982 |
|
| $ | 129,585 |
|
|
| 11.9 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold |
|
| 76,720 |
|
|
| 76,871 |
|
|
| (0.2 | ) |
|
| 62.7 |
|
|
| 67.6 |
|
|
| 93,134 |
|
|
| 81,889 |
|
|
| 13.7 |
|
|
| 64.2 |
|
|
| 63.2 |
|
Gross margin |
|
| 45,662 |
|
|
| 36,906 |
|
|
| 23.7 |
|
|
| 37.3 |
|
|
| 32.4 |
|
|
| 51,848 |
|
|
| 47,696 |
|
|
| 8.7 |
|
|
| 35.8 |
|
|
| 36.8 |
|
Selling, general and administrative expenses |
|
| 19,922 |
|
|
| 16,883 |
|
|
| 18.0 |
|
|
| 16.3 |
|
|
| 14.8 |
|
|
| 22,238 |
|
|
| 20,937 |
|
|
| 6.2 |
|
|
| 15.3 |
|
|
| 16.2 |
|
Research and development expenses |
|
| 6,454 |
|
|
| 5,723 |
|
|
| 12.8 |
|
|
| 5.3 |
|
|
| 5.0 |
|
|
| 6,294 |
|
|
| 6,029 |
|
|
| 4.4 |
|
|
| 4.3 |
|
|
| 4.7 |
|
Restructuring charges |
|
| 319 |
|
|
| 1,041 |
|
|
| (69.4 | ) |
|
| 0.3 |
|
|
| 0.9 |
|
|
| 630 |
|
|
| 151 |
|
|
| 317.2 |
|
|
| 0.4 |
|
|
| 0.1 |
|
Total operating expenses |
|
| 26,695 |
|
|
| 23,647 |
|
|
| 12.9 |
|
|
| 21.9 |
|
|
| 20.7 |
|
|
| 29,162 |
|
|
| 27,117 |
|
|
| 7.5 |
|
|
| 20.1 |
|
|
| 20.9 |
|
Operating earnings |
|
| 18,967 |
|
|
| 13,259 |
|
|
| 43.1 |
|
|
| 15.5 |
|
|
| 11.7 |
|
|
| 22,686 |
|
|
| 20,579 |
|
|
| 10.2 |
|
|
| 15.6 |
|
|
| 15.9 |
|
Total other (expense) income, net |
|
| (108,786 | ) |
|
| 977 |
|
|
| (11,234.7 | ) |
|
| (88.9 | ) |
|
| 0.9 |
| ||||||||||||||||||||
(Loss) earnings before income taxes |
|
| (89,819 | ) |
|
| 14,236 |
|
|
| (730.9 | ) |
|
| (73.4 | ) |
|
| 12.5 |
| ||||||||||||||||||||
Income tax (benefit) expense |
|
| (25,923 | ) |
|
| 3,163 |
|
|
| (919.6 | ) |
|
| (21.2 | ) |
|
| 2.8 |
| ||||||||||||||||||||
Net (loss) earnings |
| $ | (63,896 | ) |
| $ | 11,073 |
|
|
| (677.0 | )% |
|
| (52.2 | )% |
|
| 9.7 | % | ||||||||||||||||||||
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Diluted net (loss) earnings per share |
| $ | (1.97 | ) |
| $ | 0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Total other expense, net |
|
| (5,764 | ) |
|
| (21,180 | ) |
|
| (72.8 | ) |
|
| (4.0 | ) |
|
| (16.3 | ) | ||||||||||||||||||||
Earnings (loss) before income taxes |
|
| 16,922 |
|
|
| (601 | ) |
| n/a |
|
|
| 11.7 |
|
|
| (0.5 | ) | |||||||||||||||||||||
Income tax expense (benefit) |
|
| 4,324 |
|
|
| (1,476 | ) |
| n/a |
|
|
| 3.0 |
|
|
| (1.1 | ) | |||||||||||||||||||||
Net earnings |
| $ | 12,598 |
|
| $ | 875 |
|
| n/a |
|
|
| 8.7 | % |
|
| 0.7 | % | |||||||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Diluted net earnings per share |
| $ | 0.39 |
|
| $ | 0.03 |
|
|
|
|
|
|
|
|
|
|
Net sales were $122,382$144,982 in the thirdsecond quarter of 2021,2022, an increase of $8,605$15,397 or 7.6%11.9% from the thirdsecond quarter of 2020.2021. Net sales growth was driven by the overall improvement in the economy.
Netto non-transportation markets increased $12,263 or 21.1% while net sales to transportation markets decreased $2,936increased $3,134 or 4.5%4.4%. The impact of the supply chain shortages and OEM shutdowns are expected to continue to have an adverse effect on our operations, primarily in the transportation end market. Net sales to other markets increased $11,541 or 23.8%. The Sensor Scientific, Inc. (“SSI”)TEWA acquisition, which was completed in December 2020,February 2022, added $1,780$4,065 in net sales for the quarter. Changes in foreign exchange rates increaseddecreased net sales by $1,279$2,186 year-over-year primarily due to the U.S. Dollar depreciatingappreciating compared to the Chinese Renminbi and Euro.
Gross margin as a percent of net sales was 37.3%35.8% in the thirdsecond quarter of 20212022 compared to 32.4%36.8% in the thirdsecond quarter of 2020.2021. The increasedecrease in gross margin was driven primarily by sales volumeincreased material and mix. The third quarter of 2020 was impacted by the COVID-19 pandemic.
Selling, general and administrative ("SG&A") expenses were $19,922 or 16.3% of net sales in the third quarter of 2021 versus $16,883 or 14.8% of net sales in the third quarter of 2020. The 2020 SG&A expenses included savings from cost reduction measures we had implemented while 2021 saw those measures fully restored as well as higher costs from incentive compensation.
Research and development (“R&D”) expenses were $6,454 or 5.3% of net sales in the third quarter of 2021 compared to $5,723 or 5.0% of net sales in the comparable quarter of 2020. The increase in overall R&D expenses is primarily due to changes in timing and mix of certain projects as well as cost actions implemented in Q2 2020.
Restructuring charges were $319 or 0.3% of net sales in the third quarter of 2021 compared to $1,041 or 0.9% of net sales in the third quarter of 2020. Expenses were higher in the prior year due to the initiation of a restructuring plan in the third quarter of 2020.
Operating earnings were $18,967 or 15.5% of net sales in the third quarter of 2021 compared to operating earnings of $13,259 or 11.7% of net sales in the third quarter of 2020 driven by sales volume and mix.
Other expense and income items are summarized in the following table:
|
| Three Months Ended |
| |||||
|
| September 30, |
|
| September 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Interest expense |
| $ | (514 | ) |
| $ | (857 | ) |
Interest income |
|
| 230 |
|
|
| 217 |
|
Other (expense) income, net |
|
| (108,502 | ) |
|
| 1,617 |
|
Total other (expense) income, net |
| $ | (108,786 | ) |
| $ | 977 |
|
Other (expense) income, net in the third quarter of 2021 was primarily driven by increased pension expense including $106,206 in settlement charge from our U.S. pension plan termination process.
|
| Three Months Ended |
| |||||
|
| September 30, |
|
| September 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Effective tax rate |
|
| 28.9 | % |
|
| 22.2 | % |
Our effective income tax rate was 28.9% and 22.2% in the third quarters of 2021 and 2020, respectively. This increase is primarily attributable to the impact of the U.S. pension plan settlement charge taken in the third quarter of 2021.
Results of Operations: Nine Months ended September 30, 2021 versus Nine Months Ended September 30, 2020
The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of (Loss) Earnings for the nine months ended September 30, 2021, and September 30, 2020:
|
| Nine Months Ended |
|
|
|
|
|
| Percent of |
|
| Percent of |
| |||||||
|
| September 30, |
|
| September 30, |
|
| Percent |
|
| Net Sales – |
|
| Net Sales – |
| |||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| 2021 |
|
| 2020 |
| |||||
Net sales |
| $ | 380,394 |
|
| $ | 301,049 |
|
|
| 26.4 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold |
|
| 244,446 |
|
|
| 204,677 |
|
|
| 19.4 |
|
|
| 64.3 |
|
|
| 68.0 |
|
Gross margin |
|
| 135,948 |
|
|
| 96,372 |
|
|
| 41.1 |
|
|
| 35.7 |
|
|
| 32.0 |
|
Selling, general and administrative expenses |
|
| 59,184 |
|
|
| 48,310 |
|
|
| 22.5 |
|
|
| 15.6 |
|
|
| 16.0 |
|
Research and development expenses |
|
| 18,170 |
|
|
| 18,653 |
|
|
| (2.6 | ) |
|
| 4.8 |
|
|
| 6.2 |
|
Restructuring charges |
|
| 551 |
|
|
| 1,416 |
|
|
| (61.1 | ) |
|
| 0.1 |
|
|
| 0.5 |
|
Total operating expenses |
|
| 77,905 |
|
|
| 68,379 |
|
|
| 13.9 |
|
|
| 20.5 |
|
|
| 22.7 |
|
Operating earnings |
|
| 58,043 |
|
|
| 27,993 |
|
|
| 107.3 |
|
|
| 15.3 |
|
|
| 9.3 |
|
Total other expense, net |
|
| (133,674 | ) |
|
| (1,874 | ) |
|
| 7033.1 |
|
|
| (35.1 | ) |
|
| (0.6 | ) |
(Loss) earnings before income taxes |
|
| (75,631 | ) |
|
| 26,119 |
|
|
| (389.6 | ) |
|
| (19.8 | ) |
|
| 8.7 |
|
Income tax (benefit) expense |
|
| (24,600 | ) |
|
| 6,381 |
|
|
| (485.5 | ) |
|
| (6.5 | ) |
|
| 2.1 |
|
Net (loss) earnings |
| $ | (51,031 | ) |
| $ | 19,738 |
|
|
| (358.5 | )% |
|
| (13.4 | )% |
|
| 6.6 | % |
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) earnings per share |
| $ | (1.58 | ) |
| $ | 0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales were $380,394 in the nine months ended September 30, 2021, an increase of $79,345 or 26.4% from the nine months ended September 30, 2020. Net sales growth was driven by the overall improvement in the economy.
Net sales to transportation markets increased $44,812 or 27.2%. Net sales to other markets increased $34,533 or 25.4%. The SSI acquisition, which was completed in December 2020, added $5,226 in net sales for the nine months ended September 30, 2021. Changes in foreign exchange rates increased net sales by $6,456 year-over-year due to the U.S. Dollar depreciating compared to the Chinese Renminbi and Euro.
Gross margin as a percent of net sales was 35.7% for the nine months ended September 30, 2021 compared to 32.0% for the nine months ended September 30, 2020. The increase in gross margin was driven primarily by sales volume and mix. The first nine months of 2020 were also impacted significantly by the COVID-19 pandemic, particularly in the second quarter of 2020.freight costs. We continue to experience significant inflation in material and freight costs as well as interruptions in the supply chain particularly due to the global
semiconductor chip and resin shortages impacting the operations of our business. The impact of the supply chain shortages and OEM shutdowns are expected to continue to have an adverse effect on our operations.operations that we are continuing to attempt to mitigate.
Selling, general and administrative ("SG&A&A") expenses were $59,184$22,238 or 15.6%15.3% of net sales forin the nine months ended September 30, 2021second quarter of 2022 versus $48,310$20,937 or 16.0%16.2% of net sales forin the nine months ended September 30, 2020. second quarter of 2021. The 2020 year to dateincrease in SG&A expenses include savings from cost reduction measures we had implemented while 2021 saw those measures fully restored as well as higher costs from incentive compensation.was primarily caused by expenses related to acquisition activity.
Research and development (“R&D&D”) expenses were $18,170$6,294 or 4.8%4.3% of net sales forin the nine months ended September 30, 2021second quarter of 2022 compared to $18,653$6,029 or 6.2%4.7% of net sales in the comparable periodquarter of 2020.2021. The decreaseincrease in overall R&D expenses is in line with our commitment to continue investing in research and product development to drive organic growth.
Restructuring charges were $630 or 0.4% of net sales in the second quarter of 2022 compared to $151 or 0.1% of net sales in the second quarter of 2021. We continue to implement certain restructuring actions to improve our cost structure to remain competitive.
Operating earnings were $22,686 or 15.6% of net sales in the second quarter of 2022 compared to operating earnings of $20,579 or 15.9% of net sales in the second quarter of 2021. The change in operating earnings were primarily driven by the items discussed above.
27
Other income and expense items are summarized in the following table:
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| Three Months Ended |
| |||||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Interest expense |
| $ | (602 | ) |
| $ | (508 | ) |
Interest income |
|
| 263 |
|
|
| 257 |
|
Other expense, net |
|
| (5,425 | ) |
|
| (20,929 | ) |
Total other expense, net |
| $ | (5,764 | ) |
| $ | (21,180 | ) |
The reduction in other expense, net was primarily driven by decreased pension expense due to the U.S. pension plan termination, effective in 2021. Other expense, net for 2022 is primarily driven by $1,776 in derivative losses associated with the acquisition of Ferroperm as well as foreign currency losses primarily related to the Chinese Renminbi.
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| Three Months Ended |
| |||||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Effective tax rate |
|
| 25.6 | % |
|
| 245.6 | % |
Our effective income tax rate was 25.6% and 245.6% in the second quarters of 2022 and 2021, respectively. The decrease in effective income tax is primarily attributed to a one-time non-cash settlement expense related to lump sum payments for the CTS Corporation U.S. pension plan that occurred in the second quarter of 2021.
Results of Operations: Six Months ended June 30, 2022 versus Six Months Ended June 30, 2021
The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the six months ended June 30, 2022, and June 30, 2021:
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| Six Months Ended |
|
|
|
|
| Percent of |
|
| Percent of |
| ||||||||
|
| June 30, |
|
| June 30, |
|
| Percent |
|
| Net Sales – |
|
| Net Sales – |
| |||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
| |||||
Net sales |
| $ | 292,677 |
|
| $ | 258,012 |
|
|
| 13.4 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold |
|
| 186,489 |
|
|
| 167,725 |
|
|
| 11.2 |
|
|
| 63.7 |
|
|
| 65.0 |
|
Gross margin |
|
| 106,188 |
|
|
| 90,287 |
|
|
| 17.6 |
|
|
| 36.3 |
|
|
| 35.0 |
|
Selling, general and administrative expenses |
|
| 44,026 |
|
|
| 39,262 |
|
|
| 12.1 |
|
|
| 15.0 |
|
|
| 15.2 |
|
Research and development expenses |
|
| 12,488 |
|
|
| 11,716 |
|
|
| 6.6 |
|
|
| 4.3 |
|
|
| 4.5 |
|
Restructuring charges |
|
| 942 |
|
|
| 232 |
|
|
| 306.0 |
|
|
| 0.3 |
|
|
| 0.1 |
|
Total operating expenses |
|
| 57,456 |
|
|
| 51,210 |
|
|
| 12.2 |
|
|
| 19.6 |
|
|
| 19.8 |
|
Operating earnings |
|
| 48,732 |
|
|
| 39,077 |
|
|
| 24.7 |
|
|
| 16.7 |
|
|
| 15.1 |
|
Total other (expense), net |
|
| (6,064 | ) |
|
| (24,889 | ) |
|
| (75.6 | ) |
|
| (2.1 | ) |
|
| (9.6 | ) |
Earnings before income taxes |
|
| 42,668 |
|
|
| 14,188 |
|
|
| 200.7 |
|
|
| 14.6 |
|
|
| 5.5 |
|
Income tax expense |
|
| 9,831 |
|
|
| 1,323 |
|
|
| 643.1 |
|
|
| 3.4 |
|
|
| 0.5 |
|
Net earnings |
| $ | 32,837 |
|
| $ | 12,865 |
|
|
| 155.2 | % |
|
| 11.2 | % |
|
| 5.0 | % |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diluted net earnings per share |
| $ | 1.02 |
|
| $ | 0.39 |
|
|
|
|
|
|
|
|
|
|
Net sales were $292,677 in the six months ended June 30, 2022, an increase of $34,665 or 13.4% from the six months ended June 30, 2021. Net sales to non-transportation markets increased $28,251 or 25.5% while net sales to transportation markets increased $6,414 or 4.4%. The TEWA acquisition, which was completed in February 2022, added $5,504 in net sales for the year to date period. Changes in foreign exchange rates decreased net sales by $2,515 year-over-year primarily due to changesthe U.S. Dollar appreciating compared to the Euro.
Gross margin as a percent of net sales was 36.3% for the six months ended June 30, 2022 compared to 35.0% for the six months ended June 30, 2021. The increase in timinggross margin was driven primarily by sales volume and mix offset by increased material and freight costs. We continue to experience significant inflation in material and freight costs as well as interruptions in the supply chain particularly due
28
to the global semiconductor chip shortages impacting the operations of certain projects.our business. The impact of the supply chain shortages and OEM shutdowns are expected to continue to have an adverse effect on our operations that we are continuing to attempt to mitigate.
SG&A expenses were $44,026 or 15.0% of net sales for the six months ended June 30, 2022 versus $39,262 or 15.2% of net sales for the six months ended June 30, 2021. The increase in SG&A expenses was caused by expenses related to acquisition activity.
R&D expenses were $12,488 or 4.3% of net sales for the six months ended June 30, 2022 compared to $11,716 or 4.5% of net sales for the six months ended June 30, 2021. The increase in overall R&D expenses is in line with our commitment to continue investing in research and product development to drive organic growth.
Restructuring charges were $551$942 or 0.3% of net sales for the six months ended June 30, 2022 compared to $232 or 0.1% of net sales for the ninesix months ended SeptemberJune 30, 2021 compared2021. We continue to $1,416implement certain restructuring actions to improve our cost structure to remain competitive.
Operating earnings were $48,732 or 0.5%16.7% of net sales for the ninesix months ended SeptemberJune 30, 2020. Expenses were higher in the prior year due2022 compared to the initiationoperating earnings of a restructuring plan in the third quarter of 2020.
Operating earnings were $58,043$39,077 or 15.3%15.1% of net sales for the ninesix months ended SeptemberJune 30, 2021 compared to operating earnings of $27,993 or 9.3% of net sales for the nine months ended September 30, 2020.2021. The change in operating earnings were primarily driven by the items discussed above.
Other expenseincome and incomeexpense items are summarized in the following table:
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| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Interest expense |
| $ | (1,577 | ) |
| $ | (2,617 | ) |
| $ | (1,148 | ) |
| $ | (1,063 | ) |
Interest income |
|
| 689 |
|
|
| 852 |
|
|
| 443 |
|
|
| 459 |
|
Other expense, net |
|
| (132,786 | ) |
|
| (109 | ) |
|
| (5,359 | ) |
|
| (24,285 | ) |
Total other expense, net |
| $ | (133,674 | ) |
| $ | (1,874 | ) |
| $ | (6,064 | ) |
| $ | (24,889 | ) |
OtherThe reduction in other expense, net in the first nine months of 2021 was primarily driven by increaseddecreased pension expense including $126,269 in settlement charges from ourdue to the U.S. pension plan termination, processeffective in 2021. Other expense, net for 2022 is primarily driven by $1,776 in derivative losses associated with the second and third quartersacquisition of 2021.Ferroperm as well as foreign currency losses primarily related to the Chinese Renminbi.
|
| Nine Months Ended |
| |||||
|
| September 30, |
|
| September 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Effective tax rate |
|
| 32.5 | % |
|
| 24.4 | % |
|
| Six Months Ended |
| |||||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Effective tax rate |
|
| 23.0 | % |
|
| 9.3 | % |
Our effective income tax rate was 32.5%23.0% and 24.4% in9.3% for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively. ThisThe increase is primarily attributableattributed to a one-time non-cash settlement expense related to lump sum payments made for the change in the mix of earnings by jurisdiction as well as $126,269 in settlement charges from ourCTS Corporation U.S. pension plan termination processthat occurred in the second and third quarters ofQ2 2021.
Liquidity and Capital Resources
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 (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 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.
Cash and cash equivalents were $128,527$98,739 at SeptemberJune 30, 2021,2022, and $91,773$141,465 at December 31, 2020,2021, of which $123,430$86,968 and $90,051,$124,635, respectively, were held outside the United States. The increase in cash and cash equivalents of $36,754 was primarily driven by cash generated from operating activities of $60,117, which was partially offset by net payments on long-term debt of $4,600, capital expenditures of $8,140, dividends paid of $3,882, taxes paid on behalf of equity award participants of $1,490, payments of contingent consideration of $500, and payments for acquisitions of $255. Total long-term debt was $50,000$91,027 as of SeptemberJune 30, 20212022 and $54,600$50,000 as of December 31, 2020.2021. Total debt as a percentage of total capitalization, defined as long-term debt as a percentage of total debt and shareholders' equity, was 9.9%15.8% at SeptemberJune 30, 2021,2022, compared to 11.4%9.7% at December 31, 2020.2021.
Working capital increased by $44,078 during the nine months ended September 30, 2021, primarily due to the increase in cash and cash equivalents from strong operating cash flows.
29
Cash Flow Overview
Cash Flows from Operating Activities
Net cash provided by operating activities was $60,117$35,352 during the ninesix months ended SeptemberJune 30, 2021.2022. Components of net cash provided by operating activities included net lossearnings of ($51,031),$32,837, depreciation and amortization expense of $20,231, non-cash pension and other post-retirement plan expenses of $131,290, and $13,765, other net non-cash items of ($30,068),$6,126, and a net cash outflow from changes in assets and liabilities of $10,305.$17,376.
Cash Flows from Investing Activities
Net cash used in investing activities for the ninesix months ended SeptemberJune 30, 20212022 was $8,395,$(103,519), driven primarily by the acquisition payments for the TEWA and Ferroperm acquisitions of $96,528 and capital expenditures.expenditures of $6,991. See Note 3 "Business Acquisitions" in the Notes to the Condensed Consolidated Financial Statements.
Cash Flows from Financing Activities
Net cash used inprovided by financing activities for the ninesix months ended SeptemberJune 30, 20212022 was $15,411. $24,392. The net cash outflowinflow was the result of a decrease in borrowingstreasury stock purchases of long-term debt of $4,600, $11,668, dividends paid of $3,882,$2,576, taxes paid on behalf of equity award participants in the amount of $1,490, repurchase of treasury stock of $4,939,$1,491, and contingent consideration payments of contingent consideration of $500.$900.
Capital Resources
Revolving Credit Facility
Long‑term debt is comprised of the following:
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Total credit facility |
| $ | 300,000 |
|
| $ | 300,000 |
|
| $ | 400,000 |
|
| $ | 400,000 |
|
Balance outstanding |
|
| 50,000 |
|
|
| 54,600 |
|
|
| 91,027 |
|
|
| 50,000 |
|
Standby letters of credit |
|
| 1,740 |
|
|
| 1,740 |
|
|
| 1,640 |
|
|
| 1,740 |
|
Amount available, subject to covenant restrictions |
| $ | 248,260 |
|
| $ | 243,660 |
|
| $ | 307,333 |
|
| $ | 348,260 |
|
Weighted-average interest rate |
|
| 1.18 | % |
|
| 1.92 | % | ||||||||
Commitment fee percentage per annum |
|
| 0.20 | % |
|
| 0.23 | % |
OurOn December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Agreement provides for a revolvingFacility”) to (i) increase the total credit facility of $300,000,availability to $400,000, which may be increased by $150,000$200,000 at the request of the Company, subject to the administrative agent's approval.
We have entered intoapproval, (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 rate swap agreements to fix interest rates on $50,000 of long-term debt through February 2024. The difference to be paid or receivedthe loans under the termsRevolving 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.
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 swap agreements is recognized as an adjustmentRevolving Credit Facility. The commitment fee ranges from 0.175% to interest expense when settled.0.25% based on our net leverage ratio. We were in compliance with all debt covenants at June 30, 2022.
We have historically
30
Acquisitions
On February 28, 2022, we acquired TEWA, a designer and manufacturer of high-quality temperature sensors. The net cash payment of $24,484 for this acquisition was funded our capitalby the Company's cash on hand.
On June 30, 2022, we acquired Ferroperm, a designer and operating needs primarily throughmanufacturer of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications. The net cash flows from operating activities, supportedpayment of $72,044 for this acquisition was funded by available credit under our revolving credit facility. We believe thata combination of cash flows from operating activitieson hand and available borrowings under our revolving credit facility will be adequate to fund our working capital needs, capital expenditures, debt service and dividend requirements for at least the next twelve months. However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions.Revolving Credit Facility.
Critical Accounting Policies and Estimates
ManagementThe Company’s Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of the condensed consolidated financial statements, the Company uses estimates and makes judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates, and judgments are based on historical experience, current trends, and other factors the Company believes are relevant at the time it prepares the Condensed Consolidated Financial Statements under accounting principles generally accepted in the United States of America. These principles require the use of estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions we used are reasonable, based upon the information available.
Our estimates and assumptions affect the reported amounts in our financial statements. The following accounting policies comprise those that we believe are the most critical in understanding and evaluating our reported financial results.
Revenue Recognition
Product revenue is recognized when the transfer of promised goods to a customer occurs in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods. We follow the five-step model to determine when this transfer has occurred: 1) identify the contract(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation.
Product Warranties
Provisions for estimated warranty expenses primarily related to our automotive products are made at the time products are sold. These estimates are established using a quoted industry rate. 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 0.5% to 2.7% of total sales. We believe our reserve level is appropriate considering all facts and circumstances surrounding any outstanding quality claims and our historical experience selling our products to our customers.
Accounts Receivable
We have standardized credit granting and review policies and procedures for all customer accounts, including:
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We reserve for estimated credit losses based on historical experience, specific customer collection issues, current conditions and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual terms of our receivables and other financial assets. Over the last three years, accounts receivable reserves have been approximately 0.1% to 1.8% of total accounts receivable. We believe our reserve level is appropriate considering the quality of the portfolio. While credit losses have historically been within expectations of the reserves established, we cannot guarantee that our credit loss experience will continue to be consistent with historical experience or our current forecasts.
Inventories
We value our inventories at the lower of the actual cost to purchase or manufacture using the first-in, first-out ("FIFO") method, or net realizable value. We review inventory quantities on hand and record a provision for excess and obsolete inventory based on historical usage, forecasts of product demand and related production requirements.
Over the last three years, our reserves for excess and obsolete inventories have ranged from 10.2% to 16.0% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the inventories.
Retirement Plans
Actuarial assumptions are used in determining pension income and expense and our defined benefit obligations. We utilize actuaries from consulting companies in each applicable country to develop our discount rates, matching high-quality bonds currently available and expected to be available during the period to maturity of the pension benefit in order to provide the necessary future cash flows to pay the accumulated benefits when due. After considering the recommendations of our actuaries, we have assumed a discount rate, expected rate of return on plan assets, and a rate of compensation increase in determining our annual pension income and expense and
the projected benefit obligation. During the fourth quarter of each year, we review our actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted. Changes in the actuarial assumptions could have a material effect on our results of operations.Statements.
In February 2020, the CTS 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 determination 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 of receiving a lump sum payment to eligible participants with vested qualified Plan benefits in lieu of receiving monthly annuity payments. Approximately 365 participants elected to receive the settlement, and lump sum payments of approximately $35,594 were made from Plan assets to these participants in June 2021.
As required under U.S. GAAP, the Company recognizes a settlement gain 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 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 non-operating settlement charge of $20,063 related to pension losses, reclassified from accumulated other comprehensive loss to other (income) expense in the Company's Condensed Consolidated Statements of (Loss) Earnings.
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 pension losses of $106,206 that were previously recorded in accumulated other comprehensive loss to the Condensed Consolidated Statements of (Loss) Earnings.
The Plan assets of $50,638 as of September 30, 2021, will remain in the Plan until final administrative tasks are completed. This process is expected to be completed in the first quarter of 2022, whereby the Plan assets will liquidate and revert to CTS. At that time the funds will be subject to income and excise taxes. We continue to evaluate potential plans to optimize tax implications as well as the use of the surplus cash.
Impairment of Goodwill
Goodwill of a reporting unit is tested for impairment annually, 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:
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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 "step zero" test) to determine whether further quantitative analysis for impairment of goodwill and indefinite-lived intangible assets is necessary. The qualitative assessment includes a review 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 totality of events or circumstances we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, we do not need to perform a quantitative analysis.
If a quantitative assessment is required, we estimate the 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 evaluate our results against our market capitalization. Changes in these estimates and assumptions could materially affect the determination of fair value and impact the goodwill impairment assessment.
Our latest assessment was performed using a quantitative approach as of October 1, 2020, and we determined that it was likely that the fair values of our reporting units were more than their carrying amounts, and therefore no impairment charges were recorded. We will monitor future results and will perform a test if indicators trigger an impairment review.
Impairment of Other Intangible and 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:
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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 during the quarter ended September 30, 2021.
Environmental and Legal Contingencies
U.S. GAAP requires a liability to be recorded for contingencies when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence and amounts of our environmental, legal and other contingent liabilities. We regularly consult with attorneys and consultants to determine the relevant facts and circumstances before we record a liability. Changes in laws, regulatory orders, cost estimates, participation of other parties, timing of payments, input of attorneys and consultants, or other circumstances may have a material impact on the recorded liability.
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 judgmentscritical accounting policies and estimates are required in the determination of 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 those discussed in Note 1, Summary of Significant Accounting Policies, to the plansConsolidated Financial Statements and estimates we are using to manage our underlying businesses.
The calculationthe MD&A section of our tax liabilities involves dealing with uncertaintiesthe Company’s Annual Report on Form 10-K for the year ended December 31, 2021. During and as of the three and six months ended June 30, 2022, there were no significant changes in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Accounting Standards Codification (“ASC”) No. 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 appealscritical accounting policies 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.estimates.
Our practice is to recognize interest and penalties related to income tax matters as part of income tax expense.
Following the enactment of the 2017 Tax Cut and Jobs Act and the associated one-time transition tax, in general, repatriation of foreign earnings to the U.S. can be completed with no incremental U.S. tax. However, there are limited other taxes that continue to apply such as foreign withholding and certain state taxes. The Company records a deferred liability for the estimated foreign earnings and state tax cost associated with the undistributed foreign earnings that are not permanently reinvested.
Significant Customers
Our net sales to customers representing at least 10% of total net sales is as follows:
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| Nine months ended |
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| Three months ended |
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| Six months ended |
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| September 30, |
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| September 30, |
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| September 30, |
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| September 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Cummins Inc. |
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| 14.3 | % |
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| 11.8 | % |
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| 14.8 | % |
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| 12.8 | % |
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| 15.9 | % |
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| 14.3 | % |
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| 15.9 | % |
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| 15.0 | % |
Toyota Motor Corporation |
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| 10.0 | % |
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| 14.4 | % |
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| 12.3 | % |
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| 12.7 | % |
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| 11.3 | % |
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| 13.3 | % |
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| 11.4 | % |
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| 13.3 | % |
Forward‑No other customer accounted for 10% or more of total net sales during these periods. We continue to focus on broadening our customer base to diversify our non-transportation end market exposure.
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: the ultimate impact of the COVID-19 pandemic on ourCTS’ business, results of operations or financial condition, including, without limitation, supply chain disruptions;condition; changes in the economy generally, including 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, telecommunications, and information technology industries, as well as conditions in the industrial, aerospace and 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 the conflict between Russia and Ukraine
31
may have on our business, results of operations and financial condition). Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of ourCTS’ 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussionSee Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition” hereof.
There have been no other material changes in our market risk from the disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. During the three months ended June 30, 2022, there have been no material changes in our exposure to market risk.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation 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 Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that 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 Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, 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 the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CTS have been detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting for the quarter ended SeptemberJune 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From 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 on presently available information. However, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition, or cash flows.
See Note 11 "Commitments and Contingencies" in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no significant changes to our risk factors from those contained in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
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Item 2. Unregistered Sales of Equity
On May 13, 2021, the Board of Directors authorized a stock repurchase program with a maximum dollar limit of $50 million. This program authorizes us to make repurchases of our common stock from time to time on the open market, but does not obligate us to make repurchases, and it has no expiration date. The authorization of the stock repurchase program replaced the stock repurchase program authorized by the Board of Directors on February 7, 2019.
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| Total Number |
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| Maximum Dollar |
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|
|
|
|
|
|
|
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| of Shares |
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| Value of Shares |
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|
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| Purchased as |
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| That May Yet By |
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| Total Number |
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| Part of Publicly |
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| Purchased Under |
| |||
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| of Shares |
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| Average Price |
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| Announced |
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| Publicly Announced |
| ||||
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| Purchased |
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| Paid per Share |
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| Programs |
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| Plans or Programs |
| ||||
July 1, 2021 through July 31, 2021 |
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| 37,400 |
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| $ | 34.23 |
|
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| 37,400 |
|
| $ | 48,720 |
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August 1, 2021 through August 31, 2021 |
|
| 34,669 |
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| $ | 34.81 |
|
|
| 34,669 |
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| $ | 47,513 |
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September 1, 2021 through September 30, 2021 |
|
| 75,966 |
|
| $ | 32.28 |
|
|
| 75,966 |
|
| $ | 45,061 |
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Total |
|
| 148,035 |
|
| $ | 33.36 |
|
|
| 148,035 |
|
|
|
|
|
|
|
|
|
|
|
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| Total Number |
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| Maximum Dollar |
| ||||
|
|
|
|
|
|
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| of Shares |
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| Value of Shares |
| ||||
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|
|
|
|
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| Purchased as |
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| That May Yet Be |
| ||||
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| Total Number |
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|
|
|
| Part of Publicly |
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| Purchased Under |
| ||||
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| of Shares |
|
| Average Price |
|
| Announced |
|
| Publicly Announced |
| ||||
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| Purchased |
|
| Paid per Share |
|
| Programs |
|
| Plans or Programs |
| ||||
April 1, 2022 through April 30, 2022 |
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| 50,796 |
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| $ | 34.38 |
|
|
| 50,796 |
|
| $ | 35,548 |
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May 1, 2022 through May 31, 2022 |
|
| 75,425 |
|
| $ | 37.02 |
|
|
| 75,425 |
|
| $ | 32,756 |
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June 1, 2022 through June 30, 2022 |
|
| 90,031 |
|
| $ | 35.65 |
|
|
| 90,031 |
|
| $ | 29,546 |
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Total |
|
| 216,252 |
|
|
|
|
|
| 216,252 |
|
|
|
|
34
Item 6. Exhibits
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(31)(a) | Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002. |
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(31)(b) | Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002. |
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(32)(a) | |
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(32)(b) | |
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101.1 | The following information from CTS Corporation’s Quarterly Report on Form 10-Q for the quarter ended |
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104 | The cover page from this Current Report on Form 10-Q formatted as inline XBRL |
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35
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 |
| CTS Corporation |
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|
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/s/ Thomas M. White |
| /s/ Ashish Agrawal |
Thomas M. White |
| Ashish Agrawal |
Corporate Controller (Principal Accounting Officer) |
| Vice President and Chief Financial Officer (Principal Financial Officer) |
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Dated: |
| Dated: |
3936