x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Indiana
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35-0225010
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification Number)
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905
West Boulevard North, Elkhart, IN
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46514
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(Address
of principal executive offices)
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(Zip
Code)
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Page
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FINANCIAL
INFORMATION
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Item
1.
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3
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||
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-
For the
Three Months ended April 1, 2007 and April 2, 2006
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4
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-
As of
April 1, 2007, and December 31, 2006
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5
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-
For the Three Months Ended April 1, 2007 and April 2, 2006
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6
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-
For the Three Months Ended April 1, 2007 and April 2,
2006
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7
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Item
2.
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17
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Item
3.
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24
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Item
4.
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24
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OTHER
INFORMATION
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Item
1.
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26
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Item
1A.
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26
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Item
6.
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26
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27
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Three
Months Ended
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|||||||
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April
1, 2007
|
April
2, 2006
|
||||||
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|
|
||||||
Net
sales
|
$ |
163,258
|
$ |
150,493
|
||||
Costs
and expenses:
|
||||||||
Cost
of goods sold
|
132,920
|
120,452
|
||||||
Selling,
general, and administrative expenses
|
21,241
|
16,886
|
||||||
Research
and development expenses
|
4,120
|
4,092
|
||||||
Loss/(gain)
on sales of assets
|
29
|
(496 | ) | |||||
Restructuring
charge
|
—
|
1,962
|
||||||
Operating
earnings
|
4,948
|
7,597
|
||||||
Other
(expense) income:
|
||||||||
Interest
expense
|
(691 | ) | (1,111 | ) | ||||
Interest
income
|
479
|
125
|
||||||
Other
|
386
|
3
|
||||||
Total
other expense
|
174
|
(983 | ) | |||||
Earnings before
income taxes
|
5,122
|
6,614
|
||||||
Income
tax expense - Note J
|
1,076
|
1,574
|
||||||
Net
earnings
|
$ |
4,046
|
$ |
5,040
|
||||
|
||||||||
Net
earnings per share - Note H
|
||||||||
Basic
|
$ |
0.11
|
$ |
0.14
|
||||
|
||||||||
Diluted
|
$ |
0.11
|
$ |
0.13
|
||||
|
||||||||
Cash
dividends declared per share
|
$ |
0.03
|
$ |
0.03
|
||||
|
||||||||
Average
common shares outstanding:
|
||||||||
Basic
|
35,824
|
35,821
|
||||||
Diluted
|
40,410
|
40,234
|
|
|
April
1,
2007
|
|
|
December
31, 2006*
|
|
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ASSETS
|
|
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|
|
|
|
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Current
Assets
|
|
|
|
|
|
|
||
Cash
and cash equivalents
|
|
$
|
36,364
|
|
|
$
|
38,630
|
|
Accounts
receivable, less allowances (2007 - $2,182; 2006 - $2,139)
|
|
|
101,671
|
|
|
|
106,012
|
|
Inventories,
net - Note C
|
|
|
71,763
|
|
|
|
60,543
|
|
Other
current assets
|
|
|
23,495
|
|
|
|
22,435
|
|
Total
current assets
|
|
|
233,293
|
|
|
|
227,620
|
|
Property,
plant and equipment, less accumulated depreciation (2007 -
$263,577; 2006 - $259,548)
|
|
|
94,082
|
|
|
|
96,468
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Prepaid
pension asset - Note E
|
|
|
102,899
|
|
|
|
100,666
|
|
Goodwill
|
|
|
24,657
|
|
|
|
24,657
|
|
Other
intangible assets
|
|
|
38,359
|
|
|
|
39,154
|
|
Deferred
income taxes – Note J
|
|
|
33,298
|
|
|
|
37,401
|
|
Other
|
|
|
1,858
|
|
|
|
1,867
|
|
Total
other assets
|
|
|
201,071
|
|
|
|
203,745
|
|
Total
Assets
|
|
$
|
528,446
|
|
|
$
|
527,833
|
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
||
Current
Liabilities
|
|
|
|
|
|
|
||
Notes
payable
|
|
$
|
3,513
|
|
|
$
|
5,425
|
|
Current
portion of long-term debt – Note D
|
|
|
—
|
|
|
|
186
|
|
Accounts
payable
|
|
|
76,168
|
|
|
|
78,205
|
|
Accrued
liabilities
|
|
|
42,501
|
|
|
|
41,865
|
|
Total
current liabilities
|
|
|
122,182
|
|
|
|
125,681
|
|
Long-term
debt - Note D
|
|
|
60,000
|
|
|
|
60,635
|
|
Other
long-term obligations
|
|
|
22,668
|
|
|
|
22,494
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock - authorized 25,000,000 shares without par value; none
issued
|
|
|
—
|
|
|
|
—
|
|
Common
stock - authorized 75,000,000 shares without par value; 53,766,073
shares
issued at
April 1, 2007 and 53,718,801 shares issued at
December 31,
2006
|
|
|
277,123
|
|
|
|
276,553
|
|
Additional
contributed capital
|
|
|
28,304
|
|
|
|
27,899
|
|
Retained
earnings
|
|
|
318,340
|
|
|
|
315,370
|
|
Accumulated
other comprehensive loss
|
|
|
(30,622
|
)
|
|
|
(31,283
|
)
|
|
|
593,145
|
|
|
|
588,539
|
|
|
Cost
of common stock held in treasury (2007 - 17,897,708 shares
and 2006 - 17,717,657 shares)
|
|
|
(269,549
|
)
|
|
|
(269,516
|
)
|
Total
shareholders’ equity
|
|
|
323,596
|
|
|
|
319,023
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
528,446
|
|
|
$
|
527,833
|
|
*The
balance sheet at December 31, 2006, has been derived from the audited
financial statements at that date.
See
notes to condensed consolidated financial statements.
|
|
|
|
|
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|
|
Three
Months Ended
|
|
|||||
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
||
Cash
flows from operating activities:
|
|
|
|
|
|
|
||
Net
earnings
|
|
$
|
4,046
|
|
|
$
|
5,040
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,772
|
|
|
|
6,687
|
|
Equity-based
compensation – Note B
|
|
|
1,094
|
|
|
|
865
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,341
|
|
|
|
(3,216
|
)
|
Inventories
|
|
|
(11,220
|
)
|
|
|
(366
|
)
|
Other
current assets
|
|
|
(980
|
)
|
|
|
(2,906
|
)
|
Prepaid
pension asset
|
|
|
(2,233
|
)
|
|
|
(1,197
|
)
|
Accounts
payable and accrued liabilities
|
|
|
2,642
|
|
|
|
(1,825
|
)
|
Other
|
|
|
656
|
|
|
|
(453
|
)
|
Total
adjustments
|
|
|
72
|
|
|
|
(2,411
|
)
|
Net
cash provided by operating activities
|
|
|
4,118
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(2,687
|
)
|
|
|
(2,479
|
)
|
Proceeds
from sales of assets
|
|
|
36
|
|
|
|
513
|
|
Net
cash used in investing activities
|
|
|
(2,651
|
)
|
|
|
(1,966
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
||
Payments
of long-term debt
|
|
|
(857
|
)
|
|
|
(34,165
|
)
|
Proceeds
from borrowings of long-term debt
|
|
|
—
|
|
|
|
34,040
|
|
Increase
(decrease) in short-term notes payable
|
|
|
(1,912
|
)
|
|
|
825
|
|
Dividends
paid
|
|
|
(1,076
|
)
|
|
|
(1,076
|
)
|
Other
|
|
|
36
|
|
|
|
39
|
|
Net
cash used in financing activities
|
|
|
(3,809
|
)
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
76
|
|
|
|
282
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(2,266
|
)
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
38,630
|
|
|
|
12,029
|
|
Cash
and cash equivalents at end of period
|
|
$
|
36,364
|
|
|
$
|
12,637
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
228
|
|
|
$
|
559
|
|
Income
taxes—net
|
|
$
|
162
|
|
|
$
|
1,360
|
|
|
|
Three
Months Ended
|
|
|||||
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
||
Net
earnings
|
|
$
|
4,046
|
|
|
$
|
5,040
|
|
Other
comprehensive earnings:
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
|
|
1
|
|
|
|
535
|
|
Amortization of
retirement benefit adjustments (net of tax)
|
|
|
660
|
|
|
|
—
|
|
Comprehensive
earnings
|
|
$
|
4,707
|
|
|
$
|
5,575
|
|
($
in thousands)
|
April
1, 2007
|
April
2, 2006
|
||||||
Stock
options (1)
|
$ |
178
|
$ |
223
|
||||
Restricted
stock units
|
875
|
581
|
||||||
Restricted
stock
|
41
|
61
|
||||||
Total
|
$ |
1,094
|
$ |
865
|
(1)
|
Stock
option expense includes $5 and $14 in the quarters ending April
1, 2007
and April 2, 2006, respectively, related to non-employee director
stock
options.
|
2004
Plan
|
2001
Plan
|
1996
Plan
|
||||||||||
Awards
originally available
|
6,500,000
|
2,000,000
|
1,200,000
|
|||||||||
Stock
options outstanding
|
323,300
|
879,388
|
296,550
|
|||||||||
Restricted
stock units outstanding
|
574,961
|
—
|
—
|
|||||||||
Awards
exercisable
|
122,188
|
818,188
|
283,950
|
|||||||||
Awards
available for grant
|
5,426,447
|
—
|
—
|
|
April
1, 2007
|
April
2, 2006
|
||||||||||||||
|
Options
|
Weighted-Average
Exercise
Price
|
Options
|
Weighted-Average
Exercise
Price
|
||||||||||||
Outstanding
at beginning of year
|
1,526,863
|
$ |
15.88
|
1,567,499
|
$ |
15.93
|
||||||||||
Granted
|
—
|
—
|
—
|
—
|
||||||||||||
Exercised
|
(9,150 | ) |
8.59
|
(16,000 | ) |
8.54
|
||||||||||
Expired
|
(7,625 | ) |
37.32
|
(20,475 | ) |
26.93
|
||||||||||
Forfeited
|
(10,850 | ) |
11.66
|
(7,050 | ) |
9.31
|
||||||||||
Outstanding
at end of period
|
1,499,238
|
$ |
15.85
|
1,523,974
|
$ |
15.89
|
||||||||||
Exercisable
at end of period
|
1,187,488
|
$ |
16.96
|
1,061,481
|
$ |
18.38
|
|
Weighted-average
Remaining
Contractual Life
|
Aggregate
Intrinsic
Value
|
|||
Options
outstanding
|
5.5
years
|
$ |
3,776
|
||
Options
exercisable
|
4.9
years
|
3,082
|
|
April
1, 2007
|
April
2, 2006
|
||||||||||||||
|
Options
|
Weighted-average
Grant-Date
Fair
Value
|
Options
|
Weighted-average
Grant-Date
Fair
Value
|
||||||||||||
Nonvested
at beginning of year
|
340,900
|
$ |
6.11
|
488,943
|
$ |
6.94
|
||||||||||
Granted
|
—
|
—
|
—
|
—
|
||||||||||||
Vested
|
(18,300 | ) |
4.96
|
(19,400 | ) |
4.62
|
||||||||||
Forfeited
|
(10,850 | ) |
6.95
|
(7,050 | ) |
4.64
|
||||||||||
Nonvested
at end of period (1)
|
311,750
|
$ |
6.15
|
462,493
|
$ |
7.06
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||||
Weighted-
|
||||||||||||||||||||||
Average
|
Weighted-
|
Weighted-
|
||||||||||||||||||||
Range
of
|
Number
|
Remaining
|
Average
|
Number
|
Average
|
|||||||||||||||||
Exercise
|
Outstanding
|
Contractual
of
|
Exercise
|
Exercisable
|
Exercise
|
|||||||||||||||||
Prices
|
at
4/1/07
|
Life
(Years)
|
Price
|
At
4/1/07
|
Price
|
|||||||||||||||||
$ |
7.70
– 11.11
|
849,513
|
6.4
|
$ |
9.39
|
632,863
|
$ |
8.95
|
||||||||||||||
13.68
– 16.24
|
234,300
|
6.6
|
14.11
|
139,200
|
14.36
|
|||||||||||||||||
23.00
– 33.63
|
314,175
|
3.8
|
24.53
|
314,175
|
24.53
|
|||||||||||||||||
35.97
– 50.00
|
100,750
|
3.5
|
46.94
|
100,750
|
46.94
|
|||||||||||||||||
56.94
– 79.25
|
500
|
2.7
|
79.25
|
500
|
79.25
|
|
April
1, 2007
|
April
2, 2006
|
||||||||||||||
|
RSUs
|
Weighted-average
Grant-Date
Fair
Value
|
RSUs
|
Weighted-average
Grant-Date
Fair
Value
|
||||||||||||
Outstanding
at beginning of year
|
658,138
|
12.21
|
525,898
|
$ |
11.49
|
|||||||||||
Granted
|
1,500
|
15.65
|
20,000
|
12.26
|
||||||||||||
Converted
|
(56,377 | ) |
13.48
|
(12,310 | ) |
12.27
|
||||||||||
Forfeited
|
(28,300 | ) |
12.25
|
(13,460 | ) |
11.25
|
||||||||||
Outstanding
at end of period
|
574,961
|
12.35
|
520,128
|
$ |
11.51
|
|||||||||||
Weighted-average
remaining contractual
life
|
4.3
years
|
4.9
years
|
($
in thousands)
|
April
1,
2007
|
December
31, 2006
|
||||||
Finished
goods
|
$ |
14,871
|
$ |
12,336
|
||||
Work-in-process
|
16,767
|
15,059
|
||||||
Raw
materials
|
40,125
|
33,148
|
||||||
Total
inventories
|
$ |
71,763
|
$ |
60,543
|
($
in thousands)
|
April
1,
2007
|
December
31, 2006
|
||||||
Revolving
credit agreement due in 2011
|
$ |
—
|
$ |
—
|
||||
Convertible,
senior subordinated debentures at a weighted-average interest rate
of
2.125%,
due in 2024
|
60,000
|
60,000
|
||||||
Term
loan, weighted-average interest rate of 8.0% (2007) and 7.3% (2006),
due
in 2011
|
—
|
821
|
||||||
60,000
|
60,821
|
|||||||
Less
current maturities
|
—
|
186
|
||||||
Total
long-term debt
|
$ |
60,000
|
$ |
60,635
|
|
Pension
Plans
|
Other
Postretirement
Benefit
Plans
|
||||||||||||||
($
in thousands)
|
April
1, 2007
|
April
2, 2006
|
April
1, 2007
|
April
2, 2006
|
||||||||||||
Service
cost
|
$ |
1,211
|
$ |
1,276
|
$ |
6
|
$ |
4
|
||||||||
Interest
cost
|
2,996
|
3,012
|
83
|
75
|
||||||||||||
Expected
return on plan assets 1
|
(6,338 | ) | (6,175 | ) |
—
|
—
|
||||||||||
Amortization
of prior service cost
|
225
|
134
|
—
|
—
|
||||||||||||
Amortization
of gain/loss
|
839
|
644
|
—
|
—
|
||||||||||||
Curtailment
loss
|
—
|
325
|
—
|
(81 | ) | |||||||||||
(Income)/expense,
net
|
$ | (1,067 | ) | $ | (784 | ) | $ |
89
|
$ | (2 | ) |
($
in thousands)
|
EMS
|
Components
and Sensors
|
Total
|
|||||||||
First
Quarter of 2007
|
|
|
|
|||||||||
Net
sales to external customers
|
$ |
93,726
|
$ |
69,532
|
$ |
163,258
|
||||||
Segment
operating earnings
|
3
|
4,945
|
4,948
|
|||||||||
Total
assets
|
170,179
|
358,267
|
528,446
|
|||||||||
|
||||||||||||
First
Quarter of 2006
|
||||||||||||
Net
sales to external customers
|
$ |
82,865
|
$ |
67,628
|
$ |
150,493
|
||||||
Segment
operating earnings
|
(781 | ) |
10,499
|
9,718
|
||||||||
Total
assets
|
154,041
|
384,227
|
538,268
|
($
in thousands)
|
First
Quarter
2007
|
First
Quarter
2006
|
||||||
Total
segment operating earnings
|
$ |
4,948
|
$ |
9,718
|
||||
Restructuring
and related charges - Components and Sensors
|
—
|
(2,121 | ) | |||||
Interest
expense
|
(691 | ) | (1,111 | ) | ||||
Interest
income
|
479
|
125
|
||||||
Other
income
|
386
|
3
|
||||||
Earnings
before income taxes
|
$ |
5,122
|
$ |
6,614
|
($
in thousands, except per share amounts)
|
Net
Earnings (Numerator)
|
Shares
(in
thousands) (Denominator)
|
Per
Share Amount
|
|||||||||
First
Quarter 2007
|
|
|
|
|||||||||
Basic
EPS
|
$ |
4,046
|
35,824
|
$
|
0.11
|
|||||||
Effect
of dilutive securities:
|
||||||||||||
Convertible
debt
|
251
|
4,000
|
||||||||||
Equity-based
compensation plans
|
—
|
586
|
||||||||||
Diluted
EPS
|
$ |
4,297
|
40,410
|
0.11
|
||||||||
|
||||||||||||
First
Quarter 2006
|
||||||||||||
Basic
EPS
|
$ |
5,040
|
35,821
|
$ |
0.14
|
|||||||
Effect
of dilutive securities:
|
||||||||||||
Convertible
debt
|
241
|
4,000
|
||||||||||
Equity-based
compensation plans
|
413
|
|||||||||||
Diluted
EPS
|
$ |
5,281
|
40,234
|
$ |
0.13
|
|
Three
Months Ended
|
|||||||
(Number
of shares in thousands)
|
April
1, 2007
|
April
2, 2006
|
||||||
Stock
options where the assumed proceeds exceed the average market price
of
common shares during the period
|
550
|
834
|
||||||
Securities
related to the 6.5% convertible debentures
|
—
|
274
|
·
|
Sales
increased by $12.8 million, or 8.5%, in the first quarter of 2007
from the
first quarter of 2006. Sales in the EMS segment increased by
13.1% compared to the first quarter of 2006, while sales in the
Components
and Sensors segment increased by 2.8% versus the first quarter
of
2006.
|
·
|
Gross
margins, as a percent of sales, were 18.6% and 20.0% in the first
quarter
of 2007 and 2006, respectively. Gross margins decreased due to
an unfavorable change in the segment sales mix versus the first
quarter of 2006 as the EMS segment, which inherently generates
a lower
gross margin, increased to 57.4% of total sales in first quarter
of 2007
compared to 55.1% of total sales in the same period of 2006. In
addition, higher sales of lower margin products in the Components
and
Sensor Segment affected the gross margins adversely. Royalty income
was also lower year-over-year.
|
·
|
Selling,
general and administrative, and research and development expenses
were
15.5% of total sales in the first quarter of 2007 compared to 13.9%
of
total sales in the first quarter of 2006. Growth in the percent
of sales is primarily related to two factors. First quarter
2007 included approximately $1.3 million of legal and accounting
fees
associated with the recent accounting investigation (refer to Note
B,
“Restatement of the Consolidated Financial Statements” in CTS’ Annual
Report on Form 10-K filed May 15, 2007), while first quarter 2006
included
approximately $1.5 million for a favorable insurance claim settlement,
which had the effect of reducing general and administrative
expenses.
|
·
|
Income
taxes for the first quarter of 2007 were calculated using an estimated
full-year rate of 21.0% compared to 23.8% for the first quarter
of 2006
and an actual effective rate of 21.1% for the full year
2006.
|
·
|
Net
earnings were $4.0 million, or $0.11 per diluted share, in the
first
quarter of 2007 compared with $5.0 million, or $0.13 per diluted
share, in
the first quarter of 2006.
|
·
|
First
quarter 2007 earnings per diluted share were adversely impacted
by
approximately $0.02 per share of legal and accounting fees associated
with
the recent accounting investigation. First quarter 2006 diluted
earnings per share were $0.13, including restructuring and related
costs
of $0.04 per share for the consolidation of the Berne, Indiana
operation. First quarter 2006 results benefited from a $0.03
per share favorable insurance claim settlement and approximately
$0.02 per
share from higher royalty income.
|
§
|
Estimating
inventory valuation, the allowance for the doubtful accounts, and
other
accrued liabilities
|
§
|
Valuation
of long-lived and intangible assets, and depreciation/amortization
periods
|
§
|
Income
taxes
|
§
|
Retirement
plans
|
§
|
Equity-based
compensation
|
($
in thousands)
|
Components
& Sensors
|
EMS
|
Consolidated
Total
|
|||||||||
First
Quarter 2007
|
|
|
|
|||||||||
Sales
|
$ |
69,532
|
$ |
93,726
|
$ |
163,258
|
||||||
Segment
operating earnings
|
4,945
|
3
|
4,948
|
|||||||||
%
of sales
|
7.1 | % | 0.0 | % | 3.0 | % | ||||||
|
||||||||||||
First
Quarter 2006
|
||||||||||||
Sales
|
$ |
67,628
|
$ |
82,865
|
$ |
150,493
|
||||||
Segment
operating earnings
|
10,499
|
(781 | ) |
9,718
|
||||||||
%
of sales
|
15.5 | % | (0.9 | )% | 6.5 | % |
|
|
Three
months ended
|
|
|
|
|
||||||
($
in thousands, except net earnings per share)
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
|
Increase
(Decrease)
|
|
|||
Net
sales
|
|
$
|
163,258
|
|
|
$
|
150,493
|
|
|
$
|
12,765
|
|
Restructuring-related
costs
|
|
|
-
|
|
|
|
159
|
|
|
|
(159
|
)
|
%
of net sales
|
|
|
-
|
%
|
|
|
0.1
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
30,338
|
|
|
|
30,041
|
|
|
|
297
|
|
%
of net sales
|
|
|
18.6
|
%
|
|
|
20.0
|
%
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
21,240
|
|
|
|
16,886
|
|
|
|
4,354
|
|
%
of net sales
|
|
|
13.0
|
%
|
|
|
10.9
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
4,120
|
|
|
|
4,092
|
|
|
|
28
|
|
%
of net sales
|
|
|
2.5
|
%
|
|
|
2.7
|
%
|
|
|
(0.2
|
)%
|
(Gain)/Loss
on asset sales
|
29
|
(496)
|
525
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charge
|
|
|
-
|
|
|
|
1,962
|
|
|
|
(1,962
|
)
|
%
of net sales
|
|
|
-
|
%
|
|
|
1.3
|
%
|
|
|
(1.3
|
)%
|
Operating
earnings
|
|
|
4,948
|
|
|
|
7,597
|
|
|
|
(2,649
|
)
|
%
of net sales
|
|
|
3.0
|
%
|
|
|
5.0
|
%
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
1,076
|
|
|
|
1,574
|
|
|
|
(498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
4,046
|
|
|
|
5,040
|
|
|
|
(994
|
)
|
%
of net sales
|
|
|
2.5
|
%
|
|
|
3.3
|
%
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share - diluted
|
|
$
|
0.11
|
|
|
|
0.13
|
|
|
$
|
(0.02
|
)
|
·
|
Inventory
increased by $11.2 million in part attributable to a planned build-ahead
for a certain customer program. This customer had prepaid $7.0
million, which is held in a customer deposit account, and has been
used to
offset approximately $4.5 million of inventory
costs.
|
·
|
Accounts
payable decreased by $2.0 million.
|
Working
capital increases were partially offset
by:
|
·
|
Accounts
receivable decreased by $4.3
million.
|
·
|
Accrued
liabilities increased by $0.6
million.
|
|
Three
Months Ended
|
|||||||
($
in millions)
|
April
1, 2007
|
April
2, 2006
|
||||||
Net
cash provided by operations
|
$ |
4.1
|
$ |
2.6
|
||||
Capital
expenditures
|
(2.7 | ) | (2.5 | ) | ||||
Free
cash flow
|
$ |
1.4
|
$ |
0.1
|
|
Item
4.
|
·
|
Monitoring
and accountability over the operating effectiveness of controls
including
effective operation of designed controls over reconciliations,
journal
entry approval and oversight.
|
·
|
Ability
to set-up fictitious vendors and ability to make payments to vendors
without appropriate support and
approval.
|
·
|
Lack
of effectiveness of the internal audit function to obtain an understanding
of process and controls at the Moorpark and Santa Clara, California
locations.
|
·
|
Increased
review and approval of all manual journal entries by the entity
controllers.
|
·
|
Increased
review and approval of all account reconciliation activities by
the entity
controllers.
|
·
|
Added
a senior Corporate accountant to provide additional review and
oversight
of all key accounting processes globally, including manual journal
entries
and key account reconciliations.
|
·
|
Increased
internal audit resources and revised internal audit programs to
increase
the scope and frequency of audits.
|
·
|
Standardized
and strengthened the account reconciliation process at both Moorpark
and
Santa Clara.
|
·
|
Completed
a review of all Moorpark and Santa Clara
vendors.
|
·
|
Removed
the controllers’ ability to set-up vendors and make payments through the
financial information system.
|
·
|
Further
enhance the Moorpark and Santa Clara reporting system documentation
and
user training.
|
·
|
Continue
to strengthen operating policies, including policies around pricing
adjustments, customer returns and vendor disputes at all CTS
locations.
|
·
|
Institute
additional operational monitoring reports to review and track early
warning signs e.g. short payments, premium freight and customer
rejects at
all CTS locations.
|
·
|
Further
enhance and document CTS’ annual vendor certification process at all CTS
locations.
|
·
|
Standardize
and strengthen the account reconciliation process at all CTS
locations.
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
CTS Corporation | CTS Corporation | |||
/s/
Richard
G. Cutter III
|
/s/
Vinod
M.
Khilnani
|
|||
Richard
G.
Cutter III
|
Vinod
M.
Khilnani
|
|||
Vice
President, Secretary and General Counsel
|
Senior
Vice President and Chief Financial Officer
|
|||
Dated: May 31, 2007 | Dated: May 31, 2007 |