Company Quick10K Filing
CTS
Price32.39 EPS1
Shares33 P/E25
MCap1,074 P/FCF26
Net Debt-101 EBIT57
TEV973 TEV/EBIT17
TTM 2019-09-30, in MM, except price, ratios
10-K 2020-12-31 Filed 2021-02-25
10-Q 2020-09-30 Filed 2020-10-29
10-Q 2020-06-30 Filed 2020-07-31
10-Q 2020-03-31 Filed 2020-04-24
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-10-24
10-Q 2019-06-30 Filed 2019-07-25
10-Q 2019-03-31 Filed 2019-04-25
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-04-26
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-10-28
10-Q 2016-06-30 Filed 2016-07-29
10-Q 2016-03-31 Filed 2016-05-03
10-K 2015-12-31 Filed 2016-02-24
10-Q 2015-09-27 Filed 2015-10-27
10-Q 2015-06-28 Filed 2015-07-28
10-Q 2015-03-29 Filed 2015-04-28
10-K 2014-12-31 Filed 2015-02-24
10-Q 2014-09-28 Filed 2014-10-28
10-Q 2014-06-29 Filed 2014-07-29
10-Q 2014-03-30 Filed 2014-04-29
10-K 2013-12-31 Filed 2014-03-03
10-Q 2013-09-29 Filed 2013-10-29
10-Q 2013-06-30 Filed 2013-07-25
10-Q 2013-03-31 Filed 2013-04-25
10-K 2012-12-31 Filed 2013-02-25
10-Q 2012-09-30 Filed 2012-10-24
10-Q 2012-07-01 Filed 2012-07-24
10-Q 2012-04-01 Filed 2012-04-25
10-K 2011-12-31 Filed 2012-02-24
10-Q 2011-10-02 Filed 2011-10-26
10-Q 2011-07-03 Filed 2011-07-26
10-Q 2011-04-03 Filed 2011-04-27
10-K 2010-12-31 Filed 2011-02-24
10-Q 2010-10-03 Filed 2010-10-27
10-Q 2010-07-04 Filed 2010-07-27
10-Q 2010-04-04 Filed 2010-04-28
10-K 2009-12-31 Filed 2010-02-23
8-K 2021-02-11 Other Events, Exhibits
8-K 2021-02-09 Earnings, Exhibits
8-K 2021-02-09 Regulation FD, Exhibits
8-K 2020-12-15 Exhibits
8-K 2020-10-29
8-K 2020-10-29
8-K 2020-07-31
8-K 2020-07-31
8-K 2020-07-02
8-K 2020-05-15
8-K 2020-05-01
8-K 2020-04-24
8-K 2020-04-23
8-K 2020-04-01
8-K 2020-03-05
8-K 2020-02-04
8-K 2020-02-04
8-K 2019-11-08
8-K 2019-10-25
8-K 2019-10-24
8-K 2019-08-01
8-K 2019-07-31
8-K 2019-07-25
8-K 2019-07-25
8-K 2019-05-17
8-K 2019-05-02
8-K 2019-04-30
8-K 2019-04-29
8-K 2019-04-25
8-K 2019-02-14
8-K 2019-02-08
8-K 2019-02-05
8-K 2019-02-05
8-K 2018-12-28
8-K 2018-10-25
8-K 2018-10-25
8-K 2018-07-27
8-K 2018-07-26
8-K 2018-05-22
8-K 2018-05-18
8-K 2018-05-18
8-K 2018-04-27
8-K 2018-04-26
8-K 2018-04-04
8-K 2018-02-07
8-K 2018-02-06
8-K 2018-01-16

CTS 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1 - Summary of Significant Accounting Policies
Note 2 - Revenue Recognition
Note 3 - Business Acquisitions
Note 4 - Accounts Receivable, Net
Note 5 - Inventories, Net
Note 6 - Property, Plant and Equipment, Net
Note 7 - Retirement Plans
Note 8 - Goodwill and Other Intangible Assets
Note 9 - Costs Associated with Exit and Restructuring Activities
Note 10 - Accrued Expenses and Other Liabilities
Note 11 - Contingencies
Note 12 - Leases
Note 13 - Debt
Note 14 - Derivative Financial Instruments
Note 15 - Accumulated Other Comprehensive (Loss) Income
Note 16 - Shareholders' Equity
Note 17 - Stock - Based Compensation
Note 18 - Fair Value Measurements
Note 19 - Income Taxes
Note 20 - Geographic Data
Note 21 - Quarterly Financial Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statements Schedules
EX-21 cts-ex21_76.htm
EX-23 cts-ex23_135.htm
EX-31.A cts-ex31a_56.htm
EX-31.B cts-ex31b_55.htm
EX-32.A cts-ex32a_54.htm
EX-32.B cts-ex32b_53.htm

CTS Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
0.70.60.40.30.10.02012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For The Fiscal Year Ended December 31, 2020

OR

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

For the transition period from to

Commission File Number: 1-4639

CTS CORPORATION

(Exact name of registrant as specified in its charter)

 

Indiana

 

35-0225010

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification Number)

 

 

 

4925 Indiana Avenue Lisle IL

 

60532

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: 630-577-8800

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common stock, without par value

 

CTS

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes       No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    Yes     No

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

Non-accelerated filer

Smaller reporting company

Emerging growth market

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.  

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes   ☒ No

The aggregate market value of the voting and non-voting stock held by non-affiliates of CTS Corporation, based upon the closing sales price of CTS common stock on June 30, 2020, was approximately $637,000,000. There were 32,348,383 shares of common stock, without par value, outstanding on February 19, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

(1)

Portions of the Proxy Statement to be filed for the annual meeting of shareholders to be held on or about May 13, 2021 are incorporated by reference in Part III.

 

CTS CORPORATION 1


TABLE OF CONTENTS

 

ITEM

 

 

PAGE

PART I

1.

 

Business

4

1A.

 

Risk Factors

8

1B.

 

Unresolved Staff Comments

14

2.

 

Properties

15

3.

 

Legal Proceedings

15

4.

 

Mine Safety Disclosures

15

PART II

5.

 

Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

16

6.

 

Selected Financial Data

17

7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

24

8.

 

Financial Statements and Supplementary Data

26

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

65

9A.

 

Controls and Procedures

65

9B.

 

Other Information

67

PART III

10.

 

Directors, Executive Officers and Corporate Governance

67

11.

 

Executive Compensation

67

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

67

13.

 

Certain Relationships and Related Transactions, and Director Independence

67

14.

 

Principal Accountant Fees and Services

68

PART IV

15.

 

Exhibits and Financial Statements Schedules

69

 

 

SIGNATURES

71

 

CTS CORPORATION 2


Table of Contents

 

Safe Harbor

Forward-Looking Statements

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management'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 our 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: changes in the economy generally and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition our 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 our intellectual property; pricing pressures and demand for our products; and risks associated with our international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks. Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of this Annual Report on Form 10-K. We undertake no obligation to publicly update our forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

CTS CORPORATION 3


PART I

Item 1.  Business

CTS Corporation ("CTS", "we", "our", "us" or the "Company") is a global manufacturer of sensors, connectivity components, and actuators. CTS was established in 1896 as a provider of high-quality telephone products and was incorporated as an Indiana corporation in February 1929. Our principal executive offices are located in Lisle, Illinois.

We design, manufacture, and sell a broad line of sensors, connectivity components, and actuators primarily to original equipment manufacturers ("OEMs") and tier one suppliers for the aerospace and defense, industrial, information technology, medical, telecommunications, and transportation markets. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products, technologies, and talent within these categories.

We operate manufacturing facilities in North America, Asia, and Europe. Sales and marketing are accomplished through our sales engineers, independent manufacturers' representatives, and distributors.

See the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Annual Report on Form 10-K for financial information regarding the Company.

PRODUCTS BY MAJOR MARKETS

Our products perform specific electronic functions for a given product family and are intended for use in customer assemblies. Our major products consist principally of sensors and actuators used in passenger or commercial vehicles, connectivity components used in telecommunications infrastructure, information technology and other high-speed applications, switches, temperature sensors, and potentiometers supplied to multiple markets, and fabricated piezoelectric materials and substrates used primarily in medical, industrial, aerospace and defense, and information technology markets.

The following table identifies major products by industry. Products are sold to several industry OEMs, tier one suppliers, and distributors.

Product Description

 

Transportation

 

Industrial

 

Medical

 

Aerospace

and

Defense

 

Telecom

and

IT

SENSE

 

 

 

 

 

 

(Controls, Pedals, Piezo Sensing Products, Sensors,

   Switches, Transducers)

 

 

 

 

 

 

 

 

 

 

CONNECT

 

 

 

 

 

 

(EMI/RFI Filters, Capacitors, Frequency Control, Resistors,

   RF filters)

 

 

 

 

 

 

 

 

 

 

MOVE

 

 

 

 

 

 

 

(Piezo Microactuators, Rotary Actuators)

 

 

 

 

 

 

 

 

 

 

 

 

The following table provides a breakdown of net sales by industry as a percent of consolidated net sales:

 

 

 

2020

 

 

2019

 

 

2018

 

Industry

 

 

 

 

 

 

 

 

 

 

 

 

Transportation

 

57%

 

 

64%

 

 

64%

 

Industrial

 

22%

 

 

17%

 

 

18%

 

Medical

 

9%

 

 

9%

 

 

9%

 

Aerospace and Defense

 

9%

 

 

7%

 

 

5%

 

Telecommunications and IT

 

3%

 

 

3%

 

 

4%

 

% of consolidated net sales

 

100%

 

 

100%

 

 

100%

 

 

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MARKETING AND DISTRIBUTION

Sales and marketing to customers is accomplished through our sales engineers, independent manufacturers' representatives, and distributors. We maintain sales offices in China, Czech Republic, Denmark, Germany, Japan, Singapore, Taiwan, and the United States. Approximately 88% of 2020 net sales were attributable to our sales engineers.

Our sales engineers generally service our largest customers with application-specific products. The sales engineers work closely with major customers in designing and developing products to meet specific customer requirements.

We utilize the services of independent manufacturers' representatives for customers not serviced directly by our sales engineers. Independent manufacturers' representatives receive commissions from us. During 2020, approximately 6% of net sales were attributable to independent manufacturers' representatives.  We also use independent distributors. Independent distributors purchase products from us for resale to customers. In 2020, independent distributors accounted for approximately 6% of net sales.

RAW MATERIALS

We utilize a wide variety of raw materials and purchased parts in our manufacturing processes. The following are the most significant raw materials and purchased components:

Conductive inks and contactors, passive connectivity components, integrated circuits and semiconductors, certain rare earth elements ("REEs"), ceramic powders, plastic components, molding compounds, printed circuit boards and assemblies, quartz blanks and crystals, wire harness assemblies, copper, brass, silver, gold, platinum, lead, aluminum, and steel-based raw materials and components.

These raw materials and parts are purchased from a number of suppliers, and we generally do not believe we are dependent upon one or a limited number of suppliers. Although we purchase all of our semiconductors, REEs, conductive inks, and silver pastes from a limited number of suppliers, alternative sources are generally available.

Lead times between the placement of orders for certain raw materials and purchased parts and actual delivery to us may vary. Occasionally, we may need to order raw materials in greater quantities and at higher prices to compensate for the variability of lead times for delivery. The price and availability of raw materials and manufactured components is subject to change due to, among other things, new laws and regulations, global economic and political events including strikes, and public health and safety concerns.

The continued uncertainties due to the COVID-19 pandemic may adversely affect our ability to source materials.

PATENTS, TRADEMARKS, AND LICENSES

We maintain a program of obtaining and protecting U.S. and non-U.S. patents relating to products that we have designed and manufactured, as well as processes and equipment used in our manufacturing technology. We were issued 7 new U.S. patents and 12 non-U.S. patents in 2020 and currently hold 134 U.S. patents and 129 non-U.S. patents. We have 10 registered U.S. trademarks, 24 registered foreign trademarks and 4 international trademark registrations. We have licensed the right to use several of our patents. In 2020, license and royalty income was less than 1% of net sales.

MAJOR CUSTOMERS

Sales to our 15 largest customers as a percentage of total net sales were as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Total of 15 largest customers / net sales

 

59.4%

 

 

61.9%

 

 

63.7%

 

 

Our net sales to significant customers as a percentage of total net sales were as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Toyota Motor Corporation

 

13.4%

 

 

11.6%

 

 

10.5%

 

Cummins Inc.

 

13.1%

 

 

16.1%

 

 

15.2%

 

Honda Motor Co.

 

8.0%

 

 

9.6%

 

 

10.5%

 

 

We sell parts to these three transportation customers for certain vehicle platforms under purchase agreements that have program lifetime volume estimates and are subject to purchase orders issued from time to time.

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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 end market exposure.

Changes in the level of our customers' orders have, in the past, had a significant impact on our operating results. If a major customer reduces the amount of business it transacts with us, or substantially changes the terms of that business, there could be an adverse impact on our operating results.

ORDER BACKLOG

Order backlog is comprised of firm open purchase orders we have received from our customers and generally represents 1 to 2 months of sales for certain products. Our business is a mix of purchase order-based business, shorter-term contracts, and multi-year awards, such as with customers who serve the automotive end market. As such, order backlog does not provide a meaningful indication of future sales.

COMPETITION

We compete with domestic and foreign manufacturers principally based on product features, technology, price, quality, reliability, delivery, and service. Most of our product lines encounter significant global competition. The number of competitors varies from product line to product line. No one competitor competes with us in every product line, but some competitors are larger and more diversified than we are.

Some customers have reduced or plan to reduce their number of suppliers, while increasing their volume of purchases. Customers demand lower cost and higher quality, reliability, and delivery standards from us as well as from our competitors. These trends create opportunities for us, but also increase the risk of loss of business to competitors. We are subject to competitive risks that are typical in our end markets, including technical obsolescence.

We believe we compete most successfully in custom engineered products manufactured to meet specific applications of major OEMs.

NON-U.S. REVENUES AND OPERATIONS

Our net sales to customers originating from our non-U.S. operations as a percentage of total net sales were as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net sales from non-U.S. operations

 

43%

 

 

40%

 

 

33%

 

 

We believe the business risks to our non-U.S. operations, though substantial, are normal risks for global businesses. These risks include currency controls and changes in currency exchange rates, longer collection cycles, political and transportation risks, economic downturns and inflation, government regulations, and expropriation. Our non-U.S. manufacturing facilities are located in China, Czech Republic, Denmark, Mexico, Philippines, and Taiwan. Additional information regarding the Company’s sales by geographic area and long-lived tangible assets in different geographic areas is included in Note 20 - Geographic Data.

 

 

 

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HUMAN CAPITAL RESOURCES

We employed 3,786 people at December 31, 2020, with 87% of these employees located outside the U.S. We employed 3,570 people at December 31, 2019 with 84% of these employees located outside the U.S.

We are committed to building a diverse, inclusive and engaged workforce. Our management teams and all of our employees are expected to exhibit the principles of fairness, honesty and integrity in the actions we undertake. Our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination or unethical actions.

We have a global talent review and succession planning process designed to align our talent plans with the current and future strategies of the business. This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent acquisition and development.

We strive to align compensation with the external market and maintain equity within the organization. In addition, we offer a broad range of company-paid benefits, which we believe are competitive in our industry.

The safety of our employees is a priority and vital to our success. Our employees are regularly trained on safety-related topics and we monitor and measure our effectiveness at all of our locations.

During fiscal 2020, in response to the COVID-19 pandemic, we took action to protect our employees’ safety and health, including equipping employees with personal protective equipment, establishing minimum staffing and social distancing policies,  sanitizing workspaces more frequently, adopting alternate work schedules including encouraging remote work arrangements, and instituting other measures aimed at minimizing the transmission of COVID-19 while sustaining production and related services. In addition, we modified the way we conduct many aspects of our business to reduce the number of in-person interactions. For example, we significantly expanded the use of virtual interactions in many aspects of our business, including customer facing activities.

EXECUTIVE OFFICERS OF THE COMPANY

Executive Officers.    The following serve as executive officers of CTS as of December 31, 2020. The executive officers are expected to serve until the next annual shareholders meeting, scheduled to be held on or about May 13, 2021, at which time the election of officers will be considered again by the Board of Directors.

 

Name

 

Age

 

Positions and Offices

Kieran O'Sullivan

 

58

 

President, Chief Executive Officer and Chairman of the Board

Ashish Agrawal

 

50

 

Vice President and Chief Financial Officer

 

Kieran O'Sullivan - 58 - President, Chief Executive Officer and Chairman of the Board. Mr. O'Sullivan joined CTS on January 7, 2013. Before joining CTS, Mr. O'Sullivan served as Executive Vice President of Continental AG's Global Infotainment and Connectivity Business and led the NAFTA Interior Division, having joined Continental AG, a global automotive supplier, in 2006. Mr. O'Sullivan is a member of the board of directors, the audit committee, and risk committee and the corporate governance and nominating committee of LCI Industries, a supplier of engineered components for manufacturers of recreational vehicles, manufactured homes, marine applications, and for the related aftermarkets.

Ashish Agrawal - 50 - Vice President and Chief Financial Officer. On November 11, 2013, Mr. Agrawal was elected Vice President and Chief Financial Officer for CTS. Mr. Agrawal joined CTS in June 2011 as Vice President, Treasury and Corporate Development, and was elected as Treasurer on September 1, 2011. Before joining CTS, Mr. Agrawal was with Dometic Group AB, a manufacturer of refrigerators, awnings and air conditioners, as Senior Vice President and Chief Financial Officer, Americas, since 2007. Prior to that, Mr. Agrawal was with General Electric Co. in various positions since December 1994.

Information with respect to Directors and Corporate Governance may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders. Such information is incorporated herein by reference.

ADDITIONAL INFORMATION

We are incorporated in the State of Indiana. Our principal corporate office is located at 4925 Indiana Avenue Lisle, IL 60532.

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Our internet address is www.ctscorp.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC"). Other than the documents that we file with the SEC that are incorporated by reference herein, the information contained on or accessible through our website is not part of this or any other report we file or furnish to the SEC.

Investors and others should note that we announce material financial information to our investors using the Investors section of our website (ctscorp.com/investors), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media and blogs to communicate with our investors and the public about our company, our services and other issues. It is possible that the information we post on social media and blogs could be deemed to be material information.

Item 1A.  Risk Factors

 

The following are certain risk factors that could affect our business, financial condition and operating results. These risk factors should be considered in connection with evaluating forward-looking statements contained in this Annual Report on Form 10-K or in any other reports filed or furnished by us, because these factors could cause our actual results and financial condition to differ materially from those projected in any such forward-looking statements. Before you invest in us, you should know that making such an investment involves risks, including the risks described below. The risks that are highlighted below are not the only ones that we face. If any of the following risks occur, our business, financial condition and operating results could be negatively affected.

 

Risks Related to Our Business and Industry

 

Because we currently derive a substantial portion of our revenues from a small number of customers, any decrease in orders from these customers could have an adverse effect on our business, financial condition and operating results.

 

We depend on a small number of customers for a substantial portion of our business, and changes in the level of our customers' orders have, in the past, had a significant impact on our results of operations. If a major customer significantly delays, reduces, or cancels the level of business it does with us, there could be an adverse effect on our business, financial condition and operating results. Significant pricing and margin pressures exerted by a major customer could also materially adversely affect our operating results. In addition, we generate significant accounts receivable from sales to our major customers. If one or more of our major customers were to become insolvent or otherwise unable to pay or were to delay payment for our products, our business, financial condition and operating results could be materially adversely affected.

 

Our customers may cancel their orders, change production quantities or locations or delay production.

 

We generally receive volume estimates, but not firm volume commitments from our customers, and may experience reduced or extended lead times in customer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons. Uncertain economic and geopolitical conditions may result in some of our customers delaying the delivery of some of the products we manufacture for them and placing purchase orders for lower volumes of products than previously anticipated. Cancellations, reductions or delays by a significant customer or by a number of customers may harm our results of operations by reducing the volumes of products we manufacture and sell, as well as by causing a delay in the recovery of our expenditures for inventory in preparation for customer orders, or by reducing our asset utilization, resulting in lower profitability.

 

In addition, customers may request that manufacturing of their products be transitioned from one of our facilities to another to achieve cost reductions and other objectives. Such transfers may result in inefficiencies and costs due to resulting excess capacity and overhead at one facility and capacity constraints and the inability to fulfill all orders at another. In addition, we make key decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements. Changes in demand for our customers’ products may reduce our ability to estimate future customer requirements accurately. This may make it difficult to schedule production and maximize utilization of our manufacturing capacity. Anticipated orders may not materialize and delivery schedules may be deferred as a result of changes in demand for our products or our customers' products. We often increase staffing and capacity, and incur other expenses to meet the anticipated demand of our customers, which causes reductions in our gross margins if customer orders are delayed or canceled. On occasion, customers may require rapid increases in production, which may stress our resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers' demands. In addition, because many of our costs and operating expenses are relatively fixed over the short-term, a reduction in customer demand could harm our gross margin and operating income until such time as adjustments can be made to activity and operating levels or to structural costs.

 

We sell products to customers in cyclical industries that are subject to significant downturns that could materially adversely affect our business, financial condition and operating results.

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We sell products to customers in cyclical industries that have experienced economic and industry downturns. The markets for our products have softened in the past and may again soften in the future. We may face reduced end-customer demand, underutilization of our manufacturing capacity, changes in our revenue mix and other factors that could adversely affect our results.

 

We are susceptible to trends and factors affecting industries that we serve.

 

Factors negatively affecting the industries we serve and the demand for their products could negatively affect our business, financial condition and operating results. Any adverse occurrence, including among others, industry slowdown, recession, public health crisis, political instability, costly or constraining regulations, increased tariffs, reduced government budgets and spending, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers' production schedules or labor disturbances, that results in a decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results. These industries may be unionized and some of our customers have experienced labor disruptions in the past. Furthermore, these industries can be highly cyclical in nature and sensitive to changes in general economic conditions, consumer preferences and interest rates. The failure of manufacturers that we serve may result in the failure to receive payment in full for products sold in the past and an abrupt cancellation in demand for certain products. Weakness in demand, the insolvency of manufacturers that we serve or their suppliers, and constriction of credit markets may negatively and materially affect our facility utilization, cost structure, financial condition, and operating results.

 

Our operating results may vary significantly from period to period.

 

We experience fluctuations in our operating results. Some of the principal factors that contribute to these fluctuations are: changes in demand for our products; our effectiveness in managing manufacturing processes, costs and timing of our component purchases so that components are available when needed for production, while mitigating the risks of purchasing inventory in excess of immediate production needs; the degree to which we are able to utilize our available manufacturing capacity; changes in the cost and availability of components, which often occur in the electronics manufacturing industry and which affect our margins and our ability to meet delivery schedules; general economic and served industry conditions; and local conditions and events that may affect our production volumes, such as labor conditions or political instability.

 

We may experience shortages and increased costs of raw material and required electronic components.

 

Unanticipated raw material or electronic component shortages may prevent us from making scheduled shipments to customers. Our inability to make scheduled shipments could cause us to experience a shortfall in revenue, increase our costs and adversely affect our relationship with affected customers and our reputation as a reliable supplier. We may be required to pay higher prices for raw materials or electronic components in short supply and order these raw materials or electronic components in greater quantities to compensate for variable delivery times. We may also be required to pay higher prices for raw materials or electronic components due to inflationary trends regardless of supply. We are also dependent on our suppliers' ability to supply and deliver raw materials on a timely basis at negotiated prices. Any delay or inability to deliver raw materials by our suppliers may require that we attempt to mitigate such failure or fail to make deliveries to our customers on a timely basis. As a result, raw material or electronic component shortages, price increases, or failure to perform by our suppliers could adversely affect our operating results for a particular period due to the resulting revenue shortfall and/or increased costs.

 

We may pursue acquisition opportunities that complement or expand our business as well as divestitures that could impact our business operations. We may not be able to complete these transactions, and these transactions, if executed, may pose risks that could materially adversely affect our business, financial condition and operating results.

 

On an ongoing basis we explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer us growth opportunities. We may have difficulty finding suitable opportunities or, if we do identify these opportunities, we may not be able to complete the transactions for any number of reasons including a failure to secure financing. In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of management's attention from our existing business to integrate the operations and personnel of the acquired or combined business; possible adverse effects on our operating results during the integration process; difficulties managing and integrating operations in geographically dispersed locations; increases in our expenses and working capital requirements, which could reduce our return on invested capital; exposure to unanticipated liabilities of acquired companies; and our possible inability to achieve the intended objectives of the transaction. Even if we are initially successful in integrating a new operation, we may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities or the incurrence of additional debt. These and other factors could harm our ability to achieve anticipated levels of profitability from acquired operations or realize other anticipated benefits of an acquisition and could adversely affect our business and operating results.

 

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We have in the past, and may in the future, consider divesting certain business operations. Divestitures may involve a number of risks, including the diversion of management's attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of operations in the affected business. Failure to timely complete or consummate a divestiture may negatively affect valuation of the affected business or result in restructuring charges.

 

We may restructure our operations or fail to execute capital projects as planned, which may materially adversely affect our business, financial condition and operating results.

 

We have announced and initiated restructuring plans or capital projects at various times in the recent past designed to revise and consolidate certain aspects of our operations for the purpose of improving our cost structure and operational efficiency. We may incur restructuring and impairment charges in the future if circumstances warrant. Additionally, if we are unsuccessful in implementing restructuring plans or in executing capital projects, we may experience disruptions in our operations and higher ongoing costs, which may materially adversely affect our business, financial condition and operating results.

 

We may be unable to compete effectively against competitors.

 

The industries in which we operate are highly competitive and characterized by price erosion and rapid technological change. We compete against many domestic and foreign companies, some of which have substantially greater manufacturing, financial, research and development, and marketing resources than we do. If any customer becomes dissatisfied with our prices, quality, or timeliness of delivery, among other things, it could award business to our competitors. Moreover, some of our customers could choose to manufacture and develop particular products themselves rather than purchase them from us. Increased competition could result in price reductions, reduced profit margins and loss of market share, each of which could materially adversely affect our business, financial condition and operating results. These developments also may materially adversely affect our ability to compete successfully going forward. We cannot assure you that our products will continue to compete successfully with our competitors' products.

 

We may be unable to keep pace with rapid technological changes that could make some of our products or processes obsolete before we realize a return on our investment.

 

The technologies relating to some of our products have undergone and are continuing to undergo changes. End markets for our products are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements, and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable before we can recover any or all of our research, development and commercialization expenses, or our capital investments. Furthermore, the life cycles of our products and the products we manufacture for others vary, may change, and are difficult to estimate.

 

We may experience difficulties that could delay or prevent the successful development, introduction and marketing of new products or product enhancements and our new products or product enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and operating results could be materially adversely affected.

 

Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.

 

Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to design or manufacturing errors, supplier quality issues, or component failure. Product defects could result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects could result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. As we grow our business in the transportation and medical device markets, the risk of exposure to product liability litigation increases. We may be required to participate in a recall involving products which are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability; however, costs related to product defects and the costs of such claims, including costs of defense and settlement, may exceed our available coverage. Accordingly, our results of operations, cash flow and financial position could be adversely affected.

 

We are subject to government regulations, including environmental, health, and safety laws and regulations, that expose us to potential financial liability.

 

Our operations are regulated by a number of federal, state, local and foreign government regulations, including those pertaining to environmental, health, and safety (“EHS”) that govern, among other things, air and water emissions, worker protection, and the handling, storage and disposal of hazardous materials. Compliance with EHS laws and regulations is a major consideration for us because we use hazardous materials in our manufacturing processes. If we violate EHS laws and regulations, we could be liable for

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substantial fines, penalties, and costs of mandated remedial actions. Our environmental permits could also be revoked or modified, which could require us to cease or limit production at one or more of our facilities, thereby materially adversely affecting our business, financial condition and operating results. EHS laws and regulations have generally become more stringent over time and could continue to do so, imposing greater compliance costs and increasing risks and penalties associated with any violation, which also could materially affect our business, financial condition and operating results.

 

We have been notified by the U.S. Environmental Protection Agency, state environmental agencies and, in some cases, groups of potentially responsible parties, that we are potentially liable for environmental contamination at several sites currently and formerly owned or operated by us, including sites designated as National Priorities List sites under the U.S. Environmental Protection Agency’s Superfund program. Superfund liability is joint and several and we may be held responsible for more than our share of contamination at a site. Although we estimate our potential environmental liability and reserve for such matters, we cannot assure you that our reserves will be sufficient to cover the actual costs that we incur as a result of these matters.

 

Future events, such as the notification of potential liability at new sites, the discovery of additional contamination or changes to an approved remedy at existing sites, changes to existing EHS laws and regulations or their interpretation, and more rigorous regulatory action by government authorities, may require additional expenditures by us, which could have a negative impact on our operations.

 

In addition, we could be affected by future laws or regulations imposed in response to climate change concerns. Such laws or regulations could have a material adverse effect on our business, financial condition, and results of operations. Climate change initiatives may result in significant operational changes and expenditures, reduce demand for our products and adversely affect our business. We recognize that climate change is a global environmental concern. Continuing political and social attention to the issue of climate change has resulted in both existing and pending international agreements and national, regional or local legislation and regulatory measures to limit greenhouse gas emissions. These agreements and measures may require equipment modifications, operational changes, taxes, or purchase of emission credits to reduce emission of greenhouse gases from our operations, which may result in substantial capital expenditures and compliance, operating, maintenance and remediation costs. Regulatory initiatives to reduce greenhouse gas usage may also adversely impact some of the industries we serve and our supply chain, adversely impacting our sales and the value of our business.

 

Regulations related to conflict minerals could adversely impact our business.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo ("DRC") and adjoining countries. As a result, the SEC adopted annual disclosure and reporting requirements for those companies who may use conflict minerals mined from the DRC and adjoining countries in their products. There have been and will continue to be costs associated with complying with these disclosure requirements, including diligence costs to determine the sources of minerals used in our products and other potential changes to products, processes or sources of supply to the extent necessary as a consequence of such verification activities. These rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering conflict-free minerals, we cannot be sure that we will be able to obtain necessary conflict-free minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain conflict minerals or if we are unable to sufficiently verify the origins for all minerals used in our products through the procedures we may implement.

 

Negative or unexpected tax consequences could adversely affect our results of operations.

 

We operate globally and changes in tax laws could adversely affect our results. The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures enacted by individual countries, such as the comprehensive tax reform enacted in the U.S. in 2017, which could significantly impact our effective tax rate, tax liabilities, and ability to utilize deferred tax assets.

 

Adverse changes in the underlying profitability and financial outlook of our operations in several jurisdictions could lead to changes in our valuation allowances against deferred tax assets and other tax accruals that could materially and adversely affect our results of operations. In addition, acquisitions or divestitures may cause our effective tax rate to change.

 

We base our tax positions upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax positions are subject to review and possible challenge by taxing authorities and to possible changes in law, which may have a retroactive effect.

 

Risks Related to Indebtedness and Financing

 

Our indebtedness may adversely affect our financial health.

 

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Our indebtedness could, among other things: increase our vulnerability to general economic and industry conditions, including recessions; require us to use cash flow from operations to service our indebtedness, thereby reducing our ability to fund working capital, capital expenditures, research and development efforts and other expenses; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; place us at a competitive disadvantage compared to competitors that have less indebtedness; or limit our ability to borrow additional funds that may be needed to operate and expand our business. Moreover, an increase in interest rates could increase our interest expense.

 

Our credit facility contains provisions that could materially restrict our business.

 

Our revolving credit facility contains restrictions limiting our ability to: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; repurchase stock; or make dividend payments above a certain amount.

 

The restrictions contained in our credit facility could limit our ability to plan for or react to changes in market conditions or meet capital needs or could otherwise restrict our activities or business plans. These restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, fund investments or other capital needs or engage in other business activities that could be in our interest.

 

Further, our ability to comply with our loan covenants may be affected by events beyond our control that could result in an event of default under our credit facility, or documents governing any other existing or future indebtedness. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under our credit facility. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us, or at all.

 

Losses in the financial markets could negatively impact pension asset returns and cash flow due to possible required contributions in the future.

 

We make a number of assumptions relating to our pension plans in order to measure the financial position of the plans and the net periodic benefit cost. The most significant assumptions relate to the discount rate and the expected long-term return on plan assets. If these assumptions prove to be significantly different from actual rates, then we may need to record additional expense relating to the pension plans, which could require cash contributions to fund future pension obligation payments and could have a material adverse effect on our financial condition and results of operations.

 

Risks Related to COVID-19 Pandemic and Other External Factors

 

Public health issues such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business or financial results.

 

The United States and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health. In connection with the outbreak of the global COVID-19 pandemic in 2020, the United States declared a national emergency in March 2020 and the World Health Organization, and the U.S. Centers for Disease Control and Prevention have recommended containment and mitigation measures. Numerous states and municipalities have also declared public health emergencies. Along with these declarations, extraordinary and wide-ranging actions have been taken by international, federal, state, and local public health and governmental authorities to mitigate the impact of COVID-19, including quarantines, stay-at-home orders and business closure mandates requiring that individuals substantially restrict daily activities and that businesses substantially modify, curtail or cease normal operations. Many of these measures are currently in place in many jurisdictions where we operate, and additional measures may be imposed by governmental authorities in the future. There is significant uncertainty regarding the extent to which and how long COVID-19 and related government directives, actions and economic relief efforts will disrupt the global economy and level of employment, capital markets, consumer confidence, and demand for our products. The extent to which COVID-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of COVID-19, the acceptance and effectiveness of vaccines, and the impact of COVID-19 and related containment and mitigation measures on our customers, trade partners and employees, all of which are highly uncertain, unpredictable and outside our control. If COVID-19 continues to have a significant negative impact on economic conditions over a prolonged period of time, the pandemic could have a material adverse effect on our financial condition and results of operations.

 

Natural disasters may adversely impact our capability to supply product to our customers.

 

Natural disasters, such as storms, flooding and associated power outages, occurring at any of our locations or supplier locations may lead to disruption of our manufacturing operations and supply chain, adversely impacting our capability to supply product to our

CTS CORPORATION 12


Table of Contents

 

customers. In the event of a natural disaster, it may not be possible for us to find an alternate manufacturing location for certain product lines, further impacting our capability to recover from such a disruption.

 

General Risk Factors

 

We face risks relating to our international operations.

 

Because we have significant international operations, our operating results and financial condition could be materially adversely affected by economic, political, health, regulatory and other factors existing in foreign countries in which we operate. Our international operations are subject to inherent risks, which may materially adversely affect us, including: political and economic instability in countries in which our products are manufactured; expropriation or the imposition of government controls; changes in government regulations; export license requirements; trade restrictions; earnings repatriation and expatriation restrictions; exposure to different legal standards, including related to intellectual property; health conditions and standards; currency controls; fluctuations in exchange rates; increases in the duties and taxes we pay; inflation or deflation; greater difficulty in collecting accounts receivable and longer payment cycles; changes in labor conditions and difficulties in staffing and managing our international operations; limitations on insurance coverage against geopolitical risks, natural disasters, and business operations; and communication among and management of international operations. In addition, these same factors may also place us at a competitive disadvantage compared to some of our foreign competitors.

 

We may face risks associated with violations of the Foreign Corrupt Practices Act ("FCPA") and similar anti-bribery laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our Code of Ethics mandates compliance with these anti-bribery laws. We operate in many parts of the world where strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures always will protect us from the detrimental actions by our employees or agents. If we are found to be liable for FCPA violations (either due to our own acts or inadvertence or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

 

Public health or safety concerns and governmental restrictions, including measures implemented in response to the global COVID-19 pandemic, that impact the availability of raw materials, labor, or the movement of goods in some of the countries in which we operate could have a material adverse effect on our business, financial condition and operating results.

 

We are exposed to fluctuations in foreign currency exchange rates that may adversely affect our business, financial condition and operating results.

 

We transact business in various foreign countries. We present our consolidated financial statements in U.S. dollars, but a portion of our revenues and expenditures are transacted in other currencies. As a result, we are exposed to fluctuations in foreign currencies. Additionally, we have currency exposure arising from funds held in local currencies in foreign countries. Volatility in the exchange rates between the foreign currencies and the U.S. dollar could harm our business, financial condition and operating results. Furthermore, to the extent we sell our products in foreign markets, currency fluctuations may result in our products becoming too expensive for foreign customers.

 

If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on others' intellectual property rights, our business, financial condition and operating results could be materially adversely affected.

 

The success of our business depends, in part, upon our ability to protect trade secrets, trademarks, copyrights and patents, obtain or license patents and operate without infringing on the intellectual property rights of others. We rely on a combination of trade secrets, copyrights, patents, nondisclosure agreements and technical measures to protect our proprietary rights in our products and technology. The steps we have taken to prevent misappropriation of our technology may be inadequate. In addition, the laws of some foreign countries in which we operate do not protect our proprietary rights to the same extent as do the laws of the United States. Although we continue to evaluate and implement protective measures, there can be no assurance that these efforts will be successful. Our inability to protect our intellectual property rights could diminish or eliminate the competitive advantages that we derive from our technology, cause us to lose sales or otherwise harm our business.

 

We believe that patents will continue to play an important role in our business. However, there can be no assurance that we will be successful in securing patents for claims in any pending patent application or that any issued patent will provide us with any competitive advantage. We also cannot provide assurance that the patents will not be challenged by third parties or that the patents of others will not materially adversely affect our ability to do business.

 

We may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringed on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our

CTS CORPORATION 13


intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay penalties and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.

 

Loss of our key management and other personnel, or an inability to attract key management and other personnel, could materially affect our business.

 

We depend on our senior executive officers and other key personnel to run our business. We do not have long-term employment contracts with our key personnel. The loss of any of these officers or other key personnel could adversely affect our operations. Competition for qualified employees among companies that rely heavily on engineering and technology is at times intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research and development activities and deliver marketable products successfully.

 

Ineffective internal control over our financial reporting may harm our business.

 

We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). Our controls necessary for continued compliance with Sarbanes-Oxley may not operate effectively or at all times and may result in a material weakness. The identification of material weaknesses in internal control over financial reporting could indicate a lack of proper controls to generate accurate financial statements. Further, the effectiveness of our internal controls may be impacted if we are unable to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.

 

We could face risks to our systems, networks and production including increased IT security threats and more sophisticated and targeted computer crime.

 

Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks by employing a number of measures - including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems - our systems, networks and products remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. Additionally, any updates to or implementation of systems, including the selection and implementation of an ERP system, may cause delays or disruptions in our processes or production which could adversely affect our results. The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements.  For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, and other similar U.S. federal and state and foreign laws and regulations in this area, impose significant new requirements and additional obligations for companies on how they collect, process and transfer personal data by enhancing consumer privacy rights and imposing significant fines for non-compliance.  The potential for fines and other related costs in the event of a breach of or non-compliance with the GDPR or other existing or proposed information security or privacy laws and requirements may have an adverse effect on our financial results.

Item 1B.  Unresolved Staff Comments

Not applicable.

CTS CORPORATION 14


Table of Contents

 

Item 2.  Properties

As of December 31, 2020, we had manufacturing facilities, administrative, research and development and sales offices in the following locations:

 

Manufacturing Facilities

 

Square

Footage

 

Owned/Leased

Albuquerque, New Mexico

 

114,525

 

Leased

Boise, Idaho

 

15,000

 

Leased

Calamba, Philippines

 

14,800

 

Leased

Fairfield, New Jersey

 

9,100

 

Leased

Haryana, India

 

19,400

 

Leased

Hopkinton, Massachusetts

 

32,000

 

Owned

Juarez, Mexico

 

114,600

 

Leased

Kaohsiung, Taiwan

 

75,900

 

Owned (1)

Kvistgaard, Denmark

 

30,680

 

Leased

Lisle, Illinois

 

31,000

 

Leased

Matamoros, Mexico

 

51,000

 

Owned

Tecate, Mexico

 

25,000

 

Leased

Tecate, Mexico

 

12,000

 

Owned

Nogales, Mexico

 

64,000

 

Leased

Nupaky, Czech Republic

 

55,919

 

Leased

Ostrava, Czech Republic

 

67,600

 

Leased

Tianjin, China

 

225,000

 

Owned (2)

Zhongshan, China

 

112,600

 

Leased

Total manufacturing

 

1,070,124

 

 

(1)

Ground lease through 2026; restrictions on use and transfer apply.

(2)

Land Use Rights Agreement through 2050 includes transfer, lease and mortgage rights.

 

Non-Manufacturing Facilities

 

Square

Footage

 

 

Owned/Leased

 

Description

Brownsville, Texas

 

N/A

 

 

Owned

 

Land

Brownsville, Texas

 

 

10,000

 

 

Leased

 

Warehouse

El Paso, Texas

 

 

22,400

 

 

Leased

 

Office and warehouse

Matamoros, Mexico

 

 

23,000

 

 

Leased

 

Warehouse and administrative offices

Tecate, Mexico

 

 

9,500

 

 

Owned

 

Warehouse

Elkhart, Indiana

 

 

319,000

 

 

Owned

 

Idle facility

Elkhart, Indiana

 

 

93,000

 

 

Owned

 

Administrative offices and research

Farmington Hills, Michigan

 

 

1,800

 

 

Leased

 

Sales office

Lisle, Illinois

 

 

74,925

 

 

Leased

 

Administrative offices and research

Nagoya, Japan

 

 

800

 

 

Leased

 

Sales office

Singapore

 

 

5,600

 

 

Leased

 

Sales office

Yokohama, Japan

 

 

1,400

 

 

Leased

 

Sales office

Total non-manufacturing

 

 

561,425

 

 

 

 

 

 

We regularly assess our facilities for manufacturing capacity, available labor, and proximity to our markets and major customers. Management believes our manufacturing facilities are suitable and adequate and have sufficient capacity to meet our current needs. The extent of utilization varies from plant to plant and with economic conditions. We also review the operating costs of our facilities and may from time-to-time relocate a portion of our manufacturing activities in order to reduce operating costs and improve asset utilization and cash flow.

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, we cannot provide 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 "Contingencies" in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Item 4.  Mine Safety Disclosures

Not applicable.

CTS CORPORATION 15


PART II

Item 5.  Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange under the symbol "CTS." On February 19, 2021, there were approximately 894 shareholders of record.

 

There were no repurchases of the Company's equity securities during the three months ended December 31, 2020. As of December 31, 2020, approximately $5.7 million remained available under the repurchase program. 

 

In February 2019, our Board of Directors authorized a new stock repurchase program with a maximum dollar limit of $25,000 in stock repurchases, which replaced the previous authorized plan that was approved by our Board of Directors in April 2015. The authorization has no expiration date. During the year ended December 31, 2020 we purchased 342,731 shares for approximately $8,080.

Shareholder Performance Graph

The following graph shows a five-year comparison of the cumulative total shareholder return on CTS common stock with the cumulative total returns of a general market index and a peer group index (S&P 500 and Dow Jones Electrical Components & Equipment Industry Group). The graph tracks the performance of a $100 investment in the Company's common stock and in each of the indexes (with the reinvestment of all dividends) on December 31, 2015.

 

 

CTS CORPORATION 16


Table of Contents

 

Item 6.  Selected Financial Data

Five-Year Summary

(Amounts in thousands, except percentages and per share amounts)

 

 

 

2020

 

 

% of

Sales

 

 

2019

 

 

% of

Sales

 

 

2018

 

 

% of

Sales

 

 

2017

 

 

% of

Sales

 

 

2016

 

 

% of

Sales

 

Summary of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

424,066

 

 

 

100.0

 

 

$

468,999

 

 

 

100.0

 

 

$

470,483

 

 

 

100.0

 

 

$

422,993

 

 

 

100.0

 

 

$

396,679

 

 

 

100.0

 

Cost of goods sold

 

 

285,003

 

 

 

67.2

 

 

 

311,424

 

 

 

66.4

 

 

 

305,510

 

 

 

64.9

 

 

 

282,562

 

 

 

66.8

 

 

 

256,251

 

 

 

64.6

 

Gross margin

 

 

139,063

 

 

 

32.8

 

 

 

157,575

 

 

 

33.6

 

 

 

164,973

 

 

 

35.1

 

 

 

140,431

 

 

 

33.2

 

 

 

140,428

 

 

 

35.4

 

Selling, general and administrative expenses

 

 

67,787

 

 

 

16.0

 

 

 

70,408

 

 

 

15.0

 

 

 

73,569

 

 

 

15.6

 

 

 

71,943

 

 

 

17.0

 

 

 

61,624

 

 

 

15.5

 

Research and development expenses

 

 

24,317

 

 

 

5.7

 

 

 

25,967

 

 

 

5.5

 

 

 

25,304

 

 

 

5.4

 

 

 

25,146

 

 

 

5.9

 

 

 

24,040

 

 

 

6.1

 

Restructuring charges

 

 

1,830

 

 

 

0.4

 

 

 

7,448

 

 

 

1.6

 

 

 

5,062

 

 

 

1.1

 

 

 

4,139

 

 

 

1.0

 

 

 

3,048

 

 

 

0.8

 

(Gain) loss on sale of assets

 

 

 

 

 

 

 

 

(63

)

 

 

 

 

 

 

 

 

 

 

 

708

 

 

 

0.2

 

 

 

(11,450

)

 

 

(2.9

)

Operating earnings

 

 

45,129

 

 

 

10.6

 

 

 

53,815

 

 

 

11.5

 

 

 

61,038

 

 

 

13.0

 

 

 

38,495

 

 

 

9.1

 

 

 

63,166

 

 

 

15.9

 

Total other (expense), net

 

 

350

 

 

 

0.1

 

 

 

(3,549

)

 

 

(0.8

)

 

 

(2,935

)

 

 

(0.6

)

 

 

1,758

 

 

 

0.4

 

 

 

(5,921

)

 

 

(1.5

)

Earnings before taxes

 

 

45,479

 

 

 

10.7

 

 

 

50,266

 

 

 

10.7