Company Quick10K Filing
Quick10K
CTS
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$28.57 33 $939
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-17 Shareholder Vote
8-K 2019-05-02 Amend Bylaw
8-K 2019-04-30 Amend Bylaw, Exhibits
8-K 2019-04-29 Regulation FD, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-02-14 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-08 Other Events
8-K 2019-02-05 Regulation FD, Exhibits
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-12-28 Amend Bylaw, Exhibits
8-K 2018-10-25 Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-27 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-22 Officers, Exhibits
8-K 2018-05-18 Shareholder Vote
8-K 2018-04-27 Regulation FD, Exhibits
8-K 2018-04-04 Officers, Exhibits
8-K 2018-02-07 Regulation FD, Exhibits
8-K 2018-02-06 Earnings, Exhibits
8-K 2018-01-16 Regulation FD, Exhibits
HD Home Depot 214,570
BAND Bandwidth 1,690
STK Storage Technology 343
ADMA ADMA Biologics 240
TYME Tyme Technologies 190
FRAF Franklin Financial Services 171
MCF Contango Oil & Gas 106
IDSY ID Systems 100
INFI Infinity Pharmaceuticals 84
DARE Dare Bioscience 16
CTS 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1-Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - Accounts Receivable
Note 4 - Inventories
Note 5 - Property, Plant and Equipment
Note 6 - Retirement Plans
Note 7 - Other Intangible Assets
Note 8 - Costs Associated with Exit and Restructuring Activities
Note 9 - Accrued Liabilities
Note 10 - Contingencies
Note 11 - Debt
Note 12 - Derivative Financial Instruments
Note 13 - Accumulated Other Comprehensive (Loss) Income
Note 14 - Shareholders' Equity
Note 15 - Stock-Based Compensation
Note 16 - Fair Value Measurements
Note 17 - Income Taxes
Note 18 - Leases
Note 19 - Recent Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.A cts033119exhibit31a.htm
EX-31.B cts033119exhibit31b.htm
EX-32.A cts033119exhibit32a.htm
EX-32.B cts033119exhibit32b.htm

CTS Earnings 2019-03-31

CTS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended March 31, 2019
 
OR
 
o
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
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  x 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  x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
  
Accelerated filer  o
  
Non-accelerated filer  o
  
Smaller reporting company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.     ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨ No   x 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 22, 2019: 32,855,508.
 
 


Table of Contents

CTS CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
 

Table of Contents

PART I - FINANCIAL INFORMATION
Item 1.   Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands of dollars, except per share amounts) 
 
Three Months Ended
 
March 31,

March 31,

2019

2018
Net sales
$
117,625


$
113,530

Cost of goods sold
77,010


75,097

Gross Margin
40,615


38,433

Selling, general and administrative expenses
17,522


17,372

Research and development expenses
6,791


6,507

Restructuring charges
2,084


1,195

Operating earnings
14,218


13,359

Other income (expense):





Interest expense
(466
)

(541
)
Interest income
432


482

Other income, net
96


2,004

Total other income (expense), net
62


1,945

Earnings before income taxes
14,280


15,304

Income tax expense
2,861


3,756

Net earnings
$
11,419


$
11,548

Earnings per share:





Basic
$
0.35


$
0.35

Diluted
$
0.34


$
0.34







Basic weighted – average common shares outstanding:
32,807


32,975

Effect of dilutive securities
463


540

Diluted weighted – average common shares outstanding
33,270


33,515





Cash dividends declared per share
$
0.04


$
0.04

See notes to unaudited condensed consolidated financial statements.

3
 

Table of Contents

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ‑ UNAUDITED
(In thousands of dollars) 
 
Three Months Ended
 
March 31,

March 31,
 
2019
 
2018
Net earnings
$
11,419

 
$
11,548

Other comprehensive income:
 

 
 

Changes in fair market value of derivatives, net of tax
78

 
807

Changes in unrealized pension cost, net of tax
1,022

 
1,107

Cumulative translation adjustment, net of tax
91

 
243

Other comprehensive income
$
1,191

 
$
2,157

Comprehensive income
$
12,610

 
$
13,705

 See notes to unaudited condensed consolidated financial statements.

4
 

Table of Contents

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
 
(Unaudited)


 
March 31,

December 31,

2019

2018
ASSETS
 


 

Current Assets
 


 

Cash and cash equivalents
$
100,708


$
100,933

Accounts receivable, net
82,326


79,518

Inventories, net
42,521


43,486

Other current assets
16,670


15,422

Total current assets
242,225


239,359

Property, plant and equipment, net
99,052


99,401

Operating lease assets, net
24,438



Other Assets
 


 

Prepaid pension asset
55,216


54,100

Goodwill
71,057


71,057

Other intangible assets, net
58,494


60,180

Deferred income taxes
20,901


22,201

Other
2,625


2,043

Total other assets
208,293


209,581

Total Assets
$
574,008


$
548,341

LIABILITIES AND SHAREHOLDERS’ EQUITY
 


 

Current Liabilities
 


 

Accounts payable
$
52,884


$
51,975

Operating lease obligations
2,076



Accrued payroll and benefits
9,301


14,671

Accrued liabilities
33,243


37,347

Total current liabilities
97,504


103,993

Long-term debt
50,000


50,000

Long-term operating lease obligations
25,155



Long-term pension and other post-retirement obligations
6,437


6,510

Deferred income taxes
4,050


3,990

Other long-term obligations
3,969


5,919

Total Liabilities
187,115


170,412

Commitments and Contingencies (Note 10)





Shareholders’ Equity
 


 

Common stock
307,664


306,697

Additional contributed capital
40,371


42,820

Retained earnings
488,951


478,847

Accumulated other comprehensive loss
(96,548
)

(97,739
)
Total shareholders’ equity before treasury stock
740,438


730,625

Treasury stock
(353,545
)

(352,696
)
Total shareholders’ equity
386,893


377,929

Total Liabilities and Shareholders’ Equity
$
574,008


$
548,341

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ‑ UNAUDITED
(In thousands of dollars)
 
 
Three Months Ended
 
March 31,

March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings 
$
11,419

 
$
11,548

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
 

Depreciation and amortization
5,924


5,483

Pension and other post-retirement plan expense
251

 
107

Stock-based compensation
1,214

 
923

Restructuring impairment charges
854



Deferred income taxes
1,063

 
1,289

(Gain) loss on sales of fixed assets
(40
)
 
1

Loss (gain) on foreign currency hedges, net of cash
53

 
(56
)
Changes in assets and liabilities:
 

 
 

Accounts receivable
(2,682
)
 
1,435

Inventories
1,053

 
(788
)
Other assets
(1,687
)
 
147

Accounts payable
1,275

 
2,855

Accrued payroll and benefits
(5,250
)
 
(3,596
)
Accrued expenses
(4,014
)
 
(69
)
Income taxes payable
(535
)
 
1,179

Other liabilities
742

 
(224
)
Pension and other post-retirement plans
(47
)
 
(80
)
Net cash provided by operating activities
9,593

 
20,154

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(5,325
)
 
(6,912
)
Proceeds from sale of assets
51

 

Net cash used in investing activities
(5,274
)
 
(6,912
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Payments of long-term debt
(159,100
)
 
(334,100
)
Proceeds from borrowings of long-term debt
159,100

 
331,800

Purchase of treasury stock
(849
)
 

Dividends paid
(1,310
)
 
(1,318
)
Taxes paid on behalf of equity award participants
(2,637
)

(1,423
)
Net cash used in financing activities
(4,796
)
 
(5,041
)
Effect of exchange rate changes on cash and cash equivalents
252

 
(390
)
Net (decrease) increase in cash and cash equivalents
(225
)
 
7,811

Cash and cash equivalents at beginning of period
100,933

 
113,572

Cash and cash equivalents at end of period
$
100,708

 
$
121,383

Supplemental cash flow information:
 

 
 

Cash paid for interest
$
281

 
$
486

Cash paid for income taxes, net
$
2,122

 
$
809

Non-cash financing and investing activities:
 
 
 
Capital expenditures incurred but not paid
$
3,734


$
5,173

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders' Equity - Unaudited
(in thousands)


The following summarizes the changes in total equity for the three months ended March 31, 2018:
 
Common
Stock
Additional
Contributed
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Earnings/(Loss)
Treasury
Stock
Total
Balances at December 31, 2017
$
304,777

$
41,084

$
420,160

$
(78,960
)
$
(343,256
)
$
343,805

Net earnings


11,548



11,548

Changes in fair market value of hedges, net of tax



807


807

Changes in unrealized pension cost, net of tax



1,107


1,107

Cumulative translation adjustment, net of tax



243


243

Cash dividends of $0.04 per share


(1,320
)


(1,320
)
Issued shares on vesting of restricted stock units
945

(2,368
)



(1,423
)
Stock compensation

965




965

Balances at March 31, 2018
$
305,722

$
39,681

$
430,388

$
(76,803
)
$
(343,256
)
$
355,732


The following summarizes the changes in total equity for the three months ended March 31, 2019:
 
Common
Stock
Additional
Contributed
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Earnings/(Loss)
Treasury
Stock
Total
Balances at December 31, 2018
$
306,697

$
42,820

$
478,847

$
(97,739
)
$
(352,696
)
$
377,929

Net earnings


11,419



11,419

Changes in fair market value of derivatives, net of tax



78


78

Changes in unrealized pension cost, net of tax



1,022


1,022

Cumulative translation adjustment, net of tax



91


91

Cash dividends of $0.04 per share


(1,315
)


(1,315
)
Stock repurchases of 31,500 shares




(849
)
(849
)
Issued shares on vesting of restricted stock units
967

(3,603
)



(2,636
)
Stock compensation

1,154




1,154

Balances at March 31, 2019
$
307,664

$
40,371

$
488,951

$
(96,548
)
$
(353,545
)
$
386,893

See notes to unaudited condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(in thousands except for share and per share data)
March 31, 2019
NOTE 1—Basis of Presentation
 
The accompanying condensed consolidated financial statements have been prepared by CTS Corporation (“CTS” "we", "our", "us" or the "Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, notes thereto, and other information included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.
 
The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods presented.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ materially from those estimates.  The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

Changes in Accounting Principles

Beginning in January 2019, CTS adopted the provisions of Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" under the optional transition method, which requires a cumulative effect adjustment to the opening balance of retained earnings. The lease liability is based on the present value of minimum lease payments discounted using our secured incremental borrowing rate at the date of adoption. Existing deferred rent liabilities, resulting from our historical practice of using the straight line method for recognizing lease expense, were reclassified upon adoption to reduce the measurement of the lease assets. We elected the package of practical expedients permitted under the transition guidance, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases at adoption. Our leases are classified as operating leases and expense is recorded in a manner similar to historical accounting guidance. We have also elected the practical expedient to not separate lease and non-lease components for the majority of our leases and the election to keep leases with an initial term of 12 months or less off of the balance sheet. Upon adoption we recorded a lease liability of $24,792 and a right of use asset of $22,066. No adjustment to the opening balance of retained earnings was required.

Subsequent Events

We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date the consolidated financial statements are issued.
 
NOTE 2 – Revenue Recognition

The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle:

Identify the contract(s) with a customer
Identify the performance obligations
Determine the transaction price
Allocate the transaction price
Recognize revenue when the performance obligations are met

We recognize revenue when the performance obligations specified in our contracts have been satisfied, after considering the impact of variable consideration and other factors that may affect the transaction price. Our contracts normally contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract. We usually expect payment within 30 to 90 days from the shipping date, depending on our terms with the customer. None of our contracts as of March 31, 2019, contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as contract assets or liabilities. Contract assets will be reviewed for impairment when events or circumstances indicate that they may not be recoverable.


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To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the most likely amount method based on an analysis of historical experience and current facts and circumstances, which requires significant judgment. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

Contract Assets and Liabilities

Contract assets and liabilities included in our Condensed Consolidated Balance Sheets are as follows:
 
As of
 
March 31,
 
December 31,
 
2019
 
2018
Contract Assets
 
 
 
Prepaid rebates included in Other current assets
$
65

 
$
65

Prepaid rebates included in Other assets
1,167

 
999

Total Contract Assets
$
1,232

 
$
1,064

 
 
 
 
Contract Liabilities
 
 
 
Customer discounts and price concessions included in Accrued liabilities
$
(785
)
 
$
(1,656
)
Customer rights of return included in Accrued liabilities
(348
)
 
(325
)
Total Contract Liabilities
$
(1,133
)
 
$
(1,981
)

 
During the three months ended March 31, 2019, we recognized a decrease of revenues of $69 for amounts that were included in contract liabilities at the beginning of the period.

The decrease in contract liabilities as of March 31, 2019 is primarily due to the settlement of customer discounts and price concessions recognized at the beginning of the period.

Disaggregated Revenue

The following table presents revenues disaggregated by the major markets we serve:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
Aero & Defense
$
7,523

 
$
5,103

Industrial
18,156

 
20,356

Medical
9,666

 
9,241

Telecom & IT
3,438

 
4,525

Transportation
78,842

 
74,305

Total
$
117,625

 
$
113,530



NOTE 3 – Accounts Receivable 

The components of accounts receivable are as follows:
 
As of
 
March 31,
 
December 31,
 
2019
 
2018
Accounts receivable, gross
$
82,687

 
$
79,902

Less: Allowance for doubtful accounts
(361
)
 
(384
)
Accounts receivable, net
$
82,326

 
$
79,518




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NOTE 4 – Inventories 
Inventories consist of the following:
 
As of
 
March 31,

December 31,
 
2019
 
2018
Finished goods
$
7,955

 
$
10,995

Work-in-process
15,075

 
12,129

Raw materials
24,760

 
25,746

Less: Inventory reserves
(5,269
)
 
(5,384
)
Inventories, net
$
42,521

 
$
43,486



NOTE 5 – Property, Plant and Equipment
 
Property, plant and equipment is comprised of the following:
 
As of
 
March 31,
 
December 31,
 
2019
 
2018
Land
$
1,136

 
$
1,136

Buildings and improvements
69,317

 
70,522

Machinery and equipment
234,373

 
231,619

Less: Accumulated depreciation
(205,774
)
 
(203,876
)
Property, plant and equipment, net
$
99,052

 
$
99,401

 
 
 
 
Depreciation expense for the three months ended March 31, 2019
 
 
$
4,234

Depreciation expense for the three months ended March 31, 2018


$
3,763

 

NOTE 6 – Retirement Plans
 
Pension Plans
 
Net pension expense for our domestic and foreign plans is as follows:
 
Three Months Ended

March 31,

March 31,
 
2019
 
2018
Net pension expense
$
250

 
$
79


















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The components of net pension expense for our domestic and foreign plans include the following: 
 
Domestic Pension Plans
 
Foreign Pension Plans

Three Months Ended
 
Three Months Ended
 
March 31,

March 31,

March 31,

March 31,
 
2019
 
2018
 
2019
 
2018
Service cost
$

 
$

 
$
9

 
$
11

Interest cost
1,931

 
1,781

 
7

 
11

Expected return on plan assets (1)
(3,047
)
 
(3,225
)
 
(4
)
 
(7
)
Amortization of loss
1,312

 
1,466

 
42

 
42

Total expense, net
$
196

 
$
22

 
$
54

 
$
57

 
(1) Expected return on plan assets is net of expected investment expenses and certain administrative expenses.
 
 
 
 
 
 
 
 


Other Post-retirement Benefit Plan
 
Net post-retirement expense for our other post-retirement plan includes the following components:
 
Three Months Ended
 
March 31,

March 31,
 
2019
 
2018
Service cost
$

 
$
1

Interest cost
42

 
39

Amortization of gain
(41
)
 
(12
)
Total expense, net
$
1

 
$
28



NOTE 7 – Other Intangible Assets
 
Intangible assets consist of the following components:
 
As of
 
March 31, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Amount
Customer lists/relationships
$
64,323

 
$
(37,936
)
 
$
26,387

Technology and other intangibles
44,460

 
(14,553
)
 
29,907

In process research and development
2,200

 

 
2,200

Other intangible assets, net
$
110,983

 
$
(52,489
)
 
$
58,494

Amortization expense for the three months ended March 31, 2019


 
$
1,690

 


 
 
As of
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Amount
Customer lists/relationships
$
64,323

 
$
(37,088
)
 
$
27,235

Technology and other intangibles
44,460

 
(13,715
)
 
30,745

In process research and development
2,200




2,200

Other intangible assets, net
$
110,983

 
$
(50,803
)
 
$
60,180

Amortization expense for the three months ended March 31, 2018
 

 
$
1,720

 
 





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Remaining amortization expense for other intangible assets as of March 31, 2019 is as follows: 

Amortization
expense
2019
$
5,066

2020
6,624

2021
6,467

2022
6,230

2023
4,224

Thereafter
29,883

Total amortization expense
$
58,494

 

NOTE 8 – Costs Associated with Exit and Restructuring Activities
 
Costs associated with exit and restructuring activities are recorded in the Condensed Consolidated Statement of Earnings as a separate component of Operating earnings. 
 
Total restructuring charges is as follows:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
Restructuring charges
$
2,084

 
$
1,195

 
 
 
 
 
 
In June 2016, we announced plans to restructure operations by phasing out production at our Elkhart facility and transitioning it into a research and development center supporting our global operations ("June 2016 Plan"). Additional organizational changes were also implemented in various other locations. During the third quarter of 2017, we revised the June 2016 Plan. The amendment added an additional $1,100 in planned costs related to the relocation of our corporate headquarters in Lisle, IL and our plant in Bolingbrook, IL, both of which have now been consolidated into a single facility. The total restructuring liability related to severance and other one-time benefit arrangements under the June 2016 Plan was $537 at March 31, 2019, and $668 at December 31, 2018. Additional costs related to production line movements, equipment charges, and other costs will be expensed as incurred.

The following table displays the planned restructuring charges associated with the June 2016 Plan as well as a summary of the actual costs incurred through March 31, 2019:

 

Actual costs
 
Planned

incurred through
June 2016 Plan
Costs

March 31, 2019
Workforce reduction
$
3,075


$
3,087

Building and equipment relocation
9,025


9,165

Other charges
1,300


1,826

Total restructuring charges
$
13,400


$
14,078



In April 2014, we announced plans to restructure our operations and consolidate our Canadian operations into other existing facilities as part of our overall plan to simplify our business model and rationalize our global footprint (“April 2014 Plan”).  These restructuring actions were completed in 2015. The remaining restructuring liability related to the April 2014 Plan was $683 at March 31, 2019, and $918 at December 31, 2018.









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The following table displays the restructuring liability activity for all plans for the three months ended March 31, 2019
Restructuring liability at January 1, 2019
$
1,586

Restructuring charges
2,084

Cost paid
(1,306
)
Other activity (1)
(1,144
)
Restructuring liability at March 31, 2019
$
1,220

(1) Other activity includes the effects of currency translation, non-cash asset write-downs and other charges that do not flow through restructuring expense.

NOTE 9 – Accrued Liabilities
 
The components of accrued liabilities are as follows: 
 
As of
 
March 31,
 
December 31,
 
2019
 
2018
Accrued product related costs
$
3,535

 
$
4,377

Accrued income taxes
6,407

 
6,914

Accrued property and other taxes
1,843

 
1,976

Accrued professional fees
3,207

 
3,350

Contract liabilities
1,133

 
1,981

Dividends payable
1,315

 
1,310

Remediation reserves
10,912

 
11,274

Other accrued liabilities
4,891

 
6,165

Total accrued liabilities
$
33,243

 
$
37,347



NOTE 10 – Contingencies

Certain processes in the manufacture of our current and past products create by-products classified as hazardous waste. We have been notified by the U.S. Environmental Protection Agency, state environmental agencies, and in some cases, groups of potentially responsible parties, that we may be potentially liable for environmental contamination at several sites currently and formerly owned or operated by us. Some sites, such as Asheville, North Carolina and Mountain View, California, are designated National Priorities List sites under the U.S. Environmental Protection Agency’s Superfund program. We reserve for probable remediation activities and for claims and proceedings against us with respect to other environmental matters. We record reserves on an undiscounted basis. In the opinion of management, based upon presently available information relating to such matters, adequate provision for probable and estimable costs have been recorded. We do not have any known environmental obligations where a loss is probable or reasonably possible of occurring for which we do not have a reserve, nor do we have any amounts for which we have not reserved because the amount of the loss cannot be reasonably estimated. Due to the inherent nature of environmental obligations, we cannot provide assurance that our ultimate environmental liability will not materially exceed the amount of its current reserve. Our reserve and disclosures will be adjusted accordingly if additional information becomes available in the future.
A roll forward of remediation reserves included in accrued liabilities on the balance sheet is comprised of the following:
 
As of

March 31, 2019

December 31, 2018
Balance at beginning of period
$
11,274


$
17,067

Remediation expense
234


1,182

Net remediation payments
(594
)

(6,967
)
Other Activity (1)
$
(2
)

$
(8
)
Balance at end of the period
$
10,912


$
11,274

(1) Other activity includes currency translation adjustments not recorded through remediation expense.

Unrelated to the environmental claims described above, certain other claims are pending against us with respect to matters arising in the ordinary conduct of our business. Although the ultimate outcome of any potential litigation resulting from these claims cannot be predicted with certainty, and some may be disposed of unfavorably to us, we believe that adequate provision for anticipated costs have been established based upon all presently available information. Except as noted herein, we do not believe we have

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any pending loss contingencies that are probable or reasonably possible of having a material impact on our consolidated financial position, results of operations, or cash flows.

NOTE 11 - Debt
 
Long-term debt is comprised of the following:
 
As of
 
March 31,

December 31,
 
2019
 
2018
Total credit facility
$
300,000

 
$
300,000

Balance outstanding
$
50,000

 
$
50,000

Standby letters of credit
$
1,940

 
$
1,940

Amount available
$
248,060

 
$
248,060

Weighted-average interest rate
3.60
%
 
3.10
%
Commitment fee percentage per annum
0.20
%
 
0.20
%

 
On February 12, 2019, we entered into an amended and restated five-year Credit Agreement with a group of banks (the "Credit Agreement"). The Credit Agreement provides for a revolving credit facility of $300,000, which may be increased by $150,000 at the request of the Company, subject to the administrative agent's approval. This new unsecured credit facility replaces the prior $300,000 unsecured credit facility, which would have expired August 10, 2020. Borrowings of $50,000 under the prior credit agreement were refinanced into the Credit Agreement. The prior agreement was terminated as of February 12, 2019.
 
The Revolving Credit Facility includes a swing line sublimit of $15,000 and a letter of credit sublimit of $10,000.  Borrowings under the Revolving Credit Facility bear interest, at our option, at the base rate plus the applicable margin for base rate loans or London Interbank Offered Rate ("LIBOR") plus the applicable margin for LIBOR loans.  We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility.  The commitment fee ranges from 0.20% to 0.30% based on the our total leverage ratio. 
 
The Revolving Credit Facility requires, among other things, that we comply with a maximum total leverage ratio and a minimum fixed charge coverage ratio.  Failure to comply with these covenants could reduce the borrowing availability under the Revolving Credit Facility.  We were in compliance with all debt covenants at March 31, 2019.  The Revolving Credit Facility requires that we deliver quarterly financial statements, annual financial statements, auditor certifications, and compliance certificates within a specified number of days after the end of a quarter and year. Additionally, the Revolving Credit Facility contains restrictions limiting our ability to: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; and make stock repurchases and dividend payments.  Interest rates on the Revolving Credit Facility fluctuate based upon the LIBOR and the Company’s quarterly total leverage ratio.  
 
We have debt issuance costs related to our long-term debt that are being amortized using the straight-line method over the life of the debt. These costs are included in interest expense in our Condensed Consolidated Statement of Earnings. Amortization expense was approximately $36 and $46 for the three months ended March 31, 2019 and 2018, respectively. 

Note 12 - Derivative Financial Instruments

Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We selectively use derivative financial instruments including foreign currency forward contracts and interest rate swaps to manage our exposure to these risks.

The use of derivative financial instruments exposes the Company to credit risk, which relates to the risk of nonperformance by a counterparty to the derivative contracts. We manage our credit risk by entering into derivative contracts with only highly rated financial institutions and by using netting agreements.

The effective portion of derivative gains and losses are recorded in accumulated other comprehensive (loss) income until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. If it is probable that an anticipated hedged transaction will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive (loss) income to other income (expense).


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We assess hedge effectiveness qualitatively by verifying that the critical terms of the hedging instrument and the forecasted transaction continue to match, and that there have been no adverse developments that have increased the risk that the counterparty will default. No recognition of ineffectiveness was recorded in our Condensed Consolidated Statement of Earnings for the three months ended March 31, 2019.

Foreign Currency Hedges

We use forward contracts to mitigate currency risk related to a portion of our forecasted foreign currency revenues and costs. The currency forward contracts are designed as cash flow hedges and are recorded in the Condensed Consolidated Balance Sheets at fair value.
We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At March 31, 2019, we had a net unrealized gain of $746 in accumulated other comprehensive (loss) income, of which $737 is expected to be reclassified to income within the next 12 months. At March 31, 2018 we had a net unrealized gain of $37 in accumulated other comprehensive (loss) income. The notional amount of foreign currency forward contracts outstanding was $12,357 at March 31, 2019.

Interest Rate Swaps
We use interest rate swaps to convert our revolving credit facility’s variable rate of interest into a fixed rate. As of March 31, 2019, we have agreements to fix interest rates on $50,000 of long-term debt through August 2020. The difference to be paid or received under the terms of the swap agreements will be recognized as an adjustment to interest expense when settled.
These swaps are treated as cash flow hedges and consequently, the changes in fair value are recorded in other comprehensive (loss) income. The estimated net amount of the existing gains that are reported in accumulated other comprehensive (loss) income that are expected to be reclassified into earnings within the next twelve months is approximately $494

The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of March 31, 2019, are shown in the following table:
 
As of

March 31,
 
December 31,
 
2019
 
2018
Interest rate swaps reported in Other current assets
$
494

 
$
576

Interest rate swaps reported in Other assets
$
176

 
$
369

Foreign currency hedges reported in Other current assets
$
715

 
$
393



The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance Sheet, Offsetting). On a gross basis, there were foreign currency derivative assets of $715 and foreign currency derivative liabilities of $0.


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The effect of derivative instruments on the Condensed Consolidated Statements of Earnings is as follows:
 
Three Months Ended
 
March 31,
 
March 31,
 
2019

2018
Foreign Exchange Contracts:
 
 
 
Amounts reclassified from AOCI to earnings:
 
 
 
Net Sales
$

 
$
(58
)
Cost of goods sold
42

 
108

Selling, general and administrative expense
17

 
(1
)
Total amounts reclassified from AOCI to earnings
59

 
49

Loss recognized in other expense for hedge ineffectiveness

 
(1
)
Total derivative gain on foreign exchange contracts recognized in earnings
$
59

 
$
48

 
 
 
 
Interest Rate Swaps:
 
 
 
Benefit recorded in Interest expense
$
156

 
$
65

  Total gain
$
215

 
$
113



NOTE 13 – Accumulated Other Comprehensive (Loss) Income

Shareholders’ equity includes certain items classified as accumulated other comprehensive (loss) income (“AOCI”) in the Condensed Consolidated Balance Sheets, including:
 
Unrealized gains (losses) on hedges relate to interest rate swaps to convert our revolving credit facility's variable rate of interest into a fixed rate and foreign currency forward contracts used to hedge our exposure to changes in exchange rates affecting certain revenues and costs denominated in foreign currencies. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transactions occur, at which time amounts are reclassified into earnings.  Further information related to our derivative financial instruments is included in Note 12 - Derivative Financial Instruments and Note 16 – Fair Value Measurements.
 
Unrealized gains (losses) on pension obligations are deferred from income statement recognition until the gains or losses are realized.  Amounts reclassified to income from AOCI are included in net periodic pension income / (expense).  Further information related to our pension obligations is included in Note 6 – Retirement Plans.
 
Cumulative translation adjustments relate to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income.  

Changes in exchange rates between the functional currency and the currency in which a transaction is denominated are foreign exchange transaction gains or losses. Transaction gains for the three months ended March 31, 2019 and 2018 were $474 and $1,996, respectively, which have been included in other income (expense) in the Condensed Consolidated Statement of Earnings.














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Table of Contents

The components of accumulated other comprehensive (loss) income for the three months ended March 31, 2019, are as follows:

 
 
 
 
 
Gain (Loss)
 
 
 
As of
 
Gain (Loss)
 
Reclassified
 
As of
 
December 31,
 
Recognized
 
from AOCI
 
March 31,

2018
 
in OCI
 
to Income
 
2019
Changes in fair market value of hedges:
 
 
 
 
 
 
 
Gross
$
1,316

 
$
315

 
$
(215
)
 
$
1,416

Income tax (expense) benefit
(298
)
 
(71
)
 
49

 
(320
)
Net
1,018

 
244

 
(166
)
 
1,096



 

 

 

Changes in unrealized pension cost:
 
 
 
 
 
 
 
Gross
(132,454
)
 

 
1,319

 
(131,135
)
Income tax benefit (expense)
35,893

 

 
(297
)
 
35,596

Net
(96,561
)
 

 
1,022

 
(95,539
)



 

 


 


Cumulative translation adjustment:
 

 
 
 
 

 
 

Gross
(2,291
)
 
88

 

 
(2,203
)
Income tax benefit
95

 
3

 

 
98

Net
(2,196
)
 
91

 

 
(2,105
)
Total accumulated other comprehensive (loss) income
$
(97,739
)
 
$
335

 
$
856

 
$
(96,548
)

The components of accumulated other comprehensive (loss) income for the three months ended March 31, 2018, are as follows:
 
 
 
 
 
Gain (Loss)
 
 
 
As of
 
Gain (Loss)
 
Reclassified
 
As of
 
December 31,
 
Recognized
 
from AOCI
 
March 31,

2017
 
in OCI
 
to Income
 
2018
Changes in fair market value of hedges:

 

 
 
 
 
Gross
$
289

 
$
1,157

 
$
(114
)
 
$
1,332

Income tax (expense) benefit
(105
)
 
(261
)
 
25

 
(341
)
Net
184

 
896

 
(89
)
 
991



 

 

 

Changes in unrealized pension cost:
 
 
 
 
 
 
 
Gross
(130,096
)
 

 
1,424

 
(128,672
)
Income tax benefit (expense)
52,837

 

 
(317
)
 
52,520

Net
(77,259
)
 

 
1,107

 
(76,152
)
 
 
 
 
 
 
 
 
Cumulative translation adjustment:
 

 
 
 
 

 
 

Gross
(1,985
)
 
238

 

 
(1,747
)
Income tax benefit
100

 
5

 

 
105

Net
(1,885
)
 
243

 

 
(1,642
)
Total accumulated other comprehensive (loss) income