UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
For Quarter Ended Commission File Number
June 28, 1998 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)293-7511
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 and 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of August 7, 1998: 13,658,503
Page 1 of 14
CTS CORPORATION FORM 10-Q
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months and Six
Months ended June 28, 1998, and June 29, 1997 3
Condensed Consolidated Balance Sheets -
As of June 28, 1998, and December 31, 1997 4
Condensed Consolidated Statements of Cash
Flows - For the Six Months Ended June 28,
1998, and June 29, 1997 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Page 2 of 14
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 Six Months Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
Net sales $124,513 $107,482 $ 250,565 $198,751
Costs and expenses:
Cost of goods sold 88,451 78,645 182,447 144,623
Selling, general and
administrative expenses 17,062 12,042 32,513 23,866
Research and development
expenses 3,717 3,075 7,175 6,049
Operating earnings 15,283 13,720 28,430 24,213
Other expenses (income):
Interest expense 1,192 410 2,290 673
Other (351) (115) (1,705) (923)
Total other expense (income) 841 295 585 (250)
Earnings before income
taxes 14,442 13,425 27,845 24,463
Income taxes 4,776 4,967 9,467 9,051
Net earnings $ 9,666 $ 8,458 $18,378 $15,412
Net earnings per share:
Basic $ 0.69 $ 0.54 $ 1.28 $ 0.99
Diluted $ 0.66 $ 0.53 $ 1.22 $ 0.97
Cash dividends declared
per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
Average common shares
outstanding:
Basic 13,961,302 15,685,911 14,406,551 15,680,635
Diluted 14,577,842 15,869,831 15,065,196 15,834,660
See notes to condensed consolidated financial statements.
Page 3 of 14
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
June 28, December 31,
1998 1997*
ASSETS (Unaudited)
Current Assets:
Cash $ 10,105 $ 39,847
Accounts receivable, less allowances
(1998-$1,156; 1997-$1,074) 72,016 68,679
Inventories--Note B 50,972 56,007
Other current assets 7,237 5,327
Deferred income taxes 15,873 15,873
Total current assets 156,203 185,733
Property, Plant and Equipment, less accumulated
depreciation (1998--$131,787; 1997--$130,907) 84,105 76,027
Other Assets
Prepaid pension 65,215 61,738
Other 3,651 6,083
Total other assets 68,866 67,821
$309,174 $329,581
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term obligations $ 6,255 $ 5,465
Accounts payable 25,099 28,200
Accrued liabilities 69,829 58,687
Total current liabilities 101,183 92,352
Long-term Obligations 72,621 63,474
Deferred Income Taxes 19,300 21,950
Postretirement Benefits 4,465 4,309
Shareholders' Equity:
Preferred stock - authorized 25,000,000
shares without par value; none issued
Common stock-authorized 75,000,000 shares
without par value; issued 24,178,992 shares 189,928 186,794
Additional contributed capital 10,668 15,822
Retained earnings 179,843 163,169
Cumulative translation adjustment 849 694
381,288 366,479
Less cost of common stock held in treasury:
1998--10,413,756 shares; 1997--8,873,056
shares 269,683 218,983
Total shareholders' equity 111,605 147,496
$309,174 $329,581
*The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 14
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
Six Months Ended
June 28, June 29,
1998 1997
Cash flows from operating activities:
Net earnings $18,378 $ 15,412
Depreciation and amortization 8,942 7,635
(Increase) decrease, net of
effects of the sale of Waring
Products Division:
Accounts receivable (7,414) (23,571)
Inventories (1,756) 5,074
Other current assets (2,094) (1,076)
Prepaid pension asset (3,477) (3,418)
Other 1,300 349
Increase in:
Accounts payable and accrued liabilities (1,379) 17,674
Total adjustments (5,878) 2,667
Net cash provided by operating activities 12,500 18,079
Cash flows from investing activities:
Proceeds from sale of property and
other assets 23,253 134
Capital expenditures (11,005) (10,553)
Investment in DCA (68,509)
Acquisition related costs (3,329)
Net cash provided by (used in)
investing activities 8,919 (78,928)
Cash flows from financing activities:
Net proceeds from revolving credit 5,000
Term loan borrowings 50,000
Payments of long-term obligations (750) (214)
Dividend payments (1,785) (1,881)
Purchases of treasury stock (50,950)
Other (2,870) (968)
Net cash (used in) provided by financing
activities (51,355) 46,937
Effect of exchange rate changes on cash 194 (389)
Net decrease in cash (29,742) (14,301)
Cash at beginning of year 39,847 44,957
Cash at end of period $ 10,105 $30,656
Supplemental cash flow information
Cash paid during the period for:
Interest $ 2,251 $ 558
Income Taxes--Net $ 9,961 $ 4,201
Noncash investing activities:
Liabilities assumed in connection with
the purchase of DCA $16,107
See notes to condensed consolidated financial statements.
Page 5 of 14
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands of dollars except per share data)
June 28, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial
statements have been prepared by CTS Corporation ("CTS" or
"Company"), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). 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 consolidated interim 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, 1997.
The accompanying unaudited consolidated interim financial
statements reflect, in the opinion of management, all adjustments
(consisting of normal recurring items) necessary for a fair
presentation, in all material respects, of the financial position
and results of operations for the periods presented. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. The results of operations for the interim
periods are not necessarily indicative of the results for the
entire year.
NOTE B--INVENTORIES
The components of inventory consist of the following:
June 28, December 31,
1998 1997
Finished goods $ 7,212 $ 8,061
Work-in-process 24,759 26,036
Raw material 19,001 21,910
$50,972 $56,007
Page 6 of 14
NOTE C--LITIGATION AND CONTINGENCIES
Contested claims involving various matters, including
environmental claims brought by government agencies, are being
litigated by CTS, both in legal and administrative forums. In
the opinion of management, based upon currently available
information, adequate provision for potential costs has been
made, or the costs which could ultimately result from such
litigation or administrative proceedings will not materially
affect the consolidated financial position of the Company or the
results of operations.
Note D - Integration of DCA
The Company is continuing the process that began in October of 1997 of
evaluating the alternatives for the business units acquired from
DCA. During the quarter, the Company substantially completed the sale
of the Waring Products Division and closed the DCA corporate
headquarters in Greenwich, Connecticut. The Company does not expect
that the finalization of this process will have any significant effect
on the consolidated financial position or results of operation of the
Company.
Note E - Earnings Per Share (EPS)
FASB Statement No. 128, "Earnings per Share," requires companies
to provide a reconciliation of the numerator and denominator of
the basic and diluted EPS computations. The calculation below
provides net earnings, average common shares outstanding and the
resultant earnings per share for both basic and the diluted EPS
for the second quarter and first half of 1998 and 1997.
The other dilutive securities of 167,457 at June 28, 1998, consisted of
shares of CTS common stock to be issued to DCA shareholders who
have not yet tendered their DCA shares.
Page 7 of 14
Net Net
Earnings Shares Earnings
(Numerator) (Denominator) Per Share
Second Quarter 1998:
Basic $9,666 13,961,302 $0.69
Effect of Dilutive
Securities:
Stock options 449,083
Other 167,457
Diluted $9,666 14,577,842 $0.66
Second Quarter 1997:
Basic $8,458 15,685,911 $0.54
Effect of Dilutive
Securities:
Stock options 183,920
Other 0
Diluted $8,458 15,869,831 $0.53
First Half 1998:
Basic $18,378 14,406,551 $1.28
Effect of Dilutive
Securities:
Stock options 487,166
Other 171,479
Diluted $18,378 15,065,196 $1.22
First Half 1997:
Basic $15,412 15,680,635 $0.99
Effect of Dilutive
Securities:
Stock Options 154,025
Other 0
Diluted $15,412 15,834,660 $0.97
NOTE F - COMPREHENSIVE EARNINGS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards
as components of comprehensive earnings be reported in an annual
financial statement that is displayed with the same prominence as other
annual financial statements. This statement also requires that an
entity classify items of other comprehensive earnings by their nature
in an annual financial statement. Other comprehensive earnings include
Page 8 of 14
foreign currency translation adjustments. The Company's comprehensive
earnings for the second quarter and first half of 1998 and the
comparable period last year were as follows:
Three Months Ended
June 28, June 29,
1998 1997
(In thousands of dollars)
Second Quarter
Net earnings $9,666 $8,458
Other comprehensive earnings (loss)-
translation adjustments (248) 463
Comprehensive earnings $9,418 $8,921
Six Months Ended
June 28, June 29,
1998 1997
First Half
Net earnings $18,378 $15,412
Other comprehensive earnings (loss)-
translation adjustments 155 (561)
Comprehensive earnings $18,533 $14,851
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of June 28, 1998,
to December 31, 1997
The following table highlights significant changes in balance sheet
items and ratios and other information related to liquidity and capital
resources:
(Dollars in thousands)
June 28, December 31, Increase
1998 1997 (Decrease)
Cash $10,105 $ 39,847 $ (29,742)
Accounts receivable, net 72,016 68,679 3,337
Inventories, net 50,972 56,007 (5,035)
Current assets 156,203 185,733 (29,530)
Accounts payable 25,099 28,200 (3,101)
Other current liabilities 69,829 58,687 11,142
Current liabilities 101,183 92,352 8,831
Working capital 55,020 93,381 (38,361)
Current ratio 1.54 2.01 (.47)
Interest bearing debt 65,250 61,206 4,044
Net tangible worth 110,524 146,320 (35,796)
Ratio of interest bearing debt
to net tangible worth .59 .42 .17
Page 9 of 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
From December 31, 1997 to June 28, 1998, cash decreased by $29.7
million primarily due to common stock repurchases of $51.0 million,
partially offset by cash proceeds from asset sales of $23.3 million.
The Company's stock repurchases include the purchase of 0.7 million of CTS
common shares from WHX Corporation on March 5, 1998, and 0.9
million shares in the open market and other transactions. On June 26, 1998,
the Company announced the authorization by the Board of Directors to
purchase an additional 500,000 shares of its stock from time to time
in open market or privately negotiated transactions. The cash proceeds
from asset sales represent the May 8, 1998 sale of the Waring Products
division of DCA to Conair Corporation and sale of the Company's Bentonville,
Arkansas facility and other assets during the first quarter of 1998.
Working capital decreased $38.4 million due to the cash decrease
of $29.7 million, as explained above, and increases in other
current liabilities of $11.1 million relating primarily to the severance
expenses associated with the retirement/termination of DCA executives and the
termination of other DCA corporate employees. The current ratio
decreased slightly due to the relative decrease in current
assets, primarily cash, due to the level of common stock
repurchases.
The ratio of interest bearing debt to net tangible worth
increased due to a $4.0 million net increase in debt and a
decrease of $35.8 million in net tangible worth, relating
primarily to the stock repurchase activity.
Capital expenditures were $11.0 million during the first half,
compared with $10.6 million for the same period a year earlier.
These capital expenditures were primarily for increased
manufacturing capacity, manufacturing improvement programs and
new products.
Page 10 of 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of Second
Quarter 1998 to Second Quarter 1997
The following table highlights changes in significant components
of the consolidated statements of earnings for the three-month
periods ending June 28, 1998, and June 29, 1997:
(Dollars in thousands)
June 28, June 29, Increase
1998 1997 (Decrease)
Net sales $124,513 $107,482 $17,031
Gross earnings 36,062 28,837 7,225
Gross earnings as a percent
of sales 28.96% 26.83% 2.13%
Selling, general and
administrative expenses 17,062 12,042 5,020
Selling, general and
administrative expenses as
a percent of sales 13.70% 11.20% 2.50%
Research and development
expenses 3,717 3,075 642
Operating earnings 15,283 13,720 1,563
Operating earnings as a
percent of sales 12.27% 12.76% (0.49%)
Interest expense 1,192 410 782
Earnings before income taxes 14,442 13,425 1,017
Income taxes 4,776 4,967 (191)
Income tax rate 33.07% 37.00% (3.93%)
Material Changes in Results of Operations: Comparison of Second
Quarter 1998 to Second Quarter 1997 (Continued)
Net sales increased by $17.0 million, or 15.8% from the second
quarter of 1997. Sales increases occurred principally as a
result of the inclusion of Dynamics Corporation of America (DCA)
operating units partially offset by the 1998 sale of our domestic
military and aerospace connector business, the decline in the
disk drive industry and lower demand in Europe for our
interconnect products. As a percent of total sales, sales of
electronic components, electronic component assemblies and other
products in the second quarter of 1997 were 52.8%, 26.6% and
20.6%, respectively. As a percentage of total sales, the second
quarter of 1997 sales of electronic components, electronic
component assemblies and other products were 56.3%, 43.3% and
0.4%, respectively. The increase in other products relates to
the inclusion of DCA operations in 1998. Sales of electronic
component assemblies decreased in 1998 due primarily to the 1997
sale of our domestic military and aerospace connector business,
the decline in the disk drive industry and the lower European
demand for our interconnect products.
Gross earnings as a percentage of sales increased due to
improvements in our microelectronics and electrocomponents
businesses, partially offset by the inclusion of DCA lower margin
businesses.
Page 11 of 14
Selling, general and administrative expenses increased as a
result of the inclusion of acquired DCA businesses.
Research and development expenses increased 20.9% as the Company
continued investment efforts in new product development and
improvements.
The effective tax rate decreased almost 4% points primarily due
to higher earnings in the lower-tax jurisdictions.
Material Changes in Results of Operations: Comparison of First
Half 1998 to First Half 1997
The following table highlights changes in significant components
of the consolidated statements of earnings for the six-month
periods ending June 28,1998, and June 29,1997:
(Dollars in thousands)
June 28, June 29, Increase
1998 1997 (Decrease)
Net sales $250,565 $198,751 $51,814
Gross earnings 68,118 54,128 13,990
Gross earnings as a percent
of sales 27.19% 27.23% (0.04%)
Selling, general and
administrative expenses 32,513 23,866 8,647
Selling, general and
administrative expenses as
a percent of sales 12.98% 12.01% 0.97%
Research and development
expenses 7,175 6,049 1,126
Operating earnings 28,430 24,213 4,217
Operating earnings as a
percent of sales 11.35% 12.18% (0.83%)
Interest expense 2,290 673 1,617
Earnings before income taxes 27,845 24,463 3,382
Income taxes 9,467 9,051 416
Income tax rate 34.00% 37.00% (3.00%)
Net sales increased by $51.8 million, or 26.1% from the first
half of 1997. Sales increases occurred principally as a result
of the inclusion of the acquired DCA, partially offset by the
1997 sale of our domestic military and aerospace connector
business and the decline in the disk drive industry. As a
percent of total sales, sales of electronic components,
electronic component assemblies and other products in the first
half of 1998 were 51.1%, 25.9%
Page 12 of 14
and 23.0%, respectively. As a percentage of total sales, the
first half of 1997 sales of electronic components, electronic
component assemblies and other products were 58.3%, 41.3% and
0.4%, respectively. The increase in other products relates to
the inclusion of DCA operations in 1998. Sales of electronic
component assemblies decreased in 1998 due primarily to the 1997
sale of our domestic military and aerospace connector business
and the decline in the disk drive industry.
Gross earnings, as a percentage of sales decreased primarily due
to the inclusion of lower margin DCA businesses, primarily offset
by improvements in CTS core business margin from 27.2% to 31.3%, due
to productivity improvements and expense control programs.
Selling, general and administrative expenses in dollars increased
as a result of the inclusion of acquired businesses. CTS
businesses decreased in dollars due to continued cost control.
Research and development expenses increased 18.6% as the Company
continued investment efforts in new product development and
improvements.
The effective tax rate decreased by 3% points primarily due to
higher earnings in the lower-tax jurisdictions.
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
CTS is involved in litigation and in other administrative
proceedings with government agencies regarding the protection of
the environment, and other matters, the results of which are not
yet determinable. In the opinion of management, based upon
currently available information, adequate provision for
anticipated costs has been made, or the ultimate costs resulting
from such litigation or administrative proceedings will not
materially affect the consolidated financial position of the
Company or the results of operations.
Page 13 of 14
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits 1
Severance agreements, dated March 31, 1998, between CTS
Corporation and Andrew Lozyniak, Henry V. Kensing and Patrick
K. Dorme.
b. Forms 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
Jeannine M. Davis George T. Newhart
Vice President, Secretary Vice President, Corporate
and General Counsel Controller and principal
accounting officer
Dated: August 12, 1998
Page 14 of 14
Exhibit 1
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made and
entered into this 31st day of March, 1998, among CTS Corporation
("CTS"), Dynamics Corporation of America ("DCA"), and Andrew
Lozyniak (the "Executive").
WHEREAS, CTS, DCA and Executive executed an Employment
Agreement on the 9th day of May, 1997, which became effective on
October 16, 1997 (the "Employment Agreement"); and
WHEREAS, the parties now desire to modify the
Employment Agreement as set forth herein and to settle all
matters arising thereunder;
NOW, THEREFORE, in consideration of the mutual premises
and the respective covenants and agreements herein contained, the
parties hereto agree as follows:
1. Operation of Agreement
A. CTS, DCA and Executive hereby each agree that
Executive's employment at DCA and membership on the DCA Board of
Directors and any and all boards of subsidiary corporations
thereof shall terminate, effective at the close of business on
March 31, 1998 ("Date of Termination").
B. Executive will continue to serve as a member of
CTS' Board of Directors through CTS' 1999 Annual Meeting of
Shareholders but will not be eligible to participate in any
compensation arrangements for non-employee directors except
reimbursement of out-of-pocket expenses in accordance with CTS'
policies applicable to directors, and except for rights
heretofore accrued under the CTS Corporation Stock Retirement
Plan for Non-employee Directors.
C. Nothing contained herein is intended to be an
admission or acknowledgment by any of CTS, DCA, or Executive that
Executive's employment has been terminated for Good Reason or for
Cause, as those terms are defined in the Employment Agreement.
D. Except as set forth herein, all prior agreements,
understandings, representations, and arrangements of any kind
between (a) Executive and (b) CTS and/or DCA are hereby canceled
in their entirety and are of no further effect.
2. Compensation and Benefits
A. CTS agrees to fulfill and perform all of the
obligations which are set forth in Sections 6(a), 6(d) and 6(e)
of the Employment Agreement, except that CTS will fulfill the
obligations under Section 6(a)(ii) of the Employment Agreement by
making the payments required by subsection (ii)(B) thereof,
pursuant to Executive's election dated January 26, 1998.
Executive hereby acknowledges and agrees that his rights under
this Section 2 constitute his entire rights to compensation and
benefits from CTS, DCA, or any affiliated entity under the
Employment Agreement.
B. CTS will pay the Executive (or, in the event of
his death, his legal representative) 54 equal monthly payments of
$33,333.33, beginning on April 1, 1998 and continuing on the
first day of each month thereafter, through and including
September 1, 2002.
C. On each of April 1, 1999, April 1, 2000, April 1,
2001 and April 1, 2002, CTS will pay the Executive (or, in the
event of his death, his legal representative) an amount equal to
$626,000.00.
D. The payments to be made by CTS pursuant to B. and
C. above shall be made by bank wire transfer of immediately
available funds to an account designated in writing by Executive
to CTS.
E. Executive shall retain all rights accrued
heretofore and through the Date of Termination under the Dynamics
Corporation of America Employee Savings and Investment Plan, the
Retirement Plan for Employees of Dynamics Corporation of America,
any directors' and officers' liability insurance policy of DCA or
CTS, rights to indemnification under any written agreement with
CTS or under the Certificate of Incorporation or by-laws of DCA
or CTS, and any and all rights to reimbursement of reasonable
out-of-pocket expenses incurred prior to the Date of Termination.
3. Repurchase of CTS Common Stock
CTS agrees to buy, and Executive agrees to sell, for a
purchase price of $6,454,800.00 in the aggregate, or $32.60 per
share, 198,000 shares of CTS common stock (the "Shares"). CTS
will pay the purchase price by bank wire transfer of immediately
available funds to an account designated in writing by Executive
to CTS (a "Designated Account") against delivery by Executive to
CTS of certificates evidencing the Shares, duly executed in
blank, or accompanied by an irrevocable stock power, duly
executed in blank. Alternatively, CTS will make the payment of
the purchase price by bank wire transfer of immediately available
funds to a Designated Account immediately upon receipt of
evidence reasonably satisfactory to CTS that Executive has
irrevocably instructed Merrill Lynch & Co. ("Merrill") to
transfer the Shares from Executive's account at Merrill to CTS'
account at Merrill. At the request of CTS, Executive will duly
execute and deliver such documentation as CTS may reasonably
request to evidence the purchase and sale contemplated by this
paragraph.
<PAGE>
4. Stock Option Buy-Out
CTS will also pay Executive, on April 1, 1998 by bank
wire transfer of immediately available funds to the account
designated by Executive pursuant to paragraph 2.D. above,
$3,531,000.00 in exchange for Executive's option on 300,000
shares of CTS common stock and Executive will surrender his
rights under the Stock Option Agreement between CTS and Executive
dated October 31, 1997.
5. Consulting Arrangement
A. During the second calendar quarter of 1998,
Executive agrees to remain available, for up to 200 hours, on an
irregular, part-time basis to render, free of any charge except
reimbursement of out-of-pocket expenses in accordance with CTS'
policies applicable to senior executives, consulting and advisory
services related to the DCA businesses and reasonably requested
and authorized by CTS.
B. CTS will cooperate with Executive in giving him
advance notice of any consulting services so requested, and will
not require that such services be rendered at a location other
than DCA's current offices in Greenwich, Connecticut or at other
than normal business hours without Executive's agreement thereto
in his sole discretion. To the extent that Executive fails to
render the full 200 hours of consulting services contemplated
herein by June 30, 1998, regardless of the reason therefor, his
obligation hereunder will expire without liability to CTS, DCA or
any other person.
6. Releases
A. Except for rights under this Settlement Agreement,
Executive hereby irrevocably releases and waives any right, claim
or cause of action of any kind, known or unknown, at law or in
equity, which he had or has against CTS, DCA, any affiliate of
either of them and/or any of their respective officers,
directors, employees or agents.
B. Except for rights under this Settlement Agreement,
CTS and DCA, on behalf of themselves and their respective
affiliates, officers, directors, employees and agents, hereby
irrevocably release and waive any right, claim or cause of action
of any kind, known or unknown, at law or in equity, which any one
of them had or has against Executive and/or any of his heirs,
executors or administrators.
7. Miscellaneous
A. The parties restate and incorporate, as if set
forth herein in their entirety, Sections 7, 8, 9 and 10 of the
Employment Agreement.
B. DCA's current office in Greenwich, Connecticut shall
remain in operation through June 30, 1998, and Executive will be
entitled to utilize the office space and facilities and
secretarial services currently available to Executive, for any
and all business or personal purposes through that date.
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date above written.
DYNAMICS CORPORATION CTS CORPORATION
OF AMERICA
By: By:
Jeannine M. Davis Joseph P. Walker
Assistant Secretary Chairman of the Board,
and Director President and
Chief Executive Officer
Executive
ANDREW LOZYNIAK
Exhibit 1 (Continued)
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made and
entered into this 31st day of March, 1998, among CTS Corporation
("CTS"), Dynamics Corporation of America ("DCA"), and Henry V.
Kensing (the "Executive").
WHEREAS, CTS, DCA and Executive executed an Employment
Agreement on the 9th day of May, 1997, which became effective on
October 16, 1997 (the "Employment Agreement"); and
WHEREAS, the parties now desire to modify the
Employment Agreement as set forth herein and to settle all
matters arising thereunder;
NOW, THEREFORE, in consideration of the mutual premises
and the respective covenants and agreements herein contained, the
parties hereto agree as follows:
1. Operation of Agreement
A. CTS, DCA and Executive hereby each agree that
Executive's employment at DCA and membership on the DCA Board of
Directors and any and all boards of subsidiary corporations
thereof shall terminate, effective at the close of business on
March 31, 1998 ("Date of Termination").
B. Nothing contained herein is intended to be an
admission or acknowledgment by any of CTS, DCA, or Executive that
Executive's employment has been terminated for Good Reason or for
Cause, as those terms are defined in the Employment Agreement.
C. Except as set forth herein, all prior agreements,
understandings, representations, and arrangements of any kind
between (a) Executive and (b) CTS and/or DCA are hereby canceled
in their entirety and are of no further effect.
2. Compensation and Benefits
A. CTS agrees to fulfill and perform all of the
obligations which are set forth in Sections 6(a), 6(d) and 6(e)
of the Employment Agreement, except that CTS will fulfill the
obligations under Section 6(a)(ii) of the Employment Agreement by
making the payments required by subsection (ii)(B) thereof,
pursuant to Executive's election dated January 26, 1998.
Executive hereby acknowledges and agrees that his rights under
this Section 2 constitute his entire rights to compensation and
benefits from CTS, DCA, or any affiliated entity under the
Employment Agreement.
B. CTS will pay the Executive (or, in the event of
his death, his legal representative) 54 equal monthly payments of
$15,145.78, beginning on April 1, 1998 and continuing on the
first day of each month thereafter, through and including
September 1, 2002.
C. On each of April 1, 1999, April 1, 2000, April 1,
2001 and April 1, 2002, CTS will pay the Executive (or, in the
event of his death, his legal representative) an amount equal to
$682,000.00.
D. The payments to be made by CTS pursuant to B. and
C. above shall be made by bank wire transfer of immediately
available funds to an account designated in writing by Executive
to CTS.
E. Executive shall retain all rights accrued
heretofore and through the Date of Termination under the Dynamics
Corporation of America Employee Savings and Investment Plan, the
Retirement Plan for Employees of Dynamics Corporation of America,
any directors' and officers' liability insurance policy of DCA or
CTS, rights to indemnification under any written agreement with
CTS or under the Certificate of Incorporation or by-laws of DCA
or CTS, and any and all rights to reimbursement of reasonable
out-of-pocket expenses incurred prior to the Date of Termination.
3. Consulting Arrangement
A. During the second calendar quarter of 1998,
Executive agrees to remain available, for up to 200 hours, on an
irregular, part-time basis to render, free of any charge except
reimbursement of out-of-pocket expenses in accordance with CTS'
policies applicable to senior executives, consulting and advisory
services related to the DCA businesses and reasonably requested
and authorized by CTS.
B. CTS will cooperate with Executive in giving him
advance notice of any consulting services so requested, and will
not require that such services be rendered at a location other
than DCA's current offices in Greenwich, Connecticut or at other
than normal business hours without Executive's agreement thereto
in his sole discretion. To the extent that Executive fails to
render the full 200 hours of consulting services contemplated
herein by June 30, 1998, regardless of the reason therefor, his
obligation hereunder will expire without liability to CTS, DCA or
any other person.
4. Releases
A. Except for rights under this Settlement Agreement,
Executive hereby irrevocably releases and waives any right, claim
or cause of action of any kind, known or unknown, at law or in
equity, which he had or has against CTS, DCA, any affiliate of
either of them and/or any of their respective officers,
directors, employees or agents.
B. Except for rights under this Settlement Agreement,
CTS and DCA, on behalf of themselves and their respective
affiliates, officers, directors, employees and agents, hereby
irrevocably release and waive any right, claim or cause of action
of any kind, known or unknown, at law or in equity, which any one
of them had or has against Executive and/or any of his heirs,
executors or administrators.
5. Miscellaneous
A. The parties restate and incorporate, as if set
forth herein in their entirety, Sections 7, 8, 9 and 10 of the
Employment Agreement.
B. DCA's current office in Greenwich, Connecticut
shall remain in operation through June 30, 1998, and Executive
will be entitled to utilize the office space and facilities and
secretarial services currently available to Executive, for any
and all business or personal purposes through that date.
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date above written.
DYNAMICS CORPORATION OF CTS CORPORATION
AMERICA
By: By:
Jeannine M. Davis Joseph P. Walker
Assistant Secretary Chairman of the Board,
and Director President and
Chief Executive Officer
Executive
HENRY V. KENSING
Exhibit 1 (Continued)
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made and
entered into this 31st day of March, 1998, among CTS Corporation
("CTS"), Dynamics Corporation of America ("DCA"), and Patrick J.
Dorme (the "Executive").
WHEREAS, CTS, DCA and Executive executed an Employment
Agreement on the 9th day of May, 1997, which became effective on
October 16, 1997 (the "Employment Agreement"); and
WHEREAS, the parties now desire to modify the
Employment Agreement as set forth herein and to settle all
matters arising thereunder;
NOW, THEREFORE, in consideration of the mutual premises
and the respective covenants and agreements herein contained, the
parties hereto agree as follows:
1. Operation of Agreement
A. CTS, DCA and Executive hereby each agree that
Executive's employment at DCA and membership on the DCA Board of
Directors and any and all boards of subsidiary corporations
thereof shall terminate, effective at the close of business on
March 31, 1998 ("Date of Termination").
B. Executive further agrees to resign from the CTS
Board of Directors on or before July 1, 1998. Executive will not
be eligible to participate in any compensation arrangements for
non-employee directors except reimbursement of out-of-pocket
expenses in accordance with CTS' policies applicable to
directors, and except for rights heretofore accrued under the CTS
Corporation Stock Retirement Plan for Non-employee Directors.
C. Nothing contained herein is intended to be an
admission or acknowledgment by any of CTS, DCA, or Executive that
Executive's employment has been terminated for Good Reason or for
Cause, as those terms are defined in the Employment Agreement.
D. Except as set forth herein, all prior agreements,
understandings, representations, and arrangements of any kind
between (a) Executive and (b) CTS and/or DCA are hereby canceled
in their entirety and are of no further effect.
2. Compensation and Benefits
A. CTS agrees to fulfill and perform all of the
obligations which are set forth in Sections 6(a), 6(d) and 6(e)
of the Employment Agreement, except that CTS will fulfill the
obligations under Section 6(a)(ii) of the Employment Agreement by
making the payments required by subsection (ii)(B) thereof,
pursuant to Executive's election dated January 26, 1998.
Executive hereby acknowledges and agrees that his rights under
this Section 2 constitute his entire rights to compensation and
benefits from CTS, DCA, or any affiliated entity under the
Employment Agreement.
B. CTS will pay the Executive (or, in the event of
his death, his legal representative) 54 equal monthly payments of
$12,588.44, beginning on April 1, 1998 and continuing on the
first day of each month thereafter, through and including
September 1, 2002.
C. On each of April 1, 1999, April 1, 2000, April 1,
2001 and April 1, 2002, CTS will pay the Executive (or, in the
event of his death, his legal representative) an amount equal to
$682,000.00.
D. The payments to be made by CTS pursuant to B. and
C. above shall be made by bank wire transfer of immediately
available funds to an account designated in writing by Executive
to CTS.
E. Executive shall retain all rights accrued
heretofore and through the Date of Termination under the Dynamics
Corporation of America Employee Savings and Investment Plan, the
Retirement Plan for Employees of Dynamic Corporation of America,
any directors' and officers' liability insurance policy of DCA or
CTS, rights to indemnification under any written agreement with
CTS or under the Certificate of Incorporation or by-laws of DCA
or CTS, and any and all rights to reimbursement of reasonable
out-of-pocket expenses incurred prior to the Date of Termination.
3. Repurchase of CTS Common Stock
CTS agrees to buy, and Executive agrees to sell, for a
purchase price of $924,536.00 in the aggregate, or $32.60 per
share, 28,360 shares of CTS common stock (the "Shares"). CTS
will pay the purchase price by bank wire transfer of immediately
available funds to an account designated in writing by Executive
to CTS (a "Designated Account") against delivery by Executive to
CTS of certificates evidencing the Shares, duly executed in
blank, or accompanied by an irrevocable stock power, duly
executed in blank. Alternatively, CTS will make the payment of
the purchase price by bank wire transfer of immediately available
funds to a Designated Account immediately upon receipt of
evidence satisfactory to CTS that Executive has irrevocably
instructed Merrill Lynch & Co. ("Merrill") to transfer the Shares
from Executive's account at Merrill to CTS' account at Merrill.
At the request of CTS, Executive will duly execute and deliver
such documentation as CTS may reasonably request to evidence the
purchase and sale contemplated by this paragraph.
4. Consulting Arrangement
A. During the second calendar quarter of 1998,
Executive agrees to remain available, for up to 200 hours, on an
irregular, part-time basis to render, free of any charge except
reimbursement of out-of-pocket expenses in accordance with CTS'
policies applicable to senior executives, consulting and advisory
services related to the DCA businesses and reasonably requested
and authorized by CTS.
B. CTS will cooperate with Executive in giving him
advance notice of any consulting services so requested, and will
not require that such services be rendered at a location other
than DCA's current offices in Greenwich, Connecticut or at other
than normal business hours without Executive's agreement thereto
in his sole discretion. To the extent that Executive fails to
render the full 200 hours of consulting services contemplated
herein by June 30, 1998, regardless of the reason therefor, his
obligation hereunder will expire without liability to CTS, DCA or
any other person.
5. Releases
A. Except for rights under this Settlement Agreement,
Executive hereby irrevocably releases and waives any right, claim
or cause of action of any kind, known or unknown, at law or in
equity, which he had or has against CTS, DCA, any affiliate of
either of them and/or any of their respective officers,
directors, employees or agents.
B. Except for rights under this Settlement Agreement,
CTS and DCA, on behalf of themselves and their respective
affiliates, officers, directors, employees and agents, hereby
irrevocably release and waive any right, claim or cause of action
of any kind, known or unknown, at law or in equity, which any one
of them had or has against Executive and/or any of his heirs,
executors or administrators.
6. Miscellaneous
A. The parties restate and incorporate, as if set
forth herein in their entirety, Sections 7, 8, 9 and 10 of the
Employment Agreement.
B. DCA's current office in Greenwich, Connecticut
shall remain in operation through June 30, 1998 and Executive
will be entitled to utilize the office space and facilities and
secretarial services currently available to Executive, for any
and all business or personal purposes through that date.
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date above written.
DYNAMICS CORPORATION OF CTS CORPORATION
AMERICA
By: By:
Jeannine M. Davis Joseph P. Walker
Assistant Secretary Chairman of the Board,
and Director President and
Chief Executive Officer
Executive
PATRICK J. DORME
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