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 July 3, 1994
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
July 3, 1994 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 8, 1994: 5,172,704
Page 1 of 12<PAGE>
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Six Months Ended
July 3, 1994, and July 4, 1993 3
Condensed Consolidated Balance Sheets -
As of July 3, 1994, and December 31, 1993 4
Condensed Consolidated Statements of Cash
Flows - For the Six Months Ended July 3,
1994, and July 4, 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 12<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $70,618 $62,613 $134,975 $123,052
Cost of goods sold 54,985 49,902 105,215 97,721
Gross earnings 15,633 12,711 29,760 25,331
Selling, general and
administrative expenses 10,108 9,668 20,675 19,709
Operating earnings 5,525 3,043 9,085 5,622
Other expenses (income):
Interest expense 189 222 416 461
Other (220) (34) (444) (218)
Total other expenses
(income) (31) 188 (28) 243
Earnings before income
taxes and cumulative
effect of changes in
accounting principles 5,556 2,855 9,113 5,379
Income taxes 1,667 1,045 2,734 1,802
Earnings before cumulative
effect of changes in
accounting principles 3,889 1,810 6,379 3,577
Cumulative effect of account-
ing change - postretirement
benefits (5,096)
Cumulative effect of account-
ing change - income taxes 482
(4,614)
Net earnings (loss) $ 3,889 $ 1,810 $ 6,379 $ (1,037)
Earnings (loss) per share:
Before accounting changes $ .75 $ .35 $ 1.23 $ .69
Cumulative effect on prior
years of accounting
changes (.89)
Net earnings (loss) per
share $ .75 $ .35 $ 1.23 $ (.20)
Cash dividends per share $ .10 $ .10 $ .20 $ .20
Average net shares
outstanding 5,169,970 5,152,600 5,164,930 5,151,710
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 12<PAGE>
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
July 3, December 31,
1994 1993*
ASSETS (Unaudited)
Current Assets
<S> <C> <C>
Cash $ 11,153 $ 23,534
Accounts receivable, less allowances
(1994--$820; 1993--$710) 38,600 30,627
Inventories--Note B 39,645 36,059
Other current assets 2,669 1,929
Deferred income taxes 5,117 5,117
Total current assets 97,184 97,266
Property, Plant and Equipment, less accumulated
depreciation (1994--$137,942; 1993--$134,566) 47,856 47,842
Other Assets
Goodwill, less accumulated amortization
(1994--$6,668; 1993--$6,330) 5,521 5,801
Prepaid pension 35,707 32,845
Other 867 1,310
Total other assets 42,095 39,956
$187,135 $185,064
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 3,114 $ 12,822
Current maturities of long-term obligations 291 341
Accounts payable 16,859 11,611
Accrued liabilities 29,326 25,114
Total current liabilities 49,590 49,888
Long-term Obligations 1,898 4,995
Deferred Income Taxes 5,329 5,329
Postretirement Benefits 5,232 5,649
Stockholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,871 34,130
Retained earnings 106,213 100,868
Cumulative foreign translation adjustment (597) (1,049)
139,487 133,949
Less cost of common stock held in treasury:
1994--636,577 shares; 1993--653,607 shares 14,401 14,746
Total stockholders' equity 125,086 119,203
$187,135 $185,064
</TABLE>
*The balance sheet at December 31, 1993, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 12<PAGE>
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
July 3, July 4,
1994 1993
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) $ 6,379 $(1,037)
Adjustments to reconcile earnings to net
cash provided by (used in) operating
activities:
Cumulative effect of change in accounting for:
Postretirement benefits other than pensions 5,096
Income taxes (482)
Depreciation and amortization 5,946 6,343
(Increase) decrease in:
Accounts receivable (7,973) (2,357)
Inventories (3,586) (3,595)
Other current assets (740) 109
Prepaid pension expense (2,862) (2,912)
Other 21 (593)
Increase in:
Accounts payable and accrued liabilities 9,460 6,416
Total adjustments 266 8,025
Net cash provided by operating activities 6,645 6,988
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 543 372
Capital expenditures (5,815) (5,935)
Net cash used in investing activities (5,272) (5,563)
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations 418
Payments of long-term obligations (3,215) (3,300)
Increase (decrease) in notes payable (9,761) 2,904
Dividend payments (1,034) (1,030)
Other 72
Net cash used in financing activities (14,010) (936)
Effect of exchange rate changes on cash 256 (146)
Net (decrease) increase in cash (12,381) 343
Cash at beginning of year 23,534 18,455
Cash at end of period $11,153 $18,798
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest $ 415 $ 481
Income Taxes $ 1,307 $ 447*
</TABLE>
*Net of United Kingdom tax refund of $894.
See notes to condensed consolidated financial statements.
Page 5 of 12<PAGE>
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3, 1994
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is
unaudited; however, in the opinion of management, the interim data
includes all adjustments considered necessary for a fair
presentation of the results for the interim period. Operating
results for the six-month period ended July 3, 1994, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1994. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1993 Annual Report on Form 10-K.
NOTE B--INVENTORIES
The components of inventory consist of the following:
(In thousands)
July 3, December 31,
1994 1993
Finished goods $ 6,141 $ 5,064
Work-in-process 16,353 15,344
Raw material 17,151 15,651
$39,645 $36,059
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
might ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial
position of the Company or the results of operations.
Page 6 of 12<PAGE>
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 July 3,
1994, to December 31, 1993
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
July 3, December 31, Increase
1994 1993 (Decrease)
Cash $ 11,153 $ 23,534 $(12,381)
Accounts receivable, net 38,600 30,627 7,973
Inventories, net 39,645 36,059 3,586
Current assets 97,184 97,266 (82)
Current liabilities 49,590 49,888 (298)
Working capital 47,594 47,378 216
Current ratio 1.96 1.95 .01
Interest bearing debt 5,280 17,992 (12,712)
Net tangible worth 119,565 113,402 6,163
Ratio of interest bearing debt
to net tangible worth 0.04 0.16 (0.12)
From December 31, 1993, to July 3, 1994, cash of CTS Corporation
and its subsidiaries ("CTS" or "Company") decreased $12.4 million.
The primary use of cash was the $12.7 million decrease in interest
bearing debt which resulted mainly from discretionary short-term
debt repayments. The change in working capital, excluding cash and
current debt, was an increase of $2.8 million. The $2.8 million
primarily reflects increases in accounts receivable of $8.0 million
and inventory of $3.6 million, offset by increases in accounts
payable of $5.2 million and accrued liabilities of $4.2 million.
These increases are primarily a reflection of the increase in sales
and production levels during the second quarter of 1994 compared to
the last quarter of 1993.
Capital expenditures were $5.8 million during the first six months
of 1994, compared with $5.9 million for the same period a year
earlier. These capital expenditures were primarily for new
products and manufacturing improvement programs.
Page 7 of 12<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
On March 31, 1993, the Company replaced its previous $40 million
long-term revolving credit agreement with a new $45 million long-
term revolving credit agreement. The new agreement expires on
April 1, 1997. The new agreement contains certain loan covenants
with which the Company is in full compliance. The revolving
agreement is the Company's primary credit vehicle, and with cash
from operations, is expected to adequately fund the Company's
anticipated cash needs.
Material Changes in Results of Operations: Comparison of Second
Quarter 1994 to Second Quarter 1993
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending July 3, 1994, and July 4, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
July 3, July 4, Increase
1994 1993 (Decrease)
<S> <C> <C> <C>
Net sales $70,618 $62,613 $8,005
Gross earnings 15,633 12,711 2,922
Gross earnings as a percent
of sales 22.14% 20.30% 1.84%
Selling, general and
administrative expenses 10,108 9,668 440
Selling, general and
administrative expenses as
a percent of sales 14.31% 15.44% (1.13)%
Operating earnings 5,525 3,043 2,482
Operating earnings as a
percent of sales 7.82% 4.86% 2.96%
Interest expense 189 222 (33)
Earnings before income taxes
and cumulative effect of
changes in accounting
principles 5,556 2,855 2,701
Income taxes 1,667 1,045 622
Income tax rate 30.00% 36.60% (6.6)%
</TABLE>
Net sales increased by $8.0 million, or 12.8% compared to the
second quarter of 1993. The significant sales increases occurred
in automotive and connector related products as a result of the
overall improved automotive market, new products and applications,
and additional market penetration. These increases more than
offset a sales decline in our microelectronics business.
Page 8 of 12<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Gross earnings improved primarily due to the sales and production
volume increases which favorably affected operating efficiencies in
all business units, excluding the microelectronics and frequency
controls units.
Selling, general and administrative expenses remained relatively
flat with a minor increase in selling expense as a result of the
increased sales volume. As a percent of sales, these expenses
declined slightly reflecting the Company's continued emphasis of
cost control over all operating expenses.
The tax rate for 1994 is consistent with the first quarter 1994 tax
rate and decreased from the 1993 full year annual effective rate of
36%. The 1994 rate change from the 1993 annual rate is primarily
the result of additional expected net operating loss utilization.
Material Changes in Results of Operations: Comparison of First
Half of 1994 to First Half of 1993
The following table highlights changes in significant components of
the consolidated statements of earnings for the six-month periods
ending July 3, 1994, and July 4, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
July 3, July 4, Increase
1994 1993 (Decrease)
<S> <C> <C> <C>
Net sales $134,975 $123,052 $11,923
Gross earnings 29,760 25,331 4,429
Gross earnings as a percent
of sales 22.05% 20.59% 1.46%
Selling, general and
administrative expenses 20,675 19,709 966
Selling, general and
administrative expenses as
a percent of sales 15.32% 16.02% (.70)%
Operating earnings 9,085 5,622 3,463
Operating earnings as a
percent of sales 6.73% 4.57% 2.16%
Interest expense 416 461 (45)
Earnings before income taxes
and cumulative effect of
changes in accounting
principles 9,113 5,379 3,734
Income taxes 2,734 1,802 932
Income tax rate 30.00% 33.50% (3.50)%
</TABLE>
Page 9 of 12<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
For the first half of 1994, net sales increased $11.9 million, or
a 9.7% increase compared to the first half of 1993. Consistent
with the second quarter of 1994, the significant 1994 year-to-date
sales increases occurred in automotive and connector related
products. These increases have more than offset the year-to-date
sales decline experienced by our frequency controls and
microelectronics business lines.
Gross earnings have improved throughout the first half of the year,
primarily due to the sales and production volume increases which
have favorably affected operating efficiencies in all business
units, excluding the microelectronics and frequency controls units.
Selling, general and administrative expenses in dollars have
increased for the first half of the year. The increase is
primarily selling expenses associated with the increased sales
volume. However, these expenses have decreased as a percent of
sales, reflecting continuing efforts to control operating expenses.
The tax rate has decreased from the 1993 effective year-to-date
rate of 33.5% to 30.0%, primarily as a result of expected
additional net operating loss utilization.
10 of 12<PAGE>
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.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of CTS Corporation was held on
April 29, 1994.
Each of the five director-nominees identified below was re-elected
to a one-year term as director of the Corporation with the
following votes reported of the 4,150,454 eligible to vote at the
meeting:
Votes Broker
Votes Cast Non-
Director-Nominee Cast For Against Abstentions Votes
Lawrence J. Ciancia 3,831,458 7,757 24,893 205,403
Pat J. Dorme 3,814,884 11,331 37,893 205,403
Gerald H. Frieling, Jr. 3,831,158 8,057 24,893 205,403
Andrew Lozyniak 3,803,439 11,076 49,593 205,403
Joseph P. Walker 3,831,318 7,897 24,893 205,403
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Forms 8-K
None
Page 11 of 12<PAGE>
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
/s/ Jeannine M. Davis /s/ Stanley J. Aris
Jeannine M. Davis Stanley J. Aris
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: August 9, 1994
Page 12 of 12<PAGE>
