SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended December 31, 1993
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction of (IRS Employer Identifi-
incorporation or organization) cation Number)
905 West Boulevard North, Elkhart, Indiana 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 219-293-7511
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant has: (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securit-
ies 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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Yes X No
There were 5,169,354 shares of Common Stock, without par value,
outstanding on March 11, 1994.
The aggregate market value of the voting stock held by non-affi-
liates of CTS Corporation was approximately $68 million on March
11, 1994.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the CTS Corporation 1993 Annual Report for
the fiscal year ended December 31, 1993, incorporated
by reference in Part I and Part II.
(2) Portions of the 1994 Proxy Statement for annual meeting
of stockholders to be held on April 29, 1994,
incorporated by reference in Part III.
(3) Certain portions of the CTS Corporation Form 10-K for
the 1987 fiscal year ended January 3, 1988, incorporated
by reference in Part IV.
(4) Certain portions of Registration Statement No. 33-
27749, effective March 23, 1989, incorporated by
reference in Part IV.
(5) Certain portions of the 1989 Proxy Statement for annual
meeting of stockholders held April 28, 1989,
incorporated by reference in Part IV.
(6) Certain portions of the CTS Corporation Form 10-K for
the 1989 fiscal year ended December 31, 1989, incorporated
by reference in Part IV.
(7) Certain portions of the CTS Corporation Form 10-K for
the 1991 fiscal year ended December 31, 1991,
incorporated by reference in Part IV.
(8) Certain portions of the CTS Corporation Form 10-K for
the 1992 fiscal year ended December 31, 1992,
incorporated by reference in Part IV.
EXHIBIT INDEX -- PAGES 16 AND 17
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Part I
Item 1. Business
INTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS
The registrant, CTS Corporation (CTS or Company), is an Indiana
corporation incorporated in 1929 as a successor to a company
started in 1896. CTS' principal executive offices are located at
905 West Boulevard North, Elkhart, Indiana 46514, telephone
number (219) 293-7511.
CTS designs, manufactures and sells electronic components. The
engineering and manufacturing of CTS products is performed at 15
facilities worldwide. CTS products are sold through sales
engineers, sales representatives, agents and distributors.
In March 1987, a settlement was announced between CTS and
Dynamics Corporation of America (DCA), terminating the sale
process of the Company and resolving all disputes between CTS and
DCA. Subsequently, the United States Supreme Court held that the
Control Share Acquisition Chapter was constitutional. As a
result of the Court's decision, the issue of voting rights of
1,020,000 shares of CTS common stock acquired by DCA in 1986 was
submitted to a vote of CTS stockholders at the 1987 annual
meeting. A majority of all shares eligible to vote was necessary
to grant voting rights. DCA was not eligible to vote on the
issue. The stockholders voted not to grant voting rights to DCA
on these shares. The Court's decision did not have an impact
with respect to voting rights on additional shares of CTS common
stock previously acquired by DCA. In May 1988, the settlement
agreement expired pursuant to its terms. At the end of 1993, DCA
owned 1,920,900 shares (37.3%) of CTS common stock, including the
1,020,000 shares without voting rights.
In January 1990, the Company formally announced the closing of
its Switch Division located in Paso Robles, California. The Paso
Robles manufacturing operations were relocated to the Company's
facilities in Taiwan and Bentonville, Arkansas. During 1992, the
Company completed the sale of the Paso Robles manufacturing plant
and most of the associated real estate for $1.9 million. A pre-
tax gain of $0.9 was realized from the sale. The manufacturing
operations for certain variable resistor and selector switch
products, which formerly were performed in Elkhart, Indiana, were
also transferred to Bentonville in 1990, to take advantage of any
efficiencies to be gained in consolidating such operations in
Bentonville. The buildings located in Elkhart which housed the
plastics molding, and element production, were vacated, with
these manufacturing operations being consolidated into the main
Elkhart plant.
CTS announced in July 1990 that its facility near Glasgow,
Scotland, would be expanded in order to manufacture and sell
additional electronic products in Europe. The total capital
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investment has been approximately $10 million as of December 31,
1993. Automotive throttle position sensors and precision and
clock oscillators were added to the product lines already
manufactured in Scotland. The decision to expand the Scottish
facility was based on several factors, including the excellent
business climate and skills base in Scotland and the anticipated
full participation of the United Kingdom in the European Economic
Community. The expansion of the Scotland facility represents a
major effort by CTS to serve the large and rapidly growing
European market on a direct basis.
In November 1991, construction was completed on a 53,000 square
foot manufacturing facility in Bangkok, Thailand. During 1992,
the Company idled operations at this facility.
Also during 1991, the Company significantly reduced the operating
activities at its Brownsville, Texas, facility and plans to sell
this property.
The manufacturing space owned by CTS in Hong Kong, which
consisted of two floors in a multi-story building, was sold in
March 1991. One floor was leased back by CTS for the
continuation of its manufacturing operations in Hong Kong.
During 1992, the Company terminated this lease and discontinued
its manufacturing operations in Hong Kong.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
All of the Company's products are considered one industry
segment. Sales to unaffiliated customers, operating profit and
identifiable assets, by geographic area, are contained in "Note I
- Business Segment and Non-U.S. Operations," pages 21-22 , of
the CTS Corporation 1993 Annual Report, and is incorporated
herein by reference.
PRINCIPAL BUSINESS AND PRODUCTS OF CTS
CTS is primarily in the business of developing, manufacturing and
selling a broad line of electronic components principally serving
the electronic needs of original equipment manufacturers (OEM).
The Company sells classes of similar products consisting of the
following:
Automotive control devices Loudspeakers
Electronic connectors Programmable switches
Frequency control devices Resistor networks
Hybrid microcircuits Selector switches
Industrial electronics Variable resistors
Most products within these product classes are manufactured by
CTS from purchased raw materials or subassemblies. Some products
sold by CTS are purchased and resold under the Company's name.
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During the past three years, five classes of similar product
lines accounted for 10% or more of consolidated revenue during
one or more years, as follows:
Percent of Consolidated Revenue
Class of Similar Products 1993 1992 1991
Automotive Control Devices 26 20 18
Frequency Control Devices 15 17 16
Hybrid Microcircuits 14 11 7
Electronic Connectors 14 17 15
Resistor Networks 14 16 18
MARKETS
CTS estimates that its products have been sold in the following
segments of the electronics OEM and distribution markets and in
the following percentages during the preceding three fiscal
years:
Percent of Consolidated Revenue
Markets 1993 1992 1991
Automotive 32 25 22
Data Processing 22 20 20
Communications Equipment 17 18 19
Defense and Aerospace 12 17 19
Instruments and Controls 9 12 11
Distribution 4 5 5
Consumer Electronics 4 3 4
Total 100% 100% 100%
Products for the automotive market include throttle position
sensors, switch assemblies for operator interface, exhaust gas
recirculation subsystems, variable resistors and switches for
automotive entertainment systems and other applications, and
loudspeakers.
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Products for the data processing market include resistor
networks, frequency control devices, programmable switches and
hybrid microcircuits. Products for this market are principally
used in computers and computer peripheral equipment.
In the communications equipment market, CTS products include
frequency control devices, switches and resistor networks.
Products for this market are principally used in telephone
equipment and in telephone switching systems.
CTS products for the defense and aerospace market, usually
procured through government contractors or subcontractors, are
electronic connectors, hybrid microcircuits, backpanels,
frequency control devices and programmable key storage devices.
Products for the instruments and controls market include hybrid
microcircuits, variable resistors and switches. Principal end
uses are medical electronic devices and electronic testing,
measuring and servicing instruments.
In the distribution market, CTS' primary products include
programmable switches, resistor networks and frequency control
devices. In this market, standard CTS products are sold for a
wide variety of applications.
Products for the consumer electronics market, primarily variable
resistors and switches, are principally used in home
entertainment equipment and appliances.
MARKETING AND DISTRIBUTION
Sales of CTS electronic components to original equipment
manufacturers are principally by CTS sales engineers and
manufacturers representatives. CTS maintains sales offices in
Elkhart, Indiana; Detroit, Michigan; and in the United Kingdom,
Hong Kong, Taiwan and Japan. Various regions of the United
States are serviced by sales engineers working out of their
homes. The sale of electronic components is relatively
integrated such that most of the product lines of CTS are sold
through the same field sales force. Approximately 36% of net
sales in 1993 were attributable to coverage by CTS sales
engineers.
Generally, CTS sales engineers service the Company's largest
customers with application specific products. CTS sales
engineers work closely with major customers in determining
customer requirements and in designing CTS products to be
provided to such customers.
CTS uses the services of independent sales representatives and
distributors in the United States and foreign countries for
customers not serviced by CTS sales engineers. Sales represen-
tatives receive commissions from CTS. During 1993, about 60% of
net sales were attributable to coverage by sales representatives.
Independent distributors purchase products from CTS for resale to
customers. In 1993, independent distributors accounted for about
4% of net sales.
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RAW MATERIALS
Generally, CTS' major raw materials are steel, copper, brass,
certain precious metals, resistive and conductive inks, passive
components and semiconductors, used in several CTS products;
ceramic materials used particularly in resistor networks and
hybrid microcircuits; synthetic quartz used in frequency control
devices; and laminate material used in printed circuit boards.
These raw materials are purchased from several vendors, and
except for certain semiconductors, CTS does not believe that it
is dependent on one or on a very few vendors. In 1993 all of
these materials were available in adequate quantities to meet
CTS' production demands.
The Company does not presently anticipate any raw material short-
ages which would significantly affect production. However, the
lead times between the placement of orders for certain raw mater-
ials and actual delivery to CTS are quite variable, and the
Company may from time to time be required to order raw materials
in quantities and at prices less than optimal to compensate for
the variability of lead times for delivery.
Precious metals prices have a significant effect on the
manufacturing cost and selling prices of many CTS products,
particularly some programmable switches, electronic connectors
and resistor networks. CTS has continuing programs to reduce the
precious metals content of several products, when consistent with
customer specifications.
WORKING CAPITAL
CTS does not usually buy inventories or manufacture products
without actual or reasonably anticipated customer orders, except
for some standard, off-the-shelf distributor products. The
Company is not generally required to carry significant amounts of
inventories to meet rapid delivery requirements because most
customer orders are for custom products. CTS has entered into
"just-in-time" arrangements with certain major customers in order
to meet customers' just-in-time delivery needs.
CTS carries raw materials, including certain semiconductors, and
certain work-in-process and finished goods inventories which are
unique to a particular customer or to a small number of
customers, and in the event of reductions in or cancellations of
orders, some inventories are not useable or cannot be returned to
vendors for credit. CTS generally imposes charges for the
reduction or cancellation of orders by customers, and these
charges are usually sufficient to cover the financial exposure of
CTS to inventories which are unique to a customer. CTS does not
customarily grant special return privileges or payment privileges
to customers, although CTS' distributor program permits certain
returns. CTS' working capital requirements are generally
cyclical but not seasonal.
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Working capital requirements are generally dependent on the
overall business level. During 1993, working capital decreased
slightly to $47.4 million. Cash represents a significant part of
the Company's working capital. Most of CTS' cash at December 31,
1993, was held in U.S.-denominated cash equivalents for the
credit of the various non-U.S. operations. The cash, other than
approximately $5 million, is generally available to the parent
Company.
PATENTS, TRADEMARKS AND LICENSES
CTS maintains a program of obtaining and protecting U.S. and
non U.S. patents and trademarks. CTS believes that the success of
its business is not materially dependent on the existence or
duration of any patent, group of patents or trademarks.
CTS licenses the manufacture of several electronic products to
companies in the United States and non U.S. countries. In 1993
license and royalty income was 0.03% of net sales. CTS believes
that the success of its business is not materially dependent upon
any licensing arrangement where CTS is either the licensor or
licensee.
MAJOR CUSTOMERS
CTS' 15 largest customers represented about 62%, 58% and 59% of
net sales in 1993, 1992 and 1991, respectively.
Of the net sales to unaffiliated customers, approximately $40.1
million, $30.7 million and $29.9 million were derived from sales
to General Motors Corporation in 1993, 1992 and 1991,
respectively. About $24.0 million, $19.3 million and $23.5
million were derived from sales to International Business
Machines Corporation in 1993, 1992 and 1991, respectively. CTS
is dependent upon these and other customers for a significant
percentage of its sales and profits, and the loss of one or more
of these customers or reduction of orders by one or more of these
customers would have a materially adverse effect upon the
Company.
BACKLOG OF ORDERS
Backlog of orders does not necessarily provide an accurate
indication of present or future business levels for CTS. For
many electronic products, the period between receipt of orders
and delivery is relatively short. For large orders from major
customers that may constitute backlog over an extended period of
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time, production scheduling and delivery are subject to change or
cancellation by the customers on relatively short notice. At the
end of 1993, the Company's backlog of orders was $70.5 million,
compared with $64.0 million at the end of 1992. This increase
was primarily attributable to increased demand from automotive
customers.
The backlog of orders at the end of 1993 will generally be filled
during the 1994 fiscal year.
GOVERNMENT CONTRACTS
CTS believes that about 12% of its net sales are associated with
purchases by the U.S. Government or foreign governments,
principally for defense and aerospace applications. Because most
CTS products procured through government contractors and
subcontractors are for military end uses, the level of defense
and aerospace market sales by CTS is dependent upon government
budgeting and funding of programs utilizing electronic systems.
Almost all CTS sales involving government purchases are to
primary government contractors or subcontractors. CTS is usually
subject to contract provisions permitting termination of the
contract, usually with penalties payable by the government;
maintenance of specified accounting procedures; limitations on
and renegotiations of profits; priority production scheduling;
and possible penalties or fines against CTS for late delivery or
substandard quality. Such contract provisions have not previously
resulted in material uncertainties or disruptions for CTS.
COMPETITION
CTS competes with many domestic and non U.S. manufacturers prin-
cipally on the basis of product features, price, engineering,
quality, reliability, delivery and service. Most product lines
of CTS encounter significant competition. The number of
significant competitors varies from product line to product line.
No single competitor competes with CTS in every product line, but
many competitors are larger and more diversified than CTS. Some
competitors are divisions or affiliates of customers. CTS is
subject to competitive risks typical in the electronics industry
such as shorter product life cycles and new products causing
existing products to become obsolete.
Some customers have reduced or plan to reduce the number of
suppliers while increasing the volume of purchases from
independent suppliers. Most customers are demanding higher
quality, reliability and delivery standards from CTS as well as
competitors. These trends may create opportunities for CTS while
also increasing the risk of loss of business to competitors.
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The Company believes that it competes most successfully in custom
products manufactured to meet specific applications of major
original equipment manufacturers.
CTS believes that it has some advantages over certain competitors
because of its ability to apply a broad range of technologies and
materials capabilities to develop products for the special
requirements of customers. CTS also believes that it has an
advantage over some competitors in its capability to sell a broad
range of products manufactured to relatively consistent standards
of quality and delivery. CTS believes that the relative breadth
of its product lines and relative consistency in quality and
delivery across product lines is an advantage to CTS in selling
products to customers.
CTS believes that it is one of the largest manufacturers of
automotive throttle position sensors.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
Information about revenue from sales to unaffiliated customers,
operating profit and identifiable assets, by geographic area, is
contained in "Note I - Business Segment and Non-U.S. Operations,"
pages 21-22 of the CTS Corporation 1993 Annual Report, and is
incorporated herein by reference.
In 1993 approximately 28% of net sales to unaffiliated customers,
after eliminations, were attributable to non-U.S. operations.
This represents an increase from 24% of net sales attributable to
non-U.S. operations in 1992. About 39% of total CTS assets,
after eliminations, are non-U.S. Except for cash and
equivalents, a substantial portion of these assets cannot readily
be liquidated. CTS believes that the business risks attendant to
its present non-U.S. operations, though substantial, are normal
risks for non-U.S. businesses, including expropriation, currency
controls and changes in currency exchange rates and government
regulations.
RESEARCH AND DEVELOPMENT ACTIVITIES
In 1993, 1992 and 1991, CTS spent $5.7, $6.1 and $5.7 million,
respectively, for research and development. Most CTS research
and development activities relate to new product and process
developments or the improvement of product materials. Many such
research and development activities are for the benefit of one or
a limited number of customers or potential customers.
During 1993, the Company did not enter into any new, significant
product lines, but continued to introduce additional versions of
existing products in response to present and future customer
requirements.
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ENVIRONMENTAL PROTECTION LAWS
In complying with federal, state and local environmental
protection laws, CTS has modified certain manufacturing processes
and expects to continue to make additional modifications. Such
modifications that have been performed have not materially
affected the capital expenditures, earnings or competitive
position of CTS.
Certain processes in the manufacture of the Company's current and
past products create hazardous waste by-products as currently
defined by federal and state laws and regulations. The Company
has been notified by the U.S Environmental Protection Agency,
state environmental agencies and, in some cases, generator
groups, that it is or may be a Potentially Responsible Party
(PRP) regarding hazardous waste remediation at several non-CTS
sites. The factual circumstances of each site are different; the
Company has determined that its role as a PRP with respect to
these sites, even in the aggregate, will not have a material
adverse effect on the Company's business or financial condition,
based on the following: 1) the Company's status as a de minimis
party; 2) the large number of other PRPs identified; 3) the
identification and participation of many larger PRPs who are
financially viable; 4) defenses concerning the nature and limited
quantities of materials sent by the Company to certain of the
sites; and 5) the Company's experience to-date in relation to the
determination of its allocable share. In addition to these non-
CTS sites, the Company has an ongoing practice of providing
reserves for probable remediation activities at certain of its
manufacturing locations and for claims and proceedings against
the Company with respect to other environmental matters. In the
opinion of management, based upon presently available
information, either adequate provision for probable costs has
been made, or the ultimate costs resulting will not materially
affect the consolidated financial position or results of
operations of the Company.
There are claims against the Company with respect to
environmental matters which the Company contests. In the opinion
of management, based upon presently available information, either
adequate provision for potential costs has been made, or the
costs which ultimately might result will not materially affect
the consolidated financial position or results of operations of
the Company.
EMPLOYEES
CTS employed an average of 3,975 persons during 1993. About 47%
of these persons were employed outside the United States at the
end of 1993. Approximately 309 employees in the United States
were covered by collective bargaining agreements as of December
31, 1993. The two collective bargaining agreements covering
these employees will expire in 1996.
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Item 2. Properties
CTS operations or facilities are at the following locations. The
owned properties are not subject to material liens or
encumbrances.
Lease
Approximate Owned or Expiration
Location Square Feet Leased Date
Elkhart, IN 521,813 Owned -
Berne, IN 248,726 Owned -
Singapore 158,926 Owned* -
Kaohsiung, Taiwan 132,887 Owned* -
Streetsville,
Ontario, Canada 111,740 Owned -
West Lafayette, IN 105,983 Owned -
Sandwich, IL 94,173 Owned -
Brownsville, TX 84,679 Owned -
Bentonville, AR 72,000 Owned -
Glasgow, Scotland 75,000 Owned -
New Hope, MN December,
(Science Center Dr.) 55,000 Leased 1998
Bangkok, Thailand 53,000 Owned -
Matamoros, Mexico 50,590 Owned* -
Baldwin, WI 39,050 Owned -
Cokato, MN 36,000 Owned -
TOTAL 1,839,567
* Buildings are located on land leased under renewable leases.
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The Company is currently seeking to sell some, or all, of the
Streetsville, Ontario, Canada, facility and related property, and
the Brownsville, Texas, manufacturing building.
The Company constructed the Bangkok, Thailand, facility during
1991. This facility was idled during 1992 and was idle for all
of 1993.
The Company regularly assesses the adequacy of its manufacturing
facilities for manufacturing capacity, available labor and
location to the markets and major customers for the Company's
products. CTS also reviews the operating costs of its facilities
and may from time to time relocate facilities or certain manufac-
turing activities in order to achieve operating cost reductions
and improved asset utilization and cash flow.
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1993, no issue was submitted to a
vote of CTS stockholders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The principal market for CTS common stock is the New York Stock
Exchange. Information relative to the high and low trading
prices for CTS Common Stock for each quarter of the past two
years and the frequency and amount of dividends declared during
the previous two years can be located in "Stockholder
Information," page 10, of the CTS Corporation 1993 Annual Report,
incorporated herein by reference. On March 11, 1994, there were
approximately 1,182 holders of record of CTS common stock.
The Company intends to continue a policy of considering dividends
on a quarterly basis. The declaration of a dividend and the
amount of any such dividend are subject to earnings, anticipated
working capital, capital expenditure and other investment
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requirements, the financial condition of CTS and such other
factors as the Board of Directors deems relevant.
Item 6. Selected Financial Data
A summary of selected financial data for CTS, for each of the
previous five fiscal years, is contained in the "Five-Year
Summary," page 11, of the CTS Corporation 1993 Annual Report,
incorporated herein by reference.
Certain divestitures and closures of businesses and certain
accounting changes affect the comparability of information con-
tained in the "Five-Year Summary."
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information about liquidity, capital resources and results of
operations, for the three previous fiscal years, is contained in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations (1991-1993)," pages 25-27, of the CTS
Corporation 1993 Annual Report, incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements, meeting the requirements of
Regulation S-X, and the Report of Independent Accountants, are
contained in pages 12-24 of the CTS Corporation 1993 Annual
Report, incorporated herein by reference. Quarterly per share
financial data is provided in "Stockholder Information," under
the subheading, "Quarterly Results of Operations", and "Per Share
Data," on page 10 of the CTS Corporation 1993 Annual Report, and
is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
There were no disagreements.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information responsive to Items 401(a) and 401(e) of Regulation
S-K pertaining to directors of CTS is contained in the 1994 Proxy
Statement under the caption "Election of Directors," pages 4-5,
filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
Information responsive to Item 405 of Regulation S-K pertaining
to compliance with Section 16(a) of the Securities Exchange Act
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of 1934 is contained in the 1994 Proxy Statement under the
caption "Compliance with Section 16(a) of the Securities Exchange
Act of 1934," page 5, filed with the Securities and Exchange
Commission, and is incorporated herein by reference.
The individuals listed were elected as executive officers of CTS
at the annual meeting of the Board of Directors on April 30,
1993, and are expected to serve as executive officers until the
next annual meeting of the Board of Directors, scheduled on April
29, 1994, at which time the election of officers will be
considered again by the Board of Directors.
Name Age Position and Offices
Joseph P. Walker 55 Director, Chairman,
President and Chief
Executive Officer
Philip T. Christ 62 Group Vice President
Stanley J. Aris 53 Vice President Finance and
Chief Financial Officer
Jeannine M. Davis 45 Vice President, Secretary
and General Counsel
Gary N. Hoipkemier 39 Treasurer
George T. Newhart 51 Corporate Controller
Joseph P. Walker has served as Chairman of the Board, President
and Chief Operating Officer of CTS since 1988. Mr. Walker is a
Director of NBD Bank and NBD Bank,N.A. and the National Association
of Manufacturers.
Philip T. Christ was elected Group Vice President, effective
July 2, 1990. Mr. Christ served as a Senior Vice President at
Simplex Time Recorder from 1976-1986.
Stanley J. Aris was elected Vice President, Finance and Chief
Financial Officer, effective May 18, 1992. Prior to joining CTS,
Mr. Aris worked for two years as a business consultant. From
1989 to 1990 Mr. Aris served as Vice President, Finance of Hypres
Corporation.
Jeannine M. Davis, an employee since 1980, served as legal
counsel from 1980-1983, Assistant Secretary from 1982-1983 and
Assistant General Counsel from 1983-1984. She was elected
Secretary in 1983, General Counsel in 1984 and Vice President in
1988.
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Gary N. Hoipkemier became an employee in November 1989 and was
elected Treasurer on December 15, 1989. He served as Chief
Financial Officer of Riblet Products Corporation from 1988-1989.
George T. Newhart was elected Corporate Controller on June 19,
1989. Prior to joining the Company in June 1989, he was Chief
Financial and Administrative Officer of the Chelsea Electronic
Distribution Group from 1987-1989.
Item 11. Executive Compensation
Information responsive to Item 402 of Regulation S-K pertaining
to management remuneration is contained in the 1994 Proxy
Statement in the captions "Executive Compensation," pages 6-7 and
"Director Compensation," page 11, filed with the Securities
and Exchange Commission, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information responsive to Item 403 of Regulation S-K pertaining
to security ownership of certain beneficial owners and management
is contained in the 1994 Proxy Statement in the caption
"Securities Beneficially Owned by Principal Stockholders and
Management," pages 2-4 filed with the Securities and Exchange
Commission, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
DCA owned 1,920,900 (37.3%) of the Company's outstanding common
stock as of December 31, 1993. CTS purchased products from DCA
totalling about $145,000 in 1993, $93,000 in 1992 and $192,000 in
1991, principally consisting of certain component parts used by
CTS in the manufacture of frequency control devices. CTS had no
sales to DCA in 1993 or 1992, and sales to DCA were under $70,000
in 1991.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1) and (2)
The list of financial statements and financial statement
schedules required by Item 14 (a)(1) and (2) is contained on page
S-1 herein.
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(a)(3) Exhibits
(3)(a) Articles of Incorporation, as amended April 16,
1973, previously filed as exhibit (3)(a) to the
Company's Form 10-K for 1987, and incorporated
herein by reference.
(3)(b) Bylaws, as amended and effective June 25, 1992,
previously filed as exhibit (3)(b) to the
Company's Form 10-K for 1992, and incorporated
herein by reference.
(10)(a) Employment agreement dated June 28, 1991, between
CTS and Joseph P. Walker, previously filed as
exhibit (10)(a) to the Company's Form 10-K for
1991, and incorporated herein by reference.
(10)(b) Prototype indemnification agreement, with
Lawrence J. Ciancia, Gerald H. Frieling, Jr.,
Andrew Lozyniak, Edward J. Mooney, Joseph P.
Walker, Philip T. Christ, Stanley J. Aris,
Jeannine M. Davis, Gary N. Hoipkemier and George
T. Newhart, previously filed as exhibit (10)(b) to
the Company's Form 10-K for 1991, and incorporated
herein by reference.
(10)(c) CTS Corporation 1982 Stock Option Plan, as amended
February 24, 1989, was previously filed as exhibit
(10)(d) to the Company's Form 10-K for 1989, and
is incorporated herein by reference.
(10)(d) CTS Corporation 1986 Stock Option Plan, approved
by the stockholders at the reconvened annual
meeting on May 30, 1986. The CTS Corporation 1986
Stock Option Plan is contained in Exhibit 4 to
Registration Statement No. 33-27749, effective
March 23, 1989, and is incorporated herein by
reference.
(10)(e) CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan, as adopted by the CTS Board of
Directors on December 16, 1988, and approved by
stockholders at the 1989 annual meeting of stock-
holders on April 28, 1989. The CTS Corporation
1988 Restricted Stock and Cash Bonus Plan is
contained in Appendix A, pages 11-15, of the 1989
Proxy Statement for the annual meeting of
stockholders held April 28, 1989, under the
caption "CTS Corporation 1988 Restricted Stock and
Cash Bonus Plan," previously filed with the
Securities and Exchange Commission, and is
incorporated herein by reference.
(13) CTS Corporation 1993 Annual Report.
(21) Subsidiaries of CTS Corporation.
(23) Consent of Price Waterhouse to incorporation by
reference of this Annual Report on Form 10-K for
the fiscal year 1993 to Registration Statement 2-
84230 on Form S-8 and Registration Statement 33-
27749 on Form S-8.
17
<PAGE>
Indemnification Undertaking
For the purposes of complying with the amendments to the
rules governing Form S-8 (effective July 13, 1990) under the
Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration
Statements on Form S-8 Nos. 2-84230 (filed June 13, 1983)
and 33-27749 (filed March 23, 1989):
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of
the registrant pursuant to the foregoing
provision, or otherwise, the registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is
against public policy as expressed in the
Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other
than the payment by the registrant of expenses
incurred or paid by a director, officer or
controlling person of the registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the registrant will,
unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the
question whether such indemnification by it is
against public policy as expressed in the Act and
will be governed by the final adjudication of such
issue.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date
By_______________________________
Stanley J. Aris
Vice President Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date
B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Lawrence J. Ciancia,
Director
Date
B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Patrick J. Dorme,
Director
Date
By______________________________________________________________
Gerald H. Frieling, Jr.,
Director
Date
B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Andrew Lozyniak,
Director
Date
B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Joseph P. Walker,
Director
Date
B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
George T. Newhart,
Corporate Controller
and principal accounting
officer
Date
B y _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Jeannine M. Davis,
Vice President, Secretary
and General Counsel
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2) AND ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1993
CTS CORPORATION AND SUBSIDIARIES
ELKHART, INDIANA
<PAGE>
FORM 10-K - ITEM 14(a) (1) AND (2)
CTS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of CTS Corpora-
tion and subsidiaries included in the annual report of the
registrant to its shareholders for the year ended December 31,
1993, are incorporated by reference in Item 8:
Consolidated balance sheets - December 31, 1993, and
December 31, 1992
Consolidated statements of earnings - Years ended
December 31, 1993, December 31, 1992, and December 31,
1991
Consolidated statements of stockholders' equity - Years
ended December 31, 1993, December 31, 1992, and Decem-
ber 31, 1991
Consolidated statements of cash flows - Years ended
December 31, 1993, December 31, 1992, and December 31,
1991
Notes to consolidated financial statements
The following consolidated financial statement schedules of CTS
Corporation and subsidiaries, are included in item 14(d):
Page
Schedule V - Property, plant and equipment S-3
Schedule VI - Accumulated depreciation of
property, plant and equipment S-4
Schedule VIII - Valuation and qualifying
accounts S-5
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
have been omitted because they are inapplicable, not required or
the information is included in the consolidated financial state-
ments or notes thereto.
S-1
<PAGE>
EXHIBIT 22
CTS CORPORATION AND SUBSIDIARIES
CTS Corporation (Registrant), an Indiana corporation
Subsidiaries
CTS Corporation, a Delaware corporation
CTS Singapore, Pte. Ltd., a Republic of Singapore
corporation
CTS of Panama, Inc., a Republic of Panama corporation
CTS Components Taiwan, Ltd.,1 a Taiwan, Republic of
China corporation
CTS de Mexico S.A.,1 a Republic of Mexico corporation
CTS Export Corporation, a Virgin Islands corporation
CTS of Canada, Ltd., a Province of Ontario (Canada) corporation
CTS Manufacturing (Thailand) Ltd.,1 a Thailand corporation
CTS Electronics Hong Kong Ltd.,1 a Republic of Hong Kong
corporation
CTS Corporation U.K. Ltd., a United Kingdom corporation
CTS Printex, Inc., a California corporation
CTS Micro Peripherals, Inc., a California corporation
Micro Peripherals Singapore (Private) Limited, a Republic of
Singapore corporation
Corporations whose names are indented are subsidiaries of the
preceding non-indented corporations. Except as indicated, each
of the above subsidiaries is 100% owned by its parent company.
Operations of all subsidiaries and divisions are consolidated in
the financial statements.
1 Less than 1% of the outstanding shares of stock is
owned of record by nominee shareholders pursuant to
national laws regarding resident or nominee ownership.
<PAGE>
<TABLE>
<CAPTION>
CTS CORPORATIONSCHEDULE V - PROPERTY, PLANT AND EQUIPMENT(In thousands of dollars)
Balance at Other
Beginning of Additions Changes - Balance at
Classification Period at Cost Retirements Add (Deduct) End of Period
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land $ 1,161 $ 1,161
Buildings and improvements 38,056 $ 1,566 $ 30 $ (84)(c) 39,508
Machinery and equipment 144,583 9,187 14,694 (466)(a) 138,328
(282)(c)
Construction-in-progress 2,780 943 (312)(a) 3,411
$186,580 $11,696 $14,724 $(1,144) $182,408
Year ended December 31, 1992:
Land $ 1,181 $ 20 $ 1,161
Buildings and improvements 34,312 $ 3,766 1,194 $ 1,832 (a) 38,056
(660)(c)
Machinery and equipment 152,488 7,851 12,351 (897)(a) 144,583
(2,508)(c)
Construction-in-progress 6,915 (2,786) (560)(a) 2,780
(789)(c)
$194,896 $ 8,831 $13,565 $(3,582) $186,580
Year ended December 31, 1991:
Land $ 881 $ 322 (a) $ 1,181
(22)(b)
Buildings and improvements 37,242 $ 811 $ 3,105 74 (a) 34,312
(649)(b)
(61)(c)
Machinery and equipment 146,245 11,477 7,202 2,154 (a) 152,488
(186)(c)
Construction-in-progress 4,012 3,679 (769)(a) 6,915
(7)(c)
$188,380 $15,967 $10,307 $ 856 $194,896
</TABLE>
[FN]
(a) Changes in classification and miscellaneous adjustments.
(b) Items transferred to Property Not Used in Business.
(c) Currency translation adjustment.
S-3
<PAGE>
<TABLE>
CTS CORPORATION SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(In thousands of dollars)
<CAPTION>
Additions
Balance at Charged to Other
Beginning of Costs and Changes - Balance at
Classification Period Expenses Retirements Add (Deduct) End of Period
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Buildings and improvements $ 19,960 $ 1,542 $ 30 $ (153)(c) $ 21,319
Machinery and equipment 118,091 9,663 13,959 (577)(a) 113,247
29 (c)
$138,051 $11,205 $13,989 $ (701) $134,566
Year ended December 31, 1992:
Buildings and improvements $ 20,173 $ 1,564 $ 1,673 $ (1)(a) $ 19,960
(103)(c)
Machinery and equipment 120,895 9,413 11,613 345 (a) 118,091
(949)(c)
$141,068 $10,977 $13,286 $ (708) $138,051
Year ended December 31, 1991:
Buildings and improvements $ 18,991 $ 1,532 $ 940 $1,175 (a) $ 20,173
(573)(b)
(12)(c)
Machinery and equipment 116,182 10,913 6,526 432 (a) 120,895
(106)(c)
$135,173 $12,445 $7,466 $ 916 $141,068
<FN>
(a) Changes in classification and miscellaneous adjustments.
(b) Items transferred to Property Not Used in Business.
(c) Currency translation adjustment.
The following is a summarization of the estimated useful lives used in computing depreciation of property,
plant and equipment:
Estimated Life
Building and improvements 10 to 40 years
Machinery and equipment 3 to 15 years
/TABLE
<PAGE>
S-4
<PAGE>
<TABLE>
CTS CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS(In thousands of dollars)
<CAPTIONS>
Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Classification Period Expenses Accounts Deductions End of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful receivables $303 $521 $86 $200 $710
Year ended December 31, 1992:
Allowance for doubtful receivables $420 $157 $ 7 (a) $281 (b) $303
Year ended December 31, 1991:
Allowance for doubtful receivables $490 $ 47 $72 (a) $189 (b) $420
(a) Recoveries.
(b) Uncollectible accounts written off.
</TABLE>
S-5
<PAGE>
ANNUAL REPORT PAGE 10
STOCKHOLDER INFORMATION
(In thousands of dollars except per share data)
Quarterly Results of Operations
<TABLE>
<CAPTION>
Earnings
Before Net
Net Gross OperatingChanges inAccounting Earnings
Sales Earnings EarningsAccounting Changes (Loss)
<S> <C> <C> <C> <C> <C> <C>
1993
1st quarter $ 60,439 $12,620 $ 2,579 $1,767 $(4,614) $(2,847)
2nd quarter 62,613 12,711 3,043 1,810 1,810
3rd quarter 58,107 10,285 2,189 1,063 1,063
4th quarter 55,820 11,728 3,210 1,930 1,930
$236,979 $47,344 $11,021 $6,570 $(4,614) $1,956
1992
1st quarter $ 59,342 $11,513 $1,498 $ 867 $ 867
2nd quarter 57,700 10,129 359 504 504
3rd quarter 56,155 10,026 641 188 188
4th quarter 54,194 9,433 1,600 342 342
$227,391 $41,101 $4,098 $1,901 $1,901
</TABLE>
Per Share Data
<TABLE>
<CAPTION>
Earnings
Before Net
DividendsChanges inAccounting Earnings
High(a) Low(a) DeclaredAccounting Changes (Loss)
<C> <S> <C> <C> <C> <C> <C> <C>
1993
1st quarter $19.50 $17.25 $.10 $ .34 $(.89) $(.55)
2nd quarter 21.00 17.00 .10 .35 .35
3rd quarter 22.38 20.25 .10 .21 .21
4th quarter 22.00 19.13 .10 .37 .37
$.40 $1.27 $(.89) $ .38
1992
1st quarter $22.63 $17.25 $.1875 $ .17 $ .17
2nd quarter 24.50 19.63 .1875 .10 .10
3rd quarter 24.50 19.25 .1875 .03 .03
4th quarter 19.50 17.13 .1000 .07 .07
$.6625 $ .37 $ .37
(a) The market price range of CTS Corporation common stock on the New York
Stock Exchange for each of the quarters during the last two years.
</TABLE>
<PAGE>
ANNUAL REPORT PAGE 11 IS THE LAST PAGE OF THIS DOCUMENT
ANNUAL REPORT PAGE 12
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars except per share amounts)
Year Ended
December 31December 31December 31
1993 1992 1991
Net sales $236,979 $227,391 $229,536
Cost of goods sold 189,635 186,290 189,118
Gross earnings 47,344 41,101 40,418
Selling, general and administrative expenses 36,323 37,855 35,980
Gain on sale of property
and other related provisions--Note B (852) (1,857)
Operating earnings 11,021 4,098 6,295
Other (expenses) income:
Interest expense (980) (1,267) (1,316)
Interest income 580 656 1,157
Other (361) 334 108
Total other expenses (761) (277) (51)
Earnings before income taxes and cumulative effect
of changes in accounting principles 10,260 3,821 6,244
Income taxes--Note H 3,690 1,920 2,030
Earnings before cumulative effect of changes
in accounting principles 6,570 1,901 4,214
Cumulative effect of accounting change -
postretirement benefits--Notes A and G (5,096)
Cumulative effect of accounting change -
income taxes--Notes A and H 482
Net earnings $ 1,956 $ 1,901 $ 4,214
Net earnings per share:
Before accounting changes $1.27 $.37 $.82
Cumulative effect on prior years of
accounting changes (.89)
Net earnings per share $.38 $.37 $.82
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
ANNUAL REPORT PAGE 13
Consolidated Statements of Stockholders' Equity
(In thousands of dollars) CumulativeDeferred
Common RetainedTranslation Compen- Treasury
Stock Earnings Adjustment sation Stock Total
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1990 $34,487 $102,110 $ 1,598 $(257) $(15,640)$122,298
Net earnings 4,214 4,214
Cash dividends of $.75 per share (3,842) (3,842)
Issued 1,700 shares on exercise of stock options (15) 49 34
Nonemployee Directors' stock retirement plan 15 15
Currency translation adjustment (304) (304)
Deferred compensation recognized 70 70
Balances at December 31, 1991 34,472 102,482 1,294 (172) (15,591) 122,485
Net earnings 1,901 1,901
Cash dividends of $.6625 per share (3,410) (3,410)
Issued 23,400 shares on exercise of stock options (204) 669 465
Nonemployee Directors' stock retirement plan 7 7
Currency translation adjustment (2,157) (2,157)
Issued 3,600 shares net on restricted
stock and cash bonus plan (23) (80) 103
Deferred compensation recognized 81 81
Balances at December 31, 1992 34,245 100,973 (863) (164) (14,819) 119,372
Net earnings 1,956 1,956
Cash dividends of $.40 per share (2,061) (2,061)
Nonemployee Directors' stock retirement plan 8 8
Currency translation adjustment (186) (186)
Issued 1,000 shares on restricted stock and
cash bonus plan (9) (19) 28
Stock compensation (14) 45 31
Deferred compensation recognized 83 83
Balances at December 31, 1993 $34,222 $100,868 $(1,049) $ (92) $(14,746)$119,203
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ANNUAL REPORT PAGE 14
CONSOLIDATED BALANCE SHEETS December 31 December 31
(In thousands of dollars) 1993 1992
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 23,534 $ 18,455
Accounts receivable, less allowances (1993--$710; 1992--$303) 30,627 27,880
Inventories
Finished goods 5,064 8,996
Work-in-process 15,344 14,192
Raw materials 15,651 14,034
Total inventories 36,059 37,222
Other current assets 1,929 3,819
Deferred income taxes--Note H 5,117
Total current assets 97,266 87,376
Property Plant and Equipment
Buildings and land 40,669 39,463
Machinery and equipment 141,739 147,117
Total property, plant and equipment 182,408 186,580
Less accumulated depreciation 134,566 138,051
Net property, plant and equipment 47,842 48,529
Other Assets
Goodwill, less accumulated amortization
(1993--$6,330; 1992--$5,398) 5,801 6,679
Prepaid pension expense--Note G 32,845 26,859
Other 1,310 1,330
Total other assets 39,956 34,868
Total Assets $185,064 $170,773
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable--Note C $ 12,822 $ 5,827
Current maturities of long-term obligations 341 799
Accounts payable 11,611 11,408
Accrued salaries and wages 5,802 4,334
Accrued taxes other than income 1,823 2,187
Other accrued liabilities 17,489 12,707
Total current liabilities 49,888 37,262
Long-term Obligations--Note D 4,995 10,826
Deferred Income Taxes--Note H 5,329 3,313
Postretirement Benefits--Note G 5,649
Stockholders' Equity
Common stock-authorized 8,000,000 shares without
par value; issued 5,807,031 shares 34,130 34,081
Retained earnings 100,868 100,973
Cumulative translation adjustment (1,049) (863)
133,949 134,191
Less cost of common stock held in treasury
(1993--653,607 shares; 1992--656,207 shares) 14,746 14,819
Total stockholders' equity 119,203 119,372
Total Liabilities and Stockholders' Equity $185,064 $170,773
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
ANNUAL REPORT PAGE 15
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year Ended
December 31December 31December 31
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,956 $ 1,901 $ 4,214
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Cumulative effect of change in accounting for:
Postretirement benefits 5,096
Income taxes (482)
Depreciation and amortization 12,143 11,665 13,102
Deferred income taxes 767 303 741
Gain on sale of property, plant and equipment (17) (944) (3,652)
Translation loss 384 92 130
Deferred compensation 91 88 85
Provision for disposition of operations 621 366
Changes in:
Accounts receivable (2,747) 2,473 (2,272)
Inventories 1,163 3,442 4,534
Prepaid pension expense (5,986) (4,907) (4,915)
Other 1,941 (2,114) 2,910
Accounts payable and accrued liabilities 1,627 2,258 (239)
Income taxes payable 1,629 (2,040) 1,071
Total adjustments 15,609 10,937 11,861
Net cash provided by operating activities 17,565 12,838 16,075
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 998 1,401 6,963
Capital expenditures (11,696) (8,831) (15,967)
Other 129
Cash (used in) discontinued operations (1,252)
Net cash used in investing activities (10,698) (7,301) (10,256)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 2,938 7,872
Payments of long-term obligations (6,179) (2,348) (5,042)
(Decrease) increase in notes payable 6,898 (2,319) 40
Stock options exercised 465 34
Dividends paid (2,061) (3,857) (3,845)
Net cash used in financing activities (1,342) (5,121) (941)
Effect of exchange rate changes on cash (446) (92) (130)
Net increase in cash 5,079 324 4,748
Cash at beginning of year 18,455 18,131 13,383
Cash at end of year $23,534 $18,455 $18,131
Supplemental cash flow information
Cash paid during the year for:
Interest $ 1,076 $ 1,206 $ 1,526
Income taxes - net 1,294 2,819 557
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
ANNUAL REPORT PAGE 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated.
Inventories: Inventories are stated at the lower of cost or market.
Cost is principally determined using the first-in, first-out method.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. Depreciation is computed over the estimated useful
lives of the assets principally on the straight-line method.
Goodwill: The excess of cost over the fair value of net assets of
businesses acquired is amortized on the straight-line method over the
periods expected to be benefited.
Retirement Plans: The Company has various defined benefit and defined
contribution retirement plans covering a majority of its employees.
The Company's policy is to annually fund the defined benefit pension
plans at or above the minimums required under the Employee Retirement
Income Security Act of 1974 (ERISA).
Research and Development: Research and development costs consist of
expenditures incurred during the course of planned search and
investigation aimed at discovery of new knowledge which will be useful
in developing new products or processes, or significantly enhancing
existing products or production processes, and the implementation of
such through design, testing of product alternatives or construction of
prototypes. The Company expenses all research and development costs as
they are incurred.
Income Taxes: The Company provides deferred income taxes for
transactions reported in different periods for financial reporting and
income tax return purposes pursuant to the requirements of Financial
Accounting Standards Board (FASB) Statement No. 109. The underlying
differences consist primarily of depreciation differences, pension
income, postemployment benefits, certain nondeductible accruals and
inventory reserves.
Translation of Foreign Currencies: The financial statements of all of
the Company's non-U.S. subsidiaries, except the United Kingdom
subsidiary, are remeasured into U.S. dollars using the U.S. dollar as
the functional currency with all translation adjustments included in
the determination of net income. The financial statements of the
Company's United Kingdom subsidiary are translated into U.S. dollars
principally at the current exchange rate with resulting translation
adjustments made directly to the "Cumulative translation adjustment"
component of stockholders' equity.
<PAGE>
NOTE A - Summary of Significant Accounting Policies (continued)
Financial Instruments: The Company's financial instruments consist
primarily of cash, cash equivalents and obligations under notes payable
and long-term debt. In accordance with the requirements of FASB
Statement No. 107, Disclosures about Fair Value of Financial
Instruments, the Company is providing the following fair value
estimates and information regarding valuation methodologies. The
carrying value for cash and cash equivalents approximates fair value.
Interest rates on substantially all of the notes payable and long-term
debt fluctuate based on market rates. The carrying value for these
borrowings approximates fair value.
Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less from the purchase date to be
cash equivalents.
Concentration of Credit Risk: The Company sells its products to
customers primarily in the automotive, data processing, communications
equipment and defense and aerospace industries, primarily in North
America, Europe and the Pacific Rim. The Company performs ongoing
credit evaluations of its customers to minimize credit risk. The
Company generally does not require collateral.
Accounting Changes: Effective January 1, 1993, the Company adopted the
provisions of FASB Statement No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions and FASB Statement No. 109,
Accounting for Income Taxes. For postretirement benefits, the Company
changed its practice from expensing these costs as incurred to accruing
these costs during the employees' active working careers. For income
taxes, the Company changed its practice from following FASB Statement
No. 96, of the same title, which required a similar approach in
computing deferred income taxes. The primary change was to recognize
deferred tax benefits that were not recognized under FASB Statement No.
96.
ANNUAL REPORT PAGE 17
Earnings Per Share: Earnings per common share are based on the
weighted average number of shares outstanding.
<PAGE>
NOTE B - Sale of Property and Other Related Provisions
During 1992, the Company sold the assets of its tool, die and machinery
business recognizing a pretax gain of $587,000. Also, during 1992, the
Company sold its Paso Robles, California, manufacturing plant and most
of the associated real estate and recognized a net pretax gain of
$886,000. Additionally, during 1992, the Company incurred $621,000 of
expense to close its remaining Hong Kong manufacturing operations.
During 1991, the Company completed the sale of its Hong Kong
manufacturing facility for $5,720,000 and signed an agreement to lease
back a portion of the space for its manufacturing needs. A pretax
gain of $3,587,000 was realized on the sale, and the proceeds were used
to reduce debt. Also, during 1991, the Company provided $1,730,000 for
planned further restructuring of several of its businesses, including
$614,000 relating to Hong Kong.
NOTE C - Short-term Borrowings
Short-term borrowings consist of demand notes payable to various banks
with an average interest rate of 4.4% at December 31, 1993, 4.8% at
December 31, 1992, and 7.0% at December 31, 1991. The notes were
issued in connection with unsecured lines of credit arrangements, the
unused portions of which totaled $5,977,000 at December 31, 1993.
These arrangements are generally subject to annual renewal and
renegotiation, and may be withdrawn at the banks' option.
Average daily short-term borrowings, including borrowings denominated
in non-U.S. currencies, during 1993, 1992, and 1991 were $12,051,000,
$6,269,000 and $7,039,000, respectively. The weighted average interest
rates, computed by relating interest expense to average daily short-
term borrowings, were 4.3% in 1993, 5.4% in 1992 and 6.9% in 1991.
The maximum amount of short-term borrowings at the end of any month
during 1993, 1992 and 1991 was $13,842,000, $8,334,000 and $8,501,000,
respectively. The short-term borrowings outstanding at December 31,
1991, were $8,160,000.
<PAGE>
NOTE D - Long-term Obligations
Long-term obligations were comprised of the following:
(In thousands)
1993 1992
Long-term debt:
Revolving credit agreements, average
interest rates of 6.1% in 1993
and 5.1% in 1992, due in 1996 and 1997 $3,959 $ 8,612
Industrial revenue bonds, interest
at varying rates (4.1% to 5.0% in 1993
and 4.1% to 5.0% in 1992), due in varying
installments through 1995 441 932
Other 770 988
5,170 10,532
Less current maturities 341 799
Total long-term debt 4,829 9,733
Operating lease obligation, net of
sublease income 166 1,093
Total long-term obligations $4,995 $10,826
The Company has unsecured revolving credit agreements totaling
$49,000,000 with four banks, of which $4,000,000 expires in 1996 and
$45,000,000 expires in 1997. Interest rates on these borrowings and
the industrial revenue bonds fluctuate based upon market rates. The
Company pays an average commitment fee of three-tenths percent per
annum on the revolving credit agreements. The credit agreements
require, among other things, that the Company maintain certain minimum
working capital, current ratio, cash flow, interest coverage and
tangible net worth requirements.
Estimated annual maturities of long-term debt during the four years
subsequent to 1994 are as follows: 1995--$473,000; 1996--$4,152,000;
1997--$185,000; 1998--$185,000.
<PAGE>
NOTE E - Operating Leases
The Company leases certain facilities and machinery and equipment under
noncancellable operating leases which expire at various dates through
1998 and thereafter. Certain of these leases contain renewal options.
All leases require the Company to pay property taxes, insurance and
normal maintenance.
ANNUAL REPORT PAGE 18
Future minimum annual rental payments at December 31, 1993, for all
noncancellable operating leases, are as follows:
Year (In thousands)
1994 $ 411
1995 302
1996 263
1997 172
1998 172
Thereafter 153
Total minimum rental payments $1,473
<PAGE>
NOTE F - Stock Plans
Under the Company's stock option plans, options may be granted to
officers and key employees in the form of incentive stock options or
nonqualified stock options.
Options are granted at the fair market value on the grant date and are
exercisable generally in cumulative annual installments over a maximum
ten-year period, commencing at least one year from the date of grant.
Upon the exercise of stock options, payment may be made using cash,
shares of the Company's common stock or any combination thereof.
Information regarding the Company's stock option plans is as follows:
Number of Price Per
Shares Share
Outstanding at January 1, 1992 100,650 $19.75 to $25.50
Granted 13,000 19.75
Exercised (23,400) 19.75 to 20.625
Expired or cancelled (30,500) 19.75 to 25.50
Outstanding at December 31, 1992 59,750 19.75 to 25.50
Granted 11,000 19.125
Exercised -- --
Expired or cancelled (26,100) 19.75 to 25.50
Outstanding at December 31, 1993 44,650 19.125 to 20.625
Exercisable at December 31, 1993 25,900 19.75 to 20.625
Available for future grants at
December 31, 1993 251,989
The Company has a discretionary Restricted Stock and Cash Bonus Plan
(Plan) which reserves 400,000 shares of the Company's common stock
for sale, at market price or below, or award to key employees.
Shares awarded or sold are subject to restrictions against transfer
and repurchase rights of the Company. In general, restrictions lapse
at the rate of 20% per year beginning one year from the award or
sale. In addition, the Plan provides for a cash bonus to the
participant equal to the fair market value of the shares on the dates
restrictions lapse, in the case of an award, or the excess of the
fair market value over the original purchase price if the shares were
purchased. The total bonus paid to any participant during the
restricted period is limited to twice the fair market value of the
shares on the date of award or sale.
Under the Plan during 1993, 1,000 shares were awarded leaving 379,400
shares available for award or sale at December 31, 1993. During
1992, 6,000 shares were awarded and 2,400 shares were forfeited due
to terminations. No shares were awarded during 1991. In addition to
the shares issued and the amortization of deferred compensation
included in the Consolidated Statements of Stockholders' Equity, the
Company accrued $68,000, $82,000 and $75,000 for additional
compensation payable under the provisions of the Plan in 1993, 1992
and 1991, respectively.
<PAGE>
NOTE F - Stock Plans (continued)
The Company has a Stock Retirement Plan for nonemployee Directors.
This retirement plan provides for a portion of the total compensation
payable to nonemployee Directors to be deferred and paid in Company
stock. Compensation of $8,000, $7,000 and $15,000 was recognized
under this plan in 1993, 1992 and 1991, respectively.
<PAGE>
NOTE G - Employee Retirement Plans
Defined benefit plans
The Company has a number of noncontributory defined benefit pension
plans (Plans) covering approximately 43% of its employees. Plans
covering salaried employees provide pension benefits that are based
on the employees' compensation prior to retirement. Plans covering
hourly employees generally provide benefits of stated amounts for
each year of service.
ANNUAL REPORT PAGE 19
Net pension income for the Plans in 1993, 1992 and 1991 includes the
following components:
(In thousands)
1993 1992 1991
Service cost--benefits earned
during the year $ 2,143 $ 2,375 $ 1,926
Interest cost on projected
benefit obligation 4,632 4,670 4,644
Actual return on plan assets (13,622) (13,667) (16,735)
Net amortization and deferral 861 1,715 5,250
Net pension income $(5,986) $(4,907) $(4,915)
The following table details the funded status of the Plans at
December 31, 1993, and December 31, 1992:
(In thousands)
1993 1992
Actuarial present value of benefit
obligations:
Vested benefits $ 59,722 $ 53,988
Nonvested benefits 2,610 2,634
Accumulated benefit obligation $ 62,332 $ 56,622
Plan assets at fair value $121,966 $112,568
Projected benefit obligation 67,282 61,264
Plan assets in excess of the projected
benefit obligation 54,684 51,304
Unrecognized prior year service cost 351 413
Unrecognized net gain (8,883) (9,356)
Unrecognized net asset (13,307) (15,502)
Prepaid pension expense $ 32,845 $ 26,859
Assumptions used in determining net pension income and the funded
status of U.S. defined benefit pension plans were as follows:
<PAGE>
NOTE G - Employee Retirement Plans (continued)
1993 1992 1991
Discount rates 7.25% 7.75% 7.75%
Rates of increase in compensation
levels (salaried plan only) 5%-7% 5%-7% 5%-7%
Expected long-term rate of return
on assets 10% 10% 10%
Effective with the December 31, 1993, measurement date, the
discount rate was revised to 7.25% from 7.75% to better reflect
current market conditions. As a result of the change in discount
rates, the December 31, 1993, projected benefit obligation
increased by $3,500,000. The change in discount rates had no
effect on 1993 pension income, but will reduce future annual
pension income by $130,000.
The majority of U.S. defined benefit pension plan assets are
invested in common stock, including $3,933,000 in CTS common
stock, U.S. government bonds and cash and equivalents. The
balance is invested in corporate bonds, a private equity fund,
non-U.S. bonds and convertible issues.
Because the domestic plans are fully funded, the Company made no
contributions to the U.S. Plans during 1993, 1992 or 1991.
Benefits paid by all Plans during 1993, 1992, and 1991 were
$4,289,000, $3,900,000 and $3,707,000, respectively.
Contributions of $174,000, $223,000 and $164,000 were made to the
non-U.S. Plans in 1993, 1992 and 1991, respectively.
Defined contribution plans
The Company sponsors a 401(k) Plan and several other defined
contribution plans which cover some of its non-U.S. employees and
its domestic hourly employees not covered by a defined benefit
pension plan. Contributions and costs are generally determined
as a percentage of the covered employees' annual salary. Amounts
expensed for the 401(k) Plan and the other plans totaled
$2,532,000 in 1993, $1,998,000 in 1992 and $1,915,000 in 1991.
Postretirement health and life insurance plans
In addition to providing pension benefits, the Company provides
certain health care and life insurance programs for retired
employees. Substantially all of the Company's domestic employees
become eligible for these benefits if they reach normal
retirement age while working for the Company. Effective January
1, 1993, the Company implemented, on the immediate recognition
basis, FASB Statement No. 106, "Employers' Accounting for
<PAGE>
NOTE G - Employee Retirement Plans (continued)
Postretirement Benefits Other Than Pensions" which resulted in a
noncash charge of $5,096,000, net of an income tax benefit of
$3,123,000, or $.99 per share.
ANNUAL REPORT PAGE 20
Summary information on the Company's plans as of December 31,
1993, is as follows:
(In thousands)
Accumulated postretirement benefit obligation:
Active employees $(1,479)
Retirees and dependents (5,560)
Accumulated postretirement benefit obligation (7,039)
Fair value of plan assets
Funded status (7,039)
Unrecognized net gain (187)
Postretirement benefit obligation $(7,226)
The accumulated postretirement benefit obligation was determined
using relevant actuarial assumptions and the terms of the
Company's medical, dental and life insurance plans, including the
effects of capped Company contribution rates and discontinuance
of Company payments toward retiree health and dental insurance
effective January 1, 1996. The effect of a 1.0% annual increase
in the assumed medical inflation rate of zero would be
insignificant. Measurement of the accumulated postretirement
benefit obligation was based on a 7.75% discount rate at January
1, 1993, and at 7.25% at December 31, 1993. The discount rate
was revised to better reflect current market conditions. The
change in discount rates did not significantly change the
accumulated postretirement benefit obligation, had no effect on
the 1993 postretirement expense and will not have a significant
impact on future annual postretirement expense.
The Company funds medical and dental costs as incurred and funds
life insurance benefits through term life insurance policies.
The Company plans to continue funding these benefits on a pay-as-
you-go basis. The components of net periodic postretirement
benefit expense for 1993 are as follows:
(In Thousands)
Service cost-benefits earned during period $ 43
Interest cost on accumulated benefit obligation 637
Net expense $680
<PAGE>
NOTE H - Income Taxes
Effective January 1, 1993, the Company adopted the provisions of
FASB Statement No. 109, "Accounting for Income Taxes." FASB
Statement No. 109 replaced FASB Statement No. 96, of the same
title, which the Company previously used to account for income
taxes. The effect of adopting FASB Statement No. 109 is to
recognize deferred tax benefits that were not recognized under
FASB Statement No. 96. The cumulative effect of the change in
the method of accounting for income taxes as of the beginning of
1993 increased earnings by $482,000 or $.10 per share. Prior
years' financial statements have not been restated to reflect the
provisions of FASB Statement No. 109. The information disclosed
for 1992 and 1991 is computed under the requirements of FASB
Statement No. 96.
The components of earnings before income taxes and cumulative
effect of changes in accounting principles comprise the
following:
(In thousands)
1993 1992 1991
Domestic $ 8,965 $ 5,151 $1,748
Non-U.S. 1,295 (1,330) 4,496
Total $10,260 $ 3,821 $6,244
The provision for income taxes charged to earnings before
cumulative effect of changes in accounting principles comprise
the following:
(In thousands)
1993 1992 1991
Current:
Federal $ 908 $ 292 $ 155
State 375 207 100
Non-U.S. 2,124 1,115 1,034
Total current 3,407 1,614 1,289
Deferred:
Federal 154 648 950
State 429
Non-U.S. (300) (342) (209)
Total deferred 283 306 741
Total provision for
income taxes $3,690 $1,920 $2,030
The gross U.S. deferred income tax expense in 1993 was
$1,338,000.
<PAGE>
ANNUAL REPORT PAGE 21
NOTE H - Income Taxes (continued)
Significant components of the Company's deferred tax liabilities
and assets at December 31, 1993, are:
(In thousands)
Depreciation $ 270
Pensions 11,176
Other 1,013
Gross deferred tax liabilities 12,459
Postemployment benefits 2,513
Inventory reserves 1,777
Loss carryforwards 8,119
Credit carryforwards 3,764
Nondeductible accruals 3,064
Other 802
Gross deferred tax assets 20,039
Net deferred tax assets 7,580
Deferred tax assets valuation
allowance (8,023)
Total $ (443)
During 1993, the valuation allowance was increased as a result of
an increase in unutilized net operating loss carryforwards in
some taxing jurisdictions and decreased by the utilization of net
operating losses in other jurisdictions. The net decrease in the
valuation allowance was $911,000.
A reconciliation of the Company's effective income tax to the
statutory federal income tax follows:
(In thousands)
1993 1992 1991
Taxes at the U.S. statutory rate $ 3,488 $ 1,299 $2,123
State income taxes, net of federal
income tax benefit 531 176 100
Non-U.S. income taxed at rates
different than the U.S. statutory rate 1,494 1,511 (50)
Utilization of net operating loss
carryforwards and benefit of
scheduled tax credits (1,842) (1,751) (525)
Alternative Minimum Tax 711
Other 19 (26) 382
Provision for income taxes $ 3,690 $ 1,920 $2,030
<PAGE>
NOTE H - Income Taxes (continued)
Undistributed earnings of certain non-U.S. subsidiaries amounting to
$34,300,000 at December 31, 1993, are intended to be permanently
invested and accordingly, no provision has been made for non-U.S.
withholding taxes on these earnings. In the event all undistributed
earnings were remitted, approximately $4,000,000 of withholding tax
would be imposed.
The Company has tax basis net operating loss carryforwards and
business credit carryforwards of approximately $25,200,000 and
$3,000,000, respectively, at December 31, 1993. A portion,
$15,400,000, of the net operating loss and all of the business credit
carryforwards expire between the years 2000 and 2006. The remainder
of the net operating loss carryforwards has an unlimited carryforward
period. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $867,000, which have no expiration
date.
<PAGE>
NOTE I - Business Segment and Non-U.S. Operations
The Company's operations comprise one business segment, the
manufacturing of electronic components. Electronic components include
production and sale of resistor networks, variable resistors,
frequency control devices, electronic connectors, hybrid
microcircuits, automotive control devices, switches, loudspeakers and
industrial electronics.
Sales to a major automotive manufacturer were $40,100,000 in 1993,
$30,700,000 in 1992 and $29,900,000 in 1991. Sales to a major
computer manufacturer were $24,000,000 in 1993, $19,300,000 in 1992
and $23,500,000 in 1991.
The non-U.S. operations or facilities are located in Taiwan,
Singapore, Hong Kong, Thailand, United Kingdom, Canada and Mexico.
Net sales to unaffiliated customers from other non-U.S. operations in
the aggregate equaled 16%, 14% and 16% of the consolidated total for
each of the years 1993, 1992 and 1991, respectively. Net sales to
unaffiliated customers from the United Kingdom operation equaled 12%,
10% and 10% of the consolidated total for 1993, 1992 and 1991,
respectively.
Net assets of subsidiaries located in non-U.S. countries as of
December 31, 1993, and December 31, 1992, are summarized as follows:
(In thousands)
1993 1992
Net current assets $19,910 $21,643
Property, plant and equipment--net 23,899 24,696
Goodwill and other long-term assets 2,304 2,458
Long-term obligations (4,699) (6,418)
Deferred income taxes (174) (233)
Total net assets of non-U.S.
subsidiaries $41,240 $42,146
ANNUAL REPORT PAGE 22
Net sales by geographic area include both sales to unaffiliated
customers and transfers between geographic areas. Such transfers are
accounted for primarily on the basis of a uniform intercompany
pricing policy. Operating profit is total revenue less operating
expenses. In computing operating profit, none of the following items
have been added or deducted: general corporate expenses, interest
expense, other income and expenses and income taxes. Identifiable
assets by geographic area are those assets that are used in the
Company's operations in each such area. The Corporate Office assets
are principally property and equipment and other noncurrent assets.
Summarized financial information concerning the geographic areas of
operation for 1993, 1992 and 1991 is shown in the following table.
The caption "Eliminations" includes intercompany sales and other
transactions which are eliminated or adjusted in arriving at
consolidated data.
<PAGE>
NOTE I - Business Segment and Non-U.S. Operations (continued)
Geographic Area (In thousands)
1993 1992 1991
Net Sales
Domestic:
Sales to unaffiliated customers $170,566 $172,646 $170,564
Transfers to non-U.S. area 4,484 4,469 2,736
175,050 177,115 173,300
Other Non-U.S.:
Sales to unaffiliated customers 37,868 32,743 36,682
Transfers to domestic area 10,397 15,703 21,524
48,265 48,446 58,206
United Kingdom:
Sales to unaffiliated customers 28,545 22,002 22,290
Transfers to domestic area 149 388
28,694 22,390 22,290
Eliminations (15,030) (20,560) (24,260)
Total net sales $236,979 $227,391 $229,536
Operating Profit
Domestic $ 12,060 $ 8,237 $ 5,834
Other Non-U.S. 4,476 2,860 5,119
United Kingdom 910 (1,313) 475
Gain on sale of property
and other related provisions (852) (1,857)
17,446 10,636 13,285
Eliminations (19) (51) (21)
17,427 10,585 13,264
General corporate expenses 6,406 6,487 6,969
Operating profit 11,021 4,098 6,295
Other expenses--net (761) (277) (51)
Earnings before income taxes and
cumulative effect of changes in
accounting principles $ 10,260 $ 3,821 $ 6,244
Assets Apportioned by Area
Domestic $ 73,256 $ 78,747 $ 82,102
Other Non-U.S. 54,452 48,331 53,522
United Kingdom 18,398 17,847 21,673
146,106 144,925 157,297
Eliminations (5,047) (2,972) (6,714)
141,059 141,953 150,583
Corporate assets 44,005 28,820 25,778
Total assets $185,064 $170,773 $176,361
<PAGE>
NOTE I - Business Segment and Non-U.S. Operations (continued)
Geographic Area (In thousands)
1993 1992 1991
Capital Expenditures
Domestic $ 7,318 $ 4,062 $ 5,999
Other Non-U.S. 3,300 1,790 4,142
United Kingdom 1,078 2,979 5,826
Total $ 11,696 $ 8,831 $ 15,967
<PAGE>
NOTE J - Supplemental Statement of Earnings Information
The following costs and expenses were charged to operations:
(In thousands)
1993 1992 1991
Maintenance and repairs $ 3,778 $ 3,248 $ 3,779
Depreciation of property, plant
and equipment 11,211 10,977 12,445
Amortization of intangible assets 932 688 657
Research and development costs 5,708 6,092 5,656
Rent expense 1,241 1,172 1,153
Royalties, taxes (other than payroll taxes and income taxes) and
advertising costs were each less than one percent of the total sales for
each of the three years.
<PAGE>
ANNUAL REPORT PAGE 23
NOTE K - Contingencies
Certain processes in the manufacture of the Company's current and past
products create hazardous waste by-products as currently defined by
federal and state laws and regulations. The Company has been notified by
the U.S Environmental Protection Agency, state environmental agencies
and, in some cases, generator groups, that it is or may be a Potentially
Responsible Party (PRP) regarding hazardous waste remediation at several
non-CTS sites. The factual circumstances of each site are different; the
Company has determined that its role as a PRP with respect to these
sites, even in the aggregate, will not have a material adverse effect on
the Company's business or financial condition, based on the following:
1) the Company's status as a de minimis party; 2) the large number of
other PRPs identified; 3) the identification and participation of many
larger PRPs who are financially viable; 4) defenses concerning the nature
and limited quantities of materials sent by the Company to certain of the
sites; and/or 5) the Company's experience to-date in relation to the
determination of its allocable share. In addition to these non-CTS
sites, the Company has an ongoing practice of providing reserves for
probable remediation activities at certain of its manufacturing locations
and for claims and proceedings against the Company with respect to other
environmental matters. In the opinion of management, based upon
presently available information, either adequate provision for probable
costs has been made, or the ultimate costs resulting will not materially
affect the consolidated financial position or results of operations of
the Company.
Certain claims are pending against the Company with respect to matters
arising out of the ordinary conduct of its business. In the opinion of
management, based upon presently available information, either adequate
provision for anticipated costs has been made by insurance, accruals or
otherwise, or the ultimate anticipated costs resulting will not
materially affect the Company's consolidated financial position or
results of operations.
NOTE L - Related Party Transactions
Dynamics Corporation of America (DCA) owned 1,920,900 shares (37.3%) of
the Company's outstanding common stock at December 31, 1993. In 1987,
CTS shareholders voted not to grant DCA voting rights on 1,020,000 of
these shares. In addition to stock ownership, as of December 31, 1993,
two representatives of DCA serve on the Company's Board of Directors.
The normal business transactions between the Company and DCA are
insignificant.
<PAGE>
ANNUAL REPORT PAGE 24
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE
To the Stockholders and
Board of Directors of CTS Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, stockholders' equity and of
cash flows present fairly, in all material respects, the financial
position of CTS Corporation and its subsidiaries at December 31, 1993,
and 1992, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in the Notes to Consolidated Financial Statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes by adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Also effective January 1, 1993, the
Company changed its method of accounting for postretirement healthcare
and life insurance benefits by adopting, on an immediate recognition
basis, Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
Price Waterhouse
South Bend, Indiana
February 7, 1994
<PAGE>
ANNUAL REPORT PAGE 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (1991 - 1993)
Liquidity and Capital Resources
The table below highlights significant comparisons and ratios related
to liquidity and capital resources of CTS Corporation (CTS or Company)
for each of the last three years.
(In thousands)
December 31 December 31 December 31
1993 1992 1991
Net cash provided by (used in):
Operating activities $ 17,565 $ 12,838 $ 16,075
Investing activities (10,698) (7,301) (10,256)
Financing (1,342) (5,121) (941)
Working capital $ 47,378 $ 50,114 $ 51,924
Current ratio 1.95 2.34 2.31
Interest-bearing debt $ 17,992 $ 16,359 $ 18,738
Cash and equivalents 23,534 18,455 18,131
Net tangible worth 113,402 112,693 115,026
Ratio of interest-bearing debt
to net tangible worth .16 .15 .16
During 1993, positive cash flow from operating activities increased by
$4.7 million from 1992, primarily due to the $9.6 million increase in
sales, which resulted in a $4.7 million increase in earnings before
accounting changes.
Cash flow in 1992 from operating activities was $3.2 million below
that generated in 1991, primarily due to the 1992 earnings decline of
$2.3 million, payment of various restructuring costs and tooling
expenditures. Our efforts to improve collection of receivables,
reduce inventories and better manage payables offset payments for
income taxes and other liabilities, but not the reduced earnings and
payments for tooling.
A significant noncash component of operating earnings during the 1991
to 1993 period was pension income of $6.0 million in 1993, $4.9
million in 1992 and $4.9 million in 1991. During 1993, the Company
paid $4.3 million in benefits and no cash contributions were required.
As a result of the Company's overfunded pension position, no cash
contributions are anticipated to be required in the immediate future
to meet the Company's pension benefit obligations.
<PAGE>
The major investment activity during the last three years was capital
expenditures, which totaled $11.7 million in 1993, $8.8 million in
1992 and $16.0 million in 1991. The major capital expenditures in
1993 were for new products and product line enhancements, as well as
selected capacity increases. The decrease in 1992 from 1991 reflects
the significant one-time investments made in 1991, which included $8.9
million for facility expansions in Scotland and Thailand. The Company
expects to increase its capital expenditures in 1994 over 1993 levels.
These capital expenditures primarily will be for new products and cost
reduction programs.
The net cash used for financing activities in 1993 primarily reflects
loan renegotiations which reduced certain non-U.S. long-term debt and
increased short-term borrowings, and additional short-term borrowings
at certain non-U.S. locations. The primary financing use of cash in
1992 was the elective paydown of $1.7 million in debt, compared to
increases in debt of $2.9 million in 1991.
Dividends paid in 1993 were $2.1 million, compared to $3.9 million in
1992 and $3.8 million in 1991. In response to the 1992 decrease in
cash provided by operations, the Company reduced its annual quarterly
dividend from $.1875 to $.10 per share effective with its February
1993 payment.
At the end of 1993, 1992 and 1991, most of the Company's cash was held
in U.S.-denominated cash equivalents for the credit of the various
non-U.S. subsidiaries. The cash, other than approximately $5 million,
is available to the parent Company.
At the end of 1993, CTS had $49.0 million of borrowing capacity, of
which $45.0 million was available under two long-term revolving credit
agreements, both of which were renegotiated in 1993. The U.S.
revolving agreement of $45.0 million, which expires in April 1997, is
the Company's primary credit vehicle and, together with cash from
operations, should adequately fund the Company's anticipated cash
needs.
<PAGE>
ANNUAL REPORT PAGE 26
Results of Operations
The table below highlights significant information with regard to the
Company's results of twelve months of operations during the past three
fiscal years.
(In thousands)
December 31 December 31 December 31
1993 1992 1991
Net sales $236,979 $227,391 $229,536
Gross earnings 47,344 41,101 40,418
Gross earnings as a
percent of sales 20.0% 18.1% 17.6%
Selling, general and
administrative expense $ 36,323 $ 37,855 $ 35,980
Selling, general and
administrative expense
as a percent of sales 15.3% 16.6% 15.7%
Gain on sale of property and
other related provisions 852 1,857
Operating earnings $ 11,021 $ 4,098 $ 6,295
Operating earnings as a
percent of sales 4.7% 1.8% 2.7%
Earnings before income taxes
and cumulative effect of
changes in accounting
principles $ 10,260 $ 3,821 $ 6,244
Income taxes 3,690 1,920 2,030
Income tax rate 36.0% 50.2% 32.5%
From 1992 to 1993, total sales increased by 4.2%, primarily due to
increased sales in our automotive product lines, which more than
offset sales declines in our military connector and frequency controls
products.
From 1991 to 1992 total sales decreased less than 1% as increased
sales of automotive, electrocomponents and microelectronics products
were offset by continued declining demand for resistor and connector
products from our mainframe computer and military customers.
During the three-year period 1991-1993, overall sales have increased
to the automotive market from 22% to 32%, decreased in the defense
and aerospace market from 20% to 12% and remained fairly constant in
our other market areas.
The Company's 15 largest customers represented 62% of net sales in
1993, 58% in 1992 and 59% in 1991. One customer, a major manufacturer
of automobiles, comprised 17% of net sales in 1993, compared with 14%
for 1992 and 13% for 1991. Another customer, a major manufacturer of
data processing equipment, comprised 10% of net sales in 1993,
compared with 8% in 1992 and 10% in 1991.
<PAGE>
Because most of CTS' revenues are derived from the sale of custom
products, the relative contribution to revenues of changes in unit
volume cannot be meaningfully determined. The Company's products are
usually priced with reference to expected or required profit margins,
customer expectations and market competition. Pricing for most of the
Company's electronic component products frequently decreases over time
and also fluctuates in accordance with total industry utilization of
manufacturing capacity.
During 1993, improvement was realized in gross earnings, primarily due
to higher sales volume, production efficiencies and higher absorption
of manufacturing expenses. Gross earnings were relatively similar in
1992 and 1991.
Selling, general and administrative expenses, in dollars and as a
percent of sales, decreased during 1993, primarily as a result of the
cost containment and expense reduction programs in place during the
year. During 1992, selling, general and administrative expenses
increased slightly over 1991. A portion of the higher 1992 expenses
in this area was due to problems caused by defective parts from a
supplier. Also, during 1992, the Company continued to incur start-up
costs in conjunction with its European expansion efforts.
During 1992, the Company continued to dispose of nonproductive assets,
including its closed Paso Robles facility and assets of its tooling
business. These major asset sales generated cash of $2.7 million and
a net pretax gain of $1.5 million.
During 1991, the Company completed the sale of its Hong Kong
manufacturing facility for $5.7 million, realizing a pretax gain of
$3.6 million. After a restructuring provision of $0.6 million, a net
pretax gain of $3.0 million was realized from the Hong Kong facility
sale.
The primary reason for the operating earnings increase in 1993 from
1992 was the increased automotive product sales. The overall decrease
in 1992 operating earnings from 1991 is primarily a result of the 1991
gain on the sale of the Hong Kong property and 1992 losses in our
military connector and frequency control products businesses. A
portion of the frequency control business loss was caused by a
supplier-related defective component, which resulted in direct
expenses of approximately $2.0 million and negatively affected our
1992 and 1993 sales. A settlement was negotiated with this vendor in
1993 and the Company recognized a $2.25 million recovery.
ANNUAL REPORT PAGE 27
The lower effective tax rate for 1993, as compared to 1992, is a
result of improved earnings which resulted in an increase in net
operating loss carryforward utilization. Additionally, several non-
U.S. locations, where no tax benefit was available, incurred losses in
1992 which resulted in the higher 1992 effective tax rate.
<PAGE>
The effects of the new accounting pronouncements FASB 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and FASB
109, "Accounting for Income Taxes," have been discussed in financial
statement footnotes, Note G and Note H, respectively. Relative to
Financial Accounting Standards Board Statement No. 112, "Employers'
Accounting for Postemployment Benefits," which is effective for fiscal
years beginning after December 15, 1993, the Company believes that the
impact, if any, will be insignificant.
In terms of environmental issues, the Company has been notified by the
U.S. Environmental Protection Agency, as well as state agencies and
generator groups, that it is or may be a Potentially Responsible Party
regarding hazardous waste remediation at non-CTS sites. Additionally,
the Company provides reserves for probable remediation activities at
certain of its manufacturing locations. These issues are discussed in
Note K - Contingencies.
<PAGE>
<TABLE>
ANNUAL REPORT PAGE 11
FIVE - YEAR SUMMARY
(In thousands of dollars except per share data)
<CAPTION> % of % of %of %of %of
1993 Sales 1992 Sales 1991 Sales 1990 Sales 1989 Sales
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net sales $236,979 100.0 $227,391 100.0 $229,536 100.0 $251,044 100.0 $261,961 100.0
Cost of goods sold 189,635 80.0 186,290 81.9 189,118 82.4 202,115 80.5 209,973 80.2
Gross earnings 47,344 20.0 41,101 18.1 40,418 17.6 48,929 19.5 51,988 19.8
Selling, general and
administrative expenses 36,323 15.3 37,855 16.6 35,980 15.7 38,051 15.2 35,945 13.7
(Gain) on sale of property
and other related provisions (852) (0.3) (1,857) (0.8) 796 0.3
Operating earnings 11,021 4.7 4,098 1.8 6,295 2.7 10,082 4.0 16,043 6.1
Other (expenses) (761) (0.4) (277) (0.1) (51) 0.0 (549) (0.2) 1,338 0.5
income--net
Earnings before income taxes
and cumulative effect
of changes in 10,260 4.3 3,821 1.7 6,244 2.7 9,533 3.8 17,381 6.6
accounting principles
Income taxes 3,690 1.6 1,920 0.9 2,030 0.9 2,193 0.9 3,128 1.2
Net earnings--before
accounting changes 6,570 2.7 1,901 0.8 4,214 1.8 7,340 2.9 14,253 5.4
Cumulative effect on prior
years of accounting changes (a) (4,614) (1.9)
Net earnings 1,956 0.8 1,901 0.8 4,214 1.8 7,340 2.9 14,253 5.4
Retained
earnings--beginning of year 100,973 102,482 102,110 98,629 87,786
Dividends declared (2,061) (3,410) (3,842) (3,859) (3,410)
Retained earnings--end of
year $100,868 $100,973 $102,482 $102,110 $98,629
Average shares outstanding 5,152,556 5,141,936 5,122,433 5,168,688 5,456,192
Net earnings per share:
Before accounting
changes $1.27 $0.37 $0.82 $1.42 $2.61
Cumulative effect
on prior years of
accounting changes (0.89)
Net earnings $0.38 $0.37 $0.82 $1.42 $2.61
Cash dividends per share $0.40 $0.6625 $0.750 $0.750 $0.625
Capital expenditures 11,696 8,831 15,967 11,821 10,843
Depreciation and
amortization 12,143 11,665 13,102 13,052 13,396
FINANCIAL POSITION AT YEAR-END
Current assets $97,266 $87,376 $91,493 $91,152 $94,831
Current liabilities 49,888 37,262 39,569 39,102 37,914
Current ratio 1.9 to 1 2.3 to 1 2.3to 1 2.3to1 2.5to1
Working capital $47,378 $50,114 $51,924 $52,050 $56,917
Inventories 36,059 37,222 40,855 45,389 46,508
Property, plant and
equipment--net 47,842 48,529 53,828 53,207 54,600
Total assets 185,064 170,773 176,361 172,525 176,584
Short-term notes payable 12,822 5,827 8,160 7,750 1,786
Long-term obligations 4,995 10,826 11,297 8,858 12,004
Stockholders' equity 119,203 119,372 122,485 122,298 124,878
Common shares outstanding 5,153,424 5,150,824 5,123,824 5,122,124 5,464,278
Equity (book value) per
share $23.13 $23.18 $23.91 $23.88 $22.85
OTHER DATA
Stock price range (dollars per
share to the nearest 1/8) $22.38-$17.00 $24.50-$17.13 $24.00-$16.38 $23.63-$16.00 $25.50-$22.25
Average number of employees 3,975 4,335 4,847 5,540 5,931
Number of stockholders at
year-end 1,198 1,278 1,343 1,439 1,524
<FN>
(a)The Company adopted FASB106,"Employers' Accounting for Postretirement Benefits
Other Than Pensions" and FASB 109, "Accounting for Income Taxes," as of January 1, 1993.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of CTS Corporation
Our audits of the consolidated financial statements referred to in our
report dated February 7, 1994 appearing on page 24 of the CTS Corpora-
tion 1993 Annual Report to Stockholders, (which report and consolidat-
ed financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement
Schedules listed in Item 14(a) of this Form 10-K. In our opinion,
these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE
South Bend, Indiana
February 7, 1994
S-2
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus-
es constituting part of the Registration Statements on Form S-8 (No.
2-84230 and No. 33-27749) of CTS Corporation of our report dated
February 7, 1994 appearing on page 24 of the 1993 CTS Corporation
Annual Report to Stockholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by refer-
ence of our report on the Financial Statement Schedules, which appears
on page S-2 of this Form 10-K.
PRICE WATERHOUSE
South Bend, Indiana
March 17, 1994
<PAGE>
