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, 1994
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 Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark 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.
X
There were 5,193,854 shares of Common Stock, without par value,
outstanding on March 10, 1995.
The aggregate market value of the voting stock held by non-affiliates
of CTS Corporation was approximately $80 million on March 10, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the CTS Corporation 1994 Annual Report for
the fiscal year ended December 31, 1994, incorporated by
reference in Part I and Part II.
(2) Portions of the 1995 Proxy Statement for annual meeting
of stockholders to be held on April 28, 1995,
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 17 AND 18
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 16
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 of the Indiana Business Corporation Law
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. The affirmative vote of the 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 on the voting rights in additional
shares of CTS common stock previously or subsequently acquired by
DCA. In May 1988, the settlement agreement expired pursuant to its
terms. At the end of 1994, DCA owned 2,222,100 shares (42.9%) 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 pretax-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
investment has been approximately $11 million as of December 31,
1994. 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. During 1994, a three-
year lease was finalized with an international computer peripheral
manufacturer for this property. The annual rental amount is
approximately U.S. $345,000.
Also during 1991, the Company significantly reduced the operating
activities at its Brownsville, Texas, facility and plans to sell
this property. A portion of the Brownsville facility is currently
under a leasing arrangement which expires in 1999, at an annual
rental amount of approximately $60,000.
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.
During 1994, the Company purchased the assets of AT&T
Microelectronics' light emitting diode based optic data link
products business. The transaction also included sales contracts,
backlog, intellectual property, trademarks, and the design and
manufacturing technology. These products will be manufactured in
the Microelectronics West Lafayette, Indiana, facility.
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 21-23, of the CTS
Corporation 1994 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 (OEMs).
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.
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 1994 1993 1992
Automotive Control Devices 30 26 20
Electronic Connectors 17 14 17
Frequency Control Devices 15 15 17
Resistor Networks 11 14 16
Hybrid Microcircuits 10 14 11
Other 17 17 19
Total 100% 100% 100%
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 1994 1993 1992
Automotive 38 32 25
Data Processing 17 22 20
Communications Equipment 17 17 18
Defense and Aerospace 11 12 17
Instruments and Controls 9 9 12
Distribution 5 4 5
Consumer Electronics 3 4 3
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.
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, hybrid microcircuits, 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 program-
mable 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 40% of net sales in 1994 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 require-
ments 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 other countries for customers
not serviced by CTS sales engineers. Sales representatives receive
commissions from CTS. During 1994, about 55% of net sales were at-
tributable to coverage by sales representatives. Independent
distributors purchase products from CTS for resale to customers.
In 1994, independent distributors accounted for about 5% of net
sales.
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 1994, 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 manufactur-
ing 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 inven-
tories 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.
Working capital requirements are generally dependent on the overall
business level. During 1994, working capital increased
significantly to $65.9 million, as receivables and inventories
increased in response to the greater sales. Also, short-term debt
was reduced, generally being replaced by long-term obligations at
relatively more favorable borrowing rates. Cash represents a
significant part of the Company's working capital. Cash of various
non-U.S. subsidiaries was held in U.S.-denominated cash equivalents
at December 31, 1994. The cash, other than approximately $4.6
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 1994
license and royalty income was less than 1% 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%, 62% and 58% of net
sales in 1994, 1993 and 1992, respectively.
Of the net sales to unaffiliated customers, approximately $49.4
million, $40.1 million and $30.7 million were derived from sales to
General Motors Corporation in 1994, 1993 and 1992, respectively.
During 1993 and 1992, $24.0 million and $19.3 million were derived
from sales to International Business Machines Corporation.
However, during 1994 sales to this customer decreased to $4.4
million. 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 could have a materially adverse effect upon
the Company.
BACKLOG OF ORDERS
Backlog of orders does not necessarily provide an accurate indica-
tion 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
time, production scheduling and delivery are subject to change or
cancellation by the customers on relatively short notice. At the
end of 1994, the Company's backlog of orders was $82.7 million,
compared with $70.5 million at the end of 1993. This increase was
primarily attributable to increased demand from automotive
and microelectronics customers.
The backlog of orders at the end of 1994 will generally be filled
during the 1995 fiscal year.
GOVERNMENT CONTRACTS
CTS believes that about 11% of its net sales are associated with
purchases by the U.S. Government or non-U.S. 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 com-
petitors are larger and more diversified than CTS. Some com-
petitors 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.
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 require-
ments 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 21-23, of the CTS Corporation 1994 Annual Report, and is
incorporated herein by reference.
In 1994, approximately 34% of net sales to unaffiliated customers,
after eliminations, were attributable to non-U.S. operations. This
represents an increase from 28% of net sales attributable to non-
U.S. operations in 1993. About 32% 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 1994, 1993 and 1992, CTS spent $7.1, $5.7 and $6.1 million,
respectively, for research and development. Most CTS research and
development activities relate to new product and process develop-
ments 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 1994, except for the purchase of the light emitting diode
based optic data link products assets, 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.
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 4,056 persons during 1994. About 45% of
these persons were employed outside the United States at the end of
1994. Approximately 370 employees in the United States were
covered by collective bargaining agreements as of December 31,
1994. One of the two collective bargaining agreements covering
these employees will expire in 1995. The other agreement will
expire in 1999.
Item 2. Properties
CTS operations or facilities are at the following locations. The
owned properties are not subject to material liens or encumbrances.
Location
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 55,000 Leased December
(Science Center Dr.) 1998
Bangkok, Thailand 53,000 Owned -
Matamoros, Mexico 50,590 Owned* -
Baldwin, WI 39,050 Owned -
Cokato, MN 36,000 Owned -
Burlington, WI 5,000 Leased March
1995
TOTAL 1,844,567
* Buildings are located on land leased under renewable leases.
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. A portion of the
Brownsville facility is currently under a leasing arrangement which
expires in 1999. The annual rental income is approximately
$60,000. Also, a portion of the New Hope, Minnesota, facility is
currently under a sublease arrangement, which expires in 1998. The
annual rental income is approximately $88,400.
The Company constructed the Bangkok, Thailand, facility during
1991. This facility was idled during 1992 and was idle for all of
1993. During 1994, the Company entered a three-year lease on this
property at an annual rental amount of approximately U.S. $345,000.
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 manufacturing
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 1994, 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 1994 Annual Report, incorporated herein by
reference. On March 10, 1995, there were approximately 1,120
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 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 1994 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 (1992-1994)," pages 25-27, of the CTS
Corporation 1994 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 1994 Annual Report,
incorporated herein by reference. Quarterly per share financial
data is provided in "Stockholder Information," under the
subheadings, "Quarterly Results of Operations" and "Per Share
Data," on page 10 of the CTS Corporation 1994 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 1995 Proxy
Statement under the caption "Election of Directors," page 6, 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 of
1934 is contained in the 1995 Proxy Statement under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of
1934," page 7, 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 29, 1994, and
are expected to serve as executive officers until the next annual
meeting of the Board of Directors, scheduled on April 28, 1995, at
which time the election of officers will be considered again by the
Board of Directors.
Name Age Position and Offices
Joseph P. Walker 56 Director, Chairman,
President and Chief
Executive Officer
Philip T. Christ 63 Group Vice President
Stanley J. Aris 54 Vice President Finance and
Chief Financial Officer
Jeannine M. Davis 46 Vice President, Secretary
and General Counsel
James L. Cummins 39 Vice President Human Resources
George T. Newhart 52 Corporate Controller
Gary N. Hoipkemier 40 Treasurer
James N. Hufford 55 Vice President Research,
Development and Engineering
Donald R. Schroeder 46 Vice President Sales and
Marketing
Joseph P. Walker has served as Chairman of the Board, President and
Chief Executive Officer of CTS since 1988. Mr. Walker is a
Director of NBD Bank, N.A.
Philip T. Christ has served as Group Vice President since 1990.
Mr. Christ served as a Senior Vice President at Simplex Time
Recorder from 1976-1986.
Stanley J. Aris has served as Vice President, Finance and Chief
Financial Officer since 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 has served as Vice President, General Counsel
and Secretary since 1988. Between 1980 and 1988, she served as
legal counsel, Assistant Secretary, Assistant General Counsel and
General Counsel of the Corporation.
James L. Cummins was elected Vice President Human Resources on
February 25, 1994. Prior to this appointment, he served as
Director, Human Resources, CTS Corporation from 1991-1994. From
1990-1991, Mr. Cummins served as Human Resources Director, CTS
Corporation Electromechanical Group and in 1991 was appointed
Assistant Human Resources Director, CTS Corporation.
George T. Newhart has served as Corporate Controller since 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.
Gary N. Hoipkemier has served as Treasurer since 1989. He served
as Chief Financial Officer of Riblet Products Corporation from
1988-1989.
James N. Hufford was elected Vice President Research, Development
and Engineering on February 17, 1995. During the four years prior
to this appointment, Mr. Hufford served as Manager and then
Director of Corporate Research, Development and Engineering for the
Corporation. From 1981 through 1991, Mr. Hufford held key
engineering positions at the Corporation's Elkhart manufacturing
facility.
Donald R. Schroeder was elected Vice President Sales and Marketing
on February 17, 1995. During the six years prior to this
appointment, Mr. Schroeder served as Business Development Manager
for innovative and new technology for the CTS Microelectronics
business unit in West Lafayette, Indiana. Prior to 1989, Mr.
Schroeder held several other management and marketing positions
with various operating units of the Corporation.
Item 11. Executive Compensation
Information responsive to Item 402 of Regulation S-K pertaining to
management remuneration is contained in the 1995 Proxy Statement in
the captions "Executive Compensation," pages 8-9 and "Director
Compensation," page 14, 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 1995 Proxy Statement in the caption "Securities
Beneficially Owned by Principal Stockholders and Management," pages
3-5 filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Dynamics Corporation of America (DCA) owned 2,222,100 (42.9%) of
the Company's outstanding common stock as of December 31, 1994.
CTS purchased products from DCA totalling about $233,000 in 1994,
$145,000 in 1993 and $93,000 in 1992, principally consisting of
certain component parts used by CTS in the manufacture of frequency
control devices. CTS had minimal sales to DCA in 1994, and no
sales in 1993 and 1992.
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.
(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 24, 1994, between
CTS and Joseph P. Walker, filed as exhibit (10)(a)
to the Company's Form 10-K for 1994, and
incorporated herein by reference.
(10)(b) Prototype indemnification agreement, with
Lawrence J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr., Andrew Lozyniak, Joseph P. Walker,
Philip T. Christ, Stanley J. Aris, Jeannine M.
Davis, James L. Cummins, George T. Newhart and Gary
N. Hoipkemier, 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 1994 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 1994 to Registration Statement 2-
84230 on Form S-8 and Registration Statement 33-
27749 on Form S-8.
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.
ANNUAL REPORT ON FOR 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, 1994
CTS CORPORATION AND SUBSIDIARIES
ELKHART, INDIANA
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 Corporation
and subsidiaries included in the annual report of the registrant to
its shareholders for the year ended December 31, 1994, are incorpo-
rated by reference in Item 8:
Consolidated balance sheets - December 31, 1994, and
December 31, 1993
Consolidated statements of earnings - Years ended
December 31, 1994, December 31, 1993, and December 31,
1992
Consolidated statements of stockholders' equity - Years
ended December 31, 1994, December 31, 1993, and Decem-
ber 31, 1992
Consolidated statements of cash flows - Years ended
December 31, 1994, December 31, 1993, and December 31,
1992
Notes to consolidated financial statements
The following consolidated financial statement schedules of CTS
Corporation and subsidiaries, are included in item 14(d):
Page
Schedule II - Valuation and qualifying accounts S-3
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
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 corpora-
tion
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 filed.
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.
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 March 17, 1995 By /S/ Stanley J. Aris
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 March 17, 1995 By /S/ Lawrence J. Ciancia
Lawrence J. Ciancia,
Director
Date March 17, 1995 By /S/ Patrick J. Dorme
Patrick J. Dorme,
Director
Date March 17, 1995 By /S/ Gerald H. Frieling, Jr.
Gerald H. Frieling, Jr.,
Director
Date March 17, 1995 By /S/ Andrew Lozyniak
Andrew Lozyniak,
Director
Date March 17, 1995 By /S/ Joseph P. Walker
Joseph P. Walker,
Director
Date March 17, 1995 By /S/ George T. Newhart
George T. Newhart,
Corporate Controller
and principal accounting
officer
Date March 17, 1995 By /S/ Jeannine M. Davis
Jeannine M. Davis,
Vice President, Secretary
and General Counsel
CTS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Classification Period Expenses Accounts Deductions End of Period
Year ended December 31, 1994:
Allowance for
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
doubtful receivables $ 709 $ 277 $ 0 $ 117 $ 869
Year ended December 31, 1993:
Allowance for
doubtful receivables $ 303 $ 521 $ 85 $ 200 $ 709
Year ended December 31, 1992:
Allowance for
doubtful receivables $ 420 $ 157 $ 7(a) $ 281(b) $ 303
</TABLE>
(a) Recoveries.
(b) Uncollectible accounts written off.
S-3
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 2-84230 and No. 33-
27749) of CTS Corporation of our report dated February 2, 1995,
appearing within the 1994 CTS Corporation Annual Report to
Stockholders which is incorporated in the Annual Report on Form
10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page
S-2 of this Form 10-K.
PRICE WATERHOUSE LLP
South Bend, Indiana
March 17, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of CTS Corporation
Our audits of the consolidated financial statements referred to
in our report dated February 2, 1995, appearing within the CTS
Corporation 1994 Annual Report to Stockholders, (which report and
consolidated financial statements are incorporated by reference
in the Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
PRICE WATERHOUSE LLP
South Bend, Indiana
February 2, 1995
FINANCIAL HIGHLIGHTS
(In thousands except per share data)
For the Year 1994 1993 1992
Net sales $268,707 $236,979 $227,391
Net earnings 13,967 1,956 1,901
Average shares outstanding 5,170 5,153 5,142
Per share data:
Earnings before accounting
changes $ 2.70 $ 1.27 $ .37
Accounting changes (.89)
Net earnings 2.70 .38 .37
Dividends declared .45 .40 .6625
Capital expenditures 13,401 11,696 8,831
At Year-End
Working capital $ 65,875 $ 47,378 $ 50,114
Notes payable 7,436 12,822 5,827
Long-term obligations (including
current maturities) 15,899 5,336 11,625
Stockholders' equity 131,855 119,203 119,372
Equity per outstanding share 25.46 23.13 23.18
STOCKHOLDER INFORMATION
(In thousands of dollars except per share data)
Quarterly Results of Operations
Earnings
Before Net
Net Gross OperatingChanges inAccounting Earnings
Sales Earnings EarningsAccounting Changes (Loss)
1994
1st quarter $ 64,357 $14,127 $ 3,560 $2,490 $2,490
2nd quarter 70,618 15,633 5,525 3,889 3,889
3rd quarter 65,950 13,667 4,368 3,031 3,031
4th quarter 67,782 13,432 7,231(a) 4,557(a) 4,557(a)
$268,707 $56,859 $20,684 $13,967 $13,967
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
Per Share Data
Earnings
Before Net
Dividends Changes inAccounting Earnings
High(b) Low(b) Declared Accounting Changes (Loss)
1994
1st quarter $24.00 $19.50 $.10 $ .48 $.48
2nd quarter 26.13 21.88 .10 .75 .75
3rd quarter 29.13 24.63 .10 .59 .59
4th quarter 31.00 27.13 .15 .88 .88
$.45 $2.70 $2.70
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
(a) Includes reversal of $975 of litigation and customer claims reserves which
were favorably settled.
(b) 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.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars except per share amounts)
Year Ended
December 31 December 31 December 31
1994 1993 1992
Net sales $268,707 $236,979 $227,391
Cost of goods sold 211,848 189,635 186,290
Gross earnings 56,859 47,344 41,101
Selling, general and
administrative expenses 36,175 36,323 37,855
(Gain) on sale of property
and other related provisions--Note B (852)
Operating earnings 20,684 11,021 4,098
Other (expenses) income:
Interest expense (714) (980) (1,267)
Interest income 657 580 656
Other 860 (361) 334
Total other income (expenses) 803 (761) (277)
Earnings before income taxes
and cumulative effect
of changes in accounting
principles 21,487 10,260 3,821
Income taxes--Note H 7,520 3,690 1,920
Earnings before cumulative effect
of changes in accounting
principles 13,967 6,570 1,901
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 $ 13,967 $ 1,956 $ 1,901
Net earnings per share:
Before accounting changes $2.70 $1.27 $.37
Cumulative effect on prior
years of accounting changes (.89)
Net earnings per share $2.70 $.38 $.37
The accompanying notes are an integral part of the consolidated financial
statements.
(a) Includes research and development costs during 1994, 1993 and 1992 of
$7,050, $5,708 and $6,092, respectively.
Consolidated Statements of Stockholders' Equity
(In thousands of dollars)
<TABLE>
<CAPTION>
CumulativeDeferred
Common RetainedTranslation Compen- Treasury
Stock Earnings Adjustment sation Stock Total
<S> <C> <C> <C> <C> <C>
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
Net earnings 13,967 13,967
Cash dividends of $.45 per share (2,329) (2,329)
Nonemployee Directors' stock retirement plan (4) 3 12 11
Currency translation adjustment 695 695
Issued 15,500 shares on restricted stock and
cash bonus plan 51 (358) 307
Issued 8,650 shares on exercise of stock options (72) 248 176
Stock compensation 1 12 13
Deferred compensation recognized 119 119
Balances at December 31, 1994 $34,198 $112,506 $ (354) $(328) $(14,167)$131,855
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS December 31 December 31
(In thousands of dollars) 1994 1993
ASSETS
Current Assets
Cash and equivalents $ 24,922 $ 23,534
Accounts receivable, less allowances
(1994--$869; 1993--$710) 35,029 30,627
Inventories
Finished goods 5,725 5,064
Work-in-process 16,531 15,344
Raw materials 19,200 15,651
Total inventories 41,456 36,059
Other current assets 3,032 1,929
Deferred income taxes--Note H 6,228 5,117
Total current assets 110,667 97,266
Property, Plant and Equipment
Buildings and land 41,945 40,669
Machinery and equipment 148,481 141,739
Total property, plant and equipment 190,426 182,408
Less accumulated depreciation 139,649 134,566
Net property, plant and equipment 50,777 47,842
Other Assets
Goodwill, less accumulated amortization
(1994--$7,010; 1993--$6,330) 5,221 5,801
Prepaid pension expense--Note G 39,408 32,845
Other 753 1,310
Total other assets 45,382 39,956
Total Assets $206,826 $185,064
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable--Note C $ 7,436 $ 12,822
Current maturities of long-term obligations 304 341
Accounts payable 12,768 11,611
Accrued salaries and wages 6,483 5,802
Accrued taxes other than income 1,577 1,823
Income taxes payable 2,288 1,406
Other accrued liabilities--Note K 13,936 16,083
Total current liabilities 44,792 49,888
Long-term Obligations--Note D 15,595 4,995
Deferred Income Taxes--Note H 9,222 5,329
Postretirement Benefits--Note G 5,362 5,649
Stockholders' Equity
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,870 34,130
Retained earnings 112,506 100,868
Cumulative translation adjustment (354) (1,049)
146,022 133,949
Less cost of common stock held in treasury
(1994-- 628,427 shares; 1993--653,607 shares) 14,167 14,746
Total stockholders' equity 131,855 119,203
Total Liabilities and Stockholders' Equity $206,826 $185,064
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year Ended
December 31 December 31 December 31
1994 1993 1992
Cash flows from operating activities:
Net earnings $13,967 $ 1,956 $ 1,901
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 11,236 12,143 11,665
Deferred income taxes 2,519 767 303
Gain on sale of property,
plant and equipment (20) (17) (944)
Translation (gain) loss (523) 384 92
Deferred compensation 122 91 88
Provision for disposition of operations 621
Change in assets and liabilities
(net of effects of
purchase of ODL)--Note B:
Accounts receivable (4,402) (2,747) 2,473
Inventories (3,297) 1,163 3,442
Prepaid pension asset (6,563) (5,986) (4,907)
Accounts payable and accrued
liabilities (38) 1,627 2,258
Income taxes payable 882 1,629 (2,040)
Other (1,328) 1,941 (2,114)
Total adjustments (1,412) 15,609 10,937
Net cash provided by
operating activities 12,555 17,565 12,838
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 411 998 1,401
Capital expenditures (excluding ODL) (10,000) (11,696) (8,831)
Payment for purchase of ODL (5,501)
Other 129
Net cash used in investing
activities (15,090) (10,698) (7,301)
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations 15,000 2,938
Payments of long-term obligations (4,479) (6,179) (2,348)
(Decrease) increase in notes payable (6,050) 6,898 (2,319)
Stock options exercised 176 465
Dividends paid (2,067) (2,061) (3,857)
Net cash provided by (used in)
financing activities 2,580 (1,342) (5,121)
Effect of exchange rate changes on cash 1,343 (446) (92)
Net increase in cash 1,388 5,079 324
Cash at beginning of year 23,534 18,455 18,131
Cash at end of year $24,922 $23,534 $18,455
Supplemental cash flow information
Cash paid during the year for:
Interest $ 658 $ 1,076 $ 1,206
Income taxes - net 4,009 1,294 2,819
The accompanying notes are an integral part of the consolidated financial
statements.
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,
included in cost of sales, 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,
"Accounting for Income Taxes." The underlying differences consist
primarily of depreciation differences, pension income,
postemployment benefits, certain nondeductible accruals and
inventory reserves.
Reclassifications: Certain reclassifications have been made for
all years presented in the financial statements to conform to the
classifications adopted in 1994.
Translation of Foreign Currencies: The financial statements of
all of the Company's non-U.S. subsidiaries, except the United
NOTE A - Summary of Significant Accounting Policies (continued)
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
assets and liabilities 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. Income statement accounts are translated at
the average rates during the period.
Financial Instruments: The Company's financial instruments
consist primarily of cash, cash equivalents, trade receivables and
payables, 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, and trade receivables and payables
approximates fair value based on the short-term maturities of
these instruments. The carrying value for all long-term debt
outstanding at December 31, 1994, and 1993 approximates fair value
where fair value is based on market prices for the same or similar
debt and maturities.
At December 31, 1994, the Company had forward foreign exchange
currency contracts for the sale of various currencies aggregating
$5 million. The cost of these contracts approximates fair value.
The Company occasionally uses forward exchange currency contracts
to minimize the impact of foreign currency fluctuations on the
Company's costs and expenses. These contracts have minimal credit
risk because the counterparties are well-established financial
institutions.
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
NOTE A - Summary of Significant Accounting Policies (continued)
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.
Earnings Per Share: Earnings per common share are based on the
weighted average number of shares outstanding.
NOTE B - Purchase of Assets, Sale of Property and Other Related
Provisions
During 1994, the Company acquired, in a cash transaction,
inventory and fixed assets of the Light Emitting Diode (LED)--
based Fiber Optic Data Link (ODL) product line of AT&T
Microelectronics for $5.5 million. The cost of the acquisition,
which also included order backlog on sales contracts, rights to
intellectual property, design and manufacturing technology and
trademark of the AT&T Lightwave LED-based ODL business, was
allocated among the assets purchased based on estimated fair
value, with fixed assets being reduced for the excess of fair
value over cost.
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.
NOTE C - Short-term Borrowings
Short-term borrowings consist of demand notes payable to various
banks with an average interest rate of 6.6% at December 31, 1994,
4.4% at December 31, 1993, and 4.8% at December 31, 1992. The
notes were issued in connection with unsecured lines of credit
arrangements, the unused portions of which totaled $7,544,000 at
December 31, 1994. 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 1994, 1993 and 1992
were $11,776,000, $12,051,000 and $6,269,000, respectively. The
weighted average interest rates, computed by relating interest
expense to average daily short-term borrowings, were 5.5% in 1994,
4.3% in 1993 and 5.4% in 1992.
The maximum amount of short-term borrowings at the end of any
month during 1994, 1993 and 1992 was $12,977,000, $13,842,000 and
$8,334,000, respectively. The short-term borrowings outstanding
at December 31, 1992, were $5,827,000.
NOTE D - Long-term Obligations
Long-term obligations were comprised of the following:
(In thousands)
1994 1993
Long-term debt:
Five-year term loan at 8.38%, due in
1996 through 1999. $15,000
Revolving credit agreements, average
interest rates of 6.2% in 1994 and
6.1% in 1993, due in 1996 and 1997 $3,959
Other 899 1,211
15,899 5,170
Less current maturities 304 341
Total long-term debt 15,595 4,829
Other 166
Total long-term obligations $15,595 $4,995
The Company has a five-year $15,000,000 term loan with three
banks, of which $2,000,000 expires in 1996, $2,000,000 expires in
1997, $2,000,000 expires in 1998 and $9,000,000 expires in 1999.
The Company has unsecured revolving credit agreements totaling
$47,000,000 with four banks, of which $2,000,000 expires in 1996
and $45,000,000 expires in 1997. Interest rates on these
borrowings 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 and term loan
require, among other things, that the Company maintain certain
minimum working capital, total liabilities to tangible net worth,
tangible net worth requirements and interest coverage.
Annual maturities of long-term debt during the four years
subsequent to 1995 are as follows: 1996--$2,203,000; 1997--
$2,196,000; 1998--$2,196,000; 1999--$9,000,000.
NOTE E - Operating Leases
The Company leases certain facilities and machinery and equipment
under noncancelable operating leases which expire at various dates
through 1999 and thereafter. Certain of these leases contain
renewal options. All leases require the Company to pay property
taxes, insurance and normal maintenance.
Total minimum rental payments under all operating leases are not
significant.
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
Shares Per Share
Outstanding at January 1, 1993 59,750 $19.75 to $25.50
Granted 11,000 19.125
Expired or canceled (26,100) 19.75 to 25.50
Outstanding at December 31, 1993 44,650 19.125 to 20.625
Granted 57,000 24.75
Exercised (8,650) 19.125 to 20.625
Expired or canceled (7,000) 19.125 to 24.75
Outstanding at December 31, 1994 86,000 19.125 to 24.75
Exercisable at December 31, 1994 22,150 19.125 to 20.625
Available for future grants at
December 31, 1994 199,739
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 1994, 15,500 shares were awarded leaving
363,900 shares available for award or sale at December 31, 1994.
In 1993, 1,000 shares were awarded. In 1992, 6,000 shares were
awarded and 2,400 shares were forfeited due to terminations. In
addition to the shares issued and the amortization of deferred
NOTE F - Stock Plans (continued)
compensation included in the Consolidated Statements of
Stockholders' Equity, the Company accrued $212,000, $68,000 and
$82,000 for additional compensation payable under the provisions
of the Plan in 1994, 1993 and 1992, respectively.
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. Under this plan, the amount of the actual
dollar compensation was $11,100, $7,900 and $7,000 in 1994, 1993
and 1992, respectively.
NOTE G - Employee Retirement Plans
Defined benefit plans
The Company has a number of noncontributory defined benefit
pension plans (Plans) covering approximately 40% 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.
Net pension income for the Plans in 1994, 1993 and 1992 includes
the following components:
(In thousands)
1994 1993 1992
Service cost--benefits earned
during the year $ 2,374 $ 2,143 $ 2,375
Interest cost on projected
benefit obligation 4,769 4,632 4,670
Actual loss (return) on plan
assets 2,565 (13,622) (13,667)
Net amortization and deferral (16,271) 861 1,715
Net pension income $(6,563) $(5,986) $(4,907)
The following table details the funded status of the Plans at
December 31, 1994, and December 31, 1993:
(In thousands)
1994 1993
Actuarial present value of benefit obligations:
Vested benefits $ 58,224 $ 59,722
Nonvested benefits 2,461 2,610
Accumulated benefit obligation $ 60,685 $ 62,332
Plan assets at fair value $115,319 $121,966
Projected benefit obligation 66,775 67,282
Plan assets in excess of the projected
benefit obligation 48,544 54,684
Unrecognized prior year service cost 212 351
Unrecognized net loss (gain) 3,672 (8,883)
Unrecognized net asset (13,020) (13,307)
Prepaid pension expense $ 39,408 $ 32,845
NOTE G - Employee Retirement Plans (continued)
Assumptions used in determining net pension income and the funded
status of U.S. defined benefit pension plans were as follows:
1994 1993 1992
Discount rates (funded status) 8.25% 7.25% 7.25%
Rates of increase in compensation levels
(salaried plan only) 5%-7% 5%-7% 5%-7%
Expected long-term rate of return on assets 9% 10% 10%
Net pension income is determined using assumptions as of the
beginning of each year. Funded status is determined using
assumptions as of the end of each year. Effective with the
December 31, 1994, measurement date, the discount rate, expected
long-term rate of return on assets and mortality assumptions were
revised to reflect current market and demographic conditions. As
a result of these changes, the December 31, 1994, projected
benefit obligation decreased by $2.4 million. These changes had
no effect on 1994 pension income, but will reduce 1995 pension
income by $1.2 million.
The majority of U.S. defined benefit pension plan assets are
invested in common stock, including $5,526,000 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 during 1994, 1993 or 1992. Benefits paid by all
Plans during 1994, 1993 and 1992 were $4,175,000, $4,289,000 and
$3,900,000, respectively.
Pension coverage for employees of certain non-U.S. subsidiaries
is provided through separate plans. Contributions of $172,000,
$174,000 and $223,000 were made to the non-U.S. Plans in 1994,
1993 and 1992, 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 employee's annual salary. Amounts
expensed for the 401(k) Plan and the other plans totaled
$2,506,000 in 1994, $2,532,000 in 1993 and $1,998,000 in 1992.
NOTE G - Employee Retirement Plans (continued)
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
hired before December 31, 1993, 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 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.
Summary information on the Company's plans as of December 31,
1994, and December 31, 1993, is as follows:
(In thousands)
1994 1993
Accumulated postretirement benefit obligation:
Active employees $(1,089) $(1,479)
Retirees and dependents (3,589) (5,560)
(4,678) (7,039)
Unrecognized net gain (1,910) (187)
Postretirement benefit obligation $(6,588) $(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. Effective with the December 31, 1994, measurement
date, the discount rate and mortality assumptions were revised to
reflect current market and demographic conditions. As a
result of these changes and favorable medical claims experience,
the accumulated postretirement life obligation decreased by
approximately $800,000 and the accumulated postretirement medical
obligation decreased by approximately $700,000.
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 1994 and 1993 are as follows:
(In thousands)
1994 1993
Service cost--beneifts earned during period $ 43 $ 43
Interest cost on accumulated benefit obligation 511 637
Net expense $554 $680
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 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 are comprised of the
following:
(In thousands)
1994 1993 1992
Domestic $15,391 $ 8,965 $5,151
Non-U.S. 6,096 1,295 (1,330)
Total $21,487 $10,260 $3,821
The provision for income taxes charged to earnings before
cumulative effect of changes in accounting principles is
comprised of the following:
(In thousands)
1994 1993 1992
Current:
Federal $1,998 $ 908 $ 292
State 604 375 207
Non-U.S. 2,367 2,124 1,115
Total current 4,969 3,407 1,614
Deferred:
Federal 1,268 154 648
State 400 429
Non-U.S. 883 (300) (342)
Total deferred 2,551 283 306
Total provision for income taxes $7,520 $3,690 $1,920
NOTE H - Income Taxes (continued)
Significant components of the Company's deferred tax liabilities
and assets at December 31, 1994, and 1993, are:
(In thousands)
1994 1993
Depreciation $ 913 $ 270
Pensions 13,396 11,176
Other 2,192 1,013
Gross deferred tax liabilities 16,501 12,459
Postemployment benefits 2,240 2,513
Inventory reserves 2,778 1,777
Loss carryforwards 6,575 8,119
Credit carryforwards 5,705 3,764
Nondeductible accruals 3,013 3,064
Other 425 802
Gross deferred tax assets 20,736 20,039
Net deferred tax assets 4,235 7,580
Deferred tax assets valuation allowance (7,229) (8,023)
Total $ (2,994) $ (443)
During 1994, 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 $794,000.
A reconciliation of the Company's effective income tax to the
statutory federal income tax follows:
(In thousands)
1994 1993 1992
Taxes at the U.S. statutory rate $ 7,306 $ 3,488 $1,299
State income taxes, net of federal
income tax benefit 663 531 176
Non-U.S. income taxed at rates
different than the U.S. statutory rate 1,639 1,494 1,511
Utilization of net operating loss
carryforwards and benefit of scheduled
tax credits (2,544) (1,842) (1,751)
Alternative Minimum Tax 711
Other 456 19 (26)
Provision for income taxes $ 7,520 $ 3,690 $1,920
NOTE H - Income Taxes (continued)
Undistributed earnings of certain non-U.S. subsidiaries amounting
to $40,741,000 at December 31, 1994, 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
$4,602,000 of withholding tax would be imposed.
The Company has U.S. tax basis net operating loss carryforwards
and business tax credits of approximately $4,297,000 and
$2,933,000, respectively, at December 31, 1994. All of the U.S.
net operating losses and business credit carryforwards expire
between the years 2001 and 2006. In addition, the Company has
various non-U.S. tax basis net operating losses and business
credit carryforwards of $18,673,000 and $25,000, respectively. A
portion, $2,496,000, of the non-U.S. net operating loss and
$25,000 of the business credit carryforwards expire in 1997. 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
$2,747,000, which have no expiration date.
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 $49,400,000 in
1994, $40,100,000 in 1993 and $30,700,000 in 1992. Although
sales to a major computer manufacturer were only $4,400,000 in
1994, sales to the same customer were significantly higher in
1993 at $24,000,000 and in 1992, were $19,300,000.
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 18%, 16% and 14% of the
consolidated total for each of the years 1994, 1993 and 1992,
respectively. Net sales to unaffiliated customers from the
United Kingdom operation equaled 16%, 12% and 10% of the
consolidated total for 1994, 1993 and 1992, respectively.
Net assets of subsidiaries located in non-U.S. countries as of
December 31, 1994, and December 31, 1993, are summarized as
follows:
(In thousands)
1994 1993
Net current assets $23,751 $19,910
Property, plant and equipment--net 23,342 23,899
Goodwill and other long-term assets 2,331 2,304
Long-term obligations (586) (4,699)
Deferred income taxes (1,485) (174)
Total net assets of non-U.S. subsidiaries $47,353 $41,240
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 1994, 1993 and 1992 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.
NOTE I - Business Segment and Non-U.S. Operations (continued)
Geographic Area (In thousands)
1994 1993 1992
Net Sales
Domestic:
Sales to unaffiliated customers $178,032 $170,566 $172,646
Transfers to non-U.S. area 4,179 4,484 4,469
182,211 175,050 177,115
Other Non-U.S.:
Sales to unaffiliated customers 47,896 37,868 32,743
Transfers to domestic area 7,168 10,397 15,703
55,064 48,265 48,446
United Kingdom:
Sales to unaffiliated customers 42,779 28,545 22,002
Transfers to domestic area 514 149 388
43,293 28,694 22,390
Eliminations (11,861) (15,030) (20,560)
Total net sales $268,707 $236,979 $227,391
Operating Profit
Domestic $ 18,109 $ 12,060 $ 8,237
Other Non-U.S. 3,708 4,476 2,860
United Kingdom 4,569 910 (1,313)
(Gain) on sale of property and
other related provisions (852)
26,386 17,446 10,636
Eliminations 1 (19) (51)
26,387 17,427 10,585
General corporate expenses 5,703 6,406 6,487
Operating profit 20,684 11,021 4,098
Other income (expenses)--net 803 (761) (277)
Earnings before income taxes and
cumulative effect of changes in
accounting principles $ 21,487 $ 10,260 $ 3,821
Assets Apportioned by Area
Domestic $ 86,605 $ 73,256 $ 78,747
Other Non-U.S. 43,272 54,452 48,331
United Kingdom 23,419 18,398 17,847
153,296 146,106 144,925
Eliminations (3,305) (5,047) (2,972)
149,991 141,059 141,953
Corporate assets 56,835 44,005 28,820
Total assets $206,826 $185,064 $170,773
NOTE I - Business Segment and Non-U.S. Operations (continued)
Geographic Area
(In thousands)
1994 1993 1992
Capital Expenditures
Domestic $ 9,738 $ 7,318 $4,062
Other Non-U.S. 2,367 3,300 1,790
United Kingdom 1,296 1,078 2,979
Total $13,401 $11,696 $8,831
NOTE J - Supplemental Statement of Earnings Information
The following costs and expenses were charged to operations:
(In thousands)
1994 1993 1992
Maintenance and repairs $ 4,329 $ 3,778 $ 3,248
Depreciation of property, plant
and equipment 10,556 11,211 10,977
Amortization of intangible assets 680 932 688
Research and development costs 7,050 5,708 6,092
Rent expense 1,391 1,241 1,172
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.
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. Accrued
environmental costs as of December 31, 1994, totaled $3.8
million, compared with $3.0 million at December 31, 1993. 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 2,222,100 shares
(42.9%) of the Company's outstanding common stock at December 31,
1994. 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, 1994, two representatives of DCA
serve on the Company's Board of Directors. The normal business
transactions between the Company and DCA are insignificant.
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1994, and 1993, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1994, 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."
South Bend, Indiana
February 2, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (1992 - 1994)
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
1994 1993 1992
Net cash provided by (used in):
Operating activities $ 12,555 $ 17,565 $ 12,838
Investing activities (15,090) (10,698) (7,301)
Financing 2,580 (1,342) (5,121)
Working capital $ 65,875 $ 47,378 $ 50,114
Current ratio 2.47 1.95 2.34
Interest-bearing debt $ 23,318 $ 17,992 $ 16,359
Cash and equivalents 24,922 23,534 18,455
Net tangible worth 126,634 113,402 112,693
Ratio of interest-bearing debt
to net tangible worth .18 .16 .15
During 1994, cash flow of $12.6 million continued positive from
operating activities, primarily as a result of the significant
improvement in operating earnings. However, offsetting the
favorable impact of the higher earnings was the higher working
capital requirements to support the increased sales levels, which
reduced operating cash flow by $5.0 million from 1993.
Investing requirements increased during 1994 by $4.4 million,
primarily due to the $13.4 million of capital expenditures,
including $3.4 million for ODL fixed assets. Additionally,
financing activities increased during 1994 and were generated by
the higher sales levels and the acquisition of the ODL product line
where $2.1 million of additional expenditures were made for
inventory.
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 noncash charges for accounting changes. Cash flow
in 1992 from operating activities was also significantly favorable,
primarily due to the appropriate management of assets.
A significant noncash component of operating earnings during the
1992 to 1994 period was pension income of $6.6 million, $6.0
million and $4.9 million in 1994, 1993 and 1992, respectively. 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.
The major investment activity during the last three years was
capital expenditures, which totaled $13.4 million in 1994, $11.7
million in 1993 and $8.8 million in 1992. The major capital
expenditures in 1994 were for new products and product line
enhancements. Also during 1994, capacity increases were required
in our automotive and European connector businesses. The Company
expects to increase its capital expenditures in 1995 over 1994
levels. These capital expenditures will be generally for new
products and cost reduction programs.
In terms of financing activities, the Company negotiated a five-
year, $15.0 million long-term loan which expires in 1999. This
loan was primarily for the asset purchase and working capital needs
related to the ODL product line acquisition. 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.
Dividends paid in 1994 and 1993 were $2.1 million, while dividends
paid in 1992 were $3.9 million. 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. However, in December 1994, the Board of
Directors, principally as a result of the Company's improving
performance, increased the quarterly dividend to $.15 per share,
effective with the February 1995 payment.
At the end of each of the last three years, cash of various non-
U.S. subsidiaries was invested in U.S.-denominated cash
equivalents. Such cash is generally available to the parent
Company. However, it is the Company's intention not to repatriate
non-U.S. earnings. If all non-U.S. earnings were repatriated,
approximately $4.6 million of withholding taxes would accrue.
At the end of 1994, CTS had $47.0 million of borrowing capacity
available under two long-term revolving credit agreements. 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.
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
1994 1993 1992
Net sales $268,707 $236,979 $227,391
Gross earnings 56,859 47,344 41,101
Gross earnings as a percent
of sales 21.2% 20.0% 18.1%
Selling, general and
administrative expense $ 36,175 $ 36,323 $ 37,855
Selling, general and
administrative expense
as a percent of sales 13.5% 15.3% 16.6%
Gain on sale of property and
other related provisions 852
Operating earnings $ 20,684 $ 11,021 $ 4,098
Operating earnings as a
percent of sales 7.7% 4.7% 1.8%
Earnings before income taxes
and cumulative effect of
changes in accounting
principles $ 21,487 $ 10,260 $ 3,821
Income taxes 7,520 3,690 1,920
Income tax rate 35.0% 36.0% 50.2%
From 1993 to 1994, total sales increased by 13.4%, primarily as a
result of substantial increases in our automotive and European
connector businesses.
From 1992 to 1993, total sales increased by 4.2%, principally due
to increased sales in our automotive product lines, which more than
offset sales declines in our military connector and frequency
controls products.
During the three-year period 1992-1994, the percentage of overall
sales to the automotive market has increased from 25% to 38%, the
defense and aerospace market percentage has decreased from 17% to
11%, and the other market areas have remained fairly constant.
The Company's 15 largest customers represented 62% of net sales in
1994 and 1993, and 58% in 1992. One customer, a major manufacturer
of automobiles, comprised 18% of net sales in 1994, compared with
17% for 1993 and 14% for 1992. Although at a much lower level in
1994, a major manufacturer of data processing equipment comprised
10% and 8% of total net sales in 1993 and 1992, respectively.
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 1994, improvement was realized in gross earnings,
principally due to higher sales volume, production efficiencies and
higher absorption of manufacturing expenses. Gross earnings were
relatively similar in 1993 and 1992, giving consideration to the
respective volume levels.
During 1994, selling, general and administrative expenses, slightly
lower in dollars, also decreased as a percent of sales, principally
owing to the fixed nature of the majority of these expenses and the
continuing cost reduction programs. Also during 1994, the Company
successfully resolved approximately $1 million of outstanding legal
and customer claims, the provision for most of which had been
established in 1993. 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. 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, California, 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.
In 1994, the principal reason for the improved operating earnings
was the higher automotive and connector product sales, and improved
performance in the resistor networks and electrocomponents
businesses, which more than offset losses in our frequency controls
and microelectronics product lines. The primary reason for the
operating earnings increase in 1993 from 1992 was the increased
automotive product sales. During 1992, the Company suffered losses
as a result of 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.
The slightly lower 1994 effective tax rate is a result of improved
earnings, generating an increase in net operating loss carryforward
utilization. This same situation contributed to the substantially
lower effective tax rate for 1993, as compared to 1992.
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.
The effects of the 1993 accounting pronouncements FASB Statement
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and FASB Statement No. 109, "Accounting for Income
Taxes," have been discussed in financial statement footnotes, Note
G and Note H, respectively.
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.
Five-Year Summary
(In thousands of dollars except per share data)
<TABLE>
<CAPTION>
% of % of % of % of % of
1994 Sales 1993 Sales 1992 Sales 1991 Sales 1990 Sales
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 268707 100 236979 100 227391 100 229536 100 251044 100
Cost of goods sold 211848 78.8 189635 80 186290 81.9 189118 82.4 202115 80.5
Gross earnings 56859 21.2 47344 20 41101 18.1 40418 17.6 48929 19.5
Selling, general and
administrative
expenses 36175 13.5 36323 15.3 37855 16.6 35980 15.7 38051 15.2
(Gain) on sale of property
and other related provisions -852 -.3 -1857 -.8 796 0.3
Operating earnings 20684 7.7 11021 4.7 4098 1.8 6295 2.7 10082 4
Other income (expenses)
--net 803 0.3 -761 -.4 -277 -.1 -51 0 -549 -.2
Earnings before income taxes
and cumulative effect of changes
in accounting
principles 21487 8.0 10260 4.3 3821 1.7 6244 2.7 9533 3.8
Income taxes 7520 2.8 3690 1.6 1920 0.9 2030 0.9 2193 0.9
Net earnings--before accounting
changes 13967 5.2 6570 2.7 1901 0.8 4214 1.8 7340 2.9
Cumulative effect on prior years of
accounting changes (a) -4614 -1.9
Net earnings 13967 5.2 1956 0.8 1901 0.8 4214 1.8 7340 2.9
Retained earnings
- --beginning of year 100868 100973 102482 102110 98629
Dividends declared -2329 -2061 -3410 -3842 -3859
Retained earnings
- --end of year 112506 100868 100973 102482 102110
Average shares
outstanding 5170406 5152556 5141936 5122433 5168688
Net earnings per share:
Before accounting
changes 2.7 1.27 0.37 0.82 1.42
Cumulative effect on prior years of
accounting changes (a) -0.89
Net earnings 2.7 0.38 0.37 0.82 1.42
Cash dividends
per share 0.45 0.4 0.6625 0.75 0.75
Capital expenditures 13401 11696 8831 15967 11821
Depreciation and
amortization 11236 12143 11665 13102 13052
FINANCIAL POSITION AT YEAR-END
Current assets 110667 97266 87376 91493 91152
Current liabilities 44792 49888 37262 39569 39102
Current ratio 2.5 to 1 1.9 to 1 2.3 to 1 2.3 to 1 2.3 to 1
Working capital 65875 47378 50114 51924 52050
Inventories 41456 36059 37222 40855 45389
Property, plant and
equipment--net 50777 47842 48529 53828 53207
Total assets 206826 185064 170773 176361 172525
Short-term notes
payable 7436 12822 5827 8160 7750
Long-term obligations 15595 4995 10826 11297 8858
Stockholders' equity 131855 119203 119372 122485 122298
Common shares
outstanding 5178604 5153424 5150824 5123824 5122124
Equity (book value)
per share 25.46 23.13 23.18 23.91 23.88
OTHER DATA
Stock price range
(dollars per
share to the
nearest 1/8) $31.00-$19.50 $22.38-$17.00 $24.50-$17.13 $24.00-$16.38 $23.63-$16.00
Average number of
employees 4056 3975 4335 4847 5540
Number of stockholders
at year-end 1136 1198 1278 1343 1439
(a) The Company adopted FASB 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions"
and FASB 109, "Accounting for Income Taxes," as of January 1, 1993.
</TABLE>
CTS CORPORATION
905 WEST BOULEVARD NORTH - ELKHART, INDIANA 46514
Notice of Annual Meeting of Stockholders
To Be Held April 28, 1995
To CTS Stockholders:
The Annual Meeting of Stockholders of CTS Corporation will be
held at 9:00 a.m. Eastern Standard Time, Friday, April 28, 1995, at
the Quality Inn City Centre, 300 South Main Street, Elkhart,
Indiana 46516, for the following purposes:
1. To elect five directors to serve for one year and
until their successors are elected and qualified;
2. To transact other business properly presented at
the meeting.
Only stockholders of record at the close of business on
March 10, 1995 are entitled to notice of, and to vote at, the
meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting are a Proxy
Statement, a proxy and the Annual Report for the fiscal year ended
December 31, 1994.
By Order of the Board of Directors,
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 17, 1995
It is important that your stock be represented at this meeting. We
urge you to date, sign and return your proxy promptly in the
enclosed envelope, which requires no postage if mailed in the
United States.
CTS CORPORATION
905 WEST BOULEVARD NORTH - ELKHART, INDIANA 46514
Proxy Statement
Voting Information
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of CTS
Corporation for the Annual Meeting of Stockholders to be held
April 28, 1995. If the enclosed proxy is signed and returned, it
may, nevertheless, be revoked by you at any time prior to being
voted, by written notice delivered to the Secretary. The Proxy
Statement and proxy were first mailed to stockholders about
March 17, 1995.
The Corporation had outstanding 5,193,854 shares of Common
Stock as of the close of business on March 10, 1995, the record
date for the Annual Meeting as set by the Board of Directors. As
a result of stockholder action taken at the 1987 Annual Meeting,
1,020,000 shares of Common Stock owned by Dynamics Corporation of
America are not votable at the meeting. With the exception of
those shares, each stockholder is entitled to one vote in person or
by proxy for each share of Common Stock owned on the record date.
There are no other voting securities. If the enclosed proxy is
signed and returned, the shares represented will be voted in the
manner indicated except that if any nominee for director is unable
to serve at the time of the Annual Meeting, the proxy will be voted
in accordance with the judgment on such matters of the person or
persons acting as proxy.
Proxy solicitation will be principally by mail, but proxies
may also be solicited in person or by telephone. The expense of
this solicitation will be paid by the Corporation. Brokers and
certain other holders for beneficial owners will be reimbursed for
out-of-pocket expenses incurred in the solicitation of proxies from
the beneficial owners of shares held in their names. The
Corporation has retained Georgeson & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of $5,000, plus
reasonable out-of-pocket expenses.
The Board of Directors is not aware of any business to be
acted upon at the Annual Meeting other than for which notice is
given, but in the event other business is properly presented at the
meeting, requiring a vote of the stockholders, the proxy will be
voted in accordance with the judgment on such matters of the person
or persons acting as proxy.
Stockholders are requested to exercise their right to vote by
completing and signing the enclosed proxy and returning it promptly
in the enclosed envelope. Unless otherwise specified by the
stockholder, all shares represented by valid proxies will be voted
in favor of the election of all Director-Nominees.
Securities Beneficially Owned by Principal
Stockholders and Management
The following table includes information with respect to all
persons and groups known to the Corporation to be beneficial owners
of more than five percent of the Common Stock of the Corporation on
March 1, 1995. The number of shares and the percent of class held
by each director and director-nominee is also stated.
Additionally, the number of shares and the percent of class held by
each executive officer of the Corporation included in the Summary
Compensation Table set forth under the caption "Executive
Compensation" below is included, together with the total number of
shares and percent of class held by all Directors and Officers as
a Group.
Amount and Nature of
Beneficial Ownership On Percent
Beneficial Owner March 1, 1995 1 of Class
Dynamics Corporation of 2,222,100 2 42.78
America
475 Steamboat Road
Greenwich, CT 06830
The Gabelli Group, Inc. 1,217,700 3 23.45
GAMCO Investors, Inc.,
and Gabelli Funds, Inc.
655 Third Avenue
New York, NY 10017
CTS Corporation Employee 275,836 4 5.31
Benefit Plans Master Trust
Harris Trust and Savings
Bank, Trustee
Chicago, IL 60603
Gerald H. Frieling, Jr. 276,836 4 5.33
Lawrence J. Ciancia 276,336 4 5.32
Andrew Lozyniak 275,836 4,10 5.31
Patrick J. Dorme 275,836 4,10 5.31
Joseph P. Walker 23,635 5 *
Philip T. Christ 11,335 6 *
Stanley J. Aris 5,304 7 *
Jeannine M. Davis 4,745 8 *
James L. Cummins 2,778 9 *
13 Directors and Officers 335,254 4,11 6.46
as a Group
___________________________
*Less than 1%
1Information with respect to beneficial ownership is based upon
information furnished by each stockholder or contained in filings
made with the Securities and Exchange Commission. Except where
otherwise indicated, the stockholders listed in the table have sole
voting and investment authority with respect to the shares owned by
them.
2Includes 1,020,000 shares for which voting authority was not
granted by a vote of the independent stockholders of the Corpora-
tion at the 1987 Annual Meeting of Stockholders, pursuant to the
Control Share Acquisition Chapter of the Indiana Business Corpora-
tion Law.
3Includes 253,000 shares held by Gabelli Funds, Inc. and 964,700
shares held by GAMCO Investors, Inc., which were reported on a
joint Schedule 13D filed November 11, 1994, the most recent filing
by such Reporting Person. According to the Schedule 13D, each of
the Reporting Persons and Covered Persons has the sole power to
vote or direct the vote and sole power to dispose or to direct the
disposition of the Securities reported for it, either for its own
benefit or for the benefit of its investment clients or its
partners, as the case may be, except that GAMCO Investors, Inc.
does not have authority to vote 135,900 of the reported shares, and
except that Gabelli Funds, Inc. shares with the Board of Directors
of The Gabelli Growth Fund, The Gabelli Global Telecommunications
Fund, The Gabelli Global Interactive Couch Potato Fund, The Gabelli
Global Convertible Securities Fund, The Gabelli Gold Fund, Inc.,
The Gabelli Convertible Securities Fund and The Gabelli Equity
Income Fund voting power with respect to any shares which may be
held from time to time by such funds, so long as the aggregate
voting interest of all joint filers does not exceed 25% of the
issuer's total voting interest and, in that event, the respective
Proxy Voting Committee of each fund (other than The Gabelli Growth
Fund) will vote the shares held by that Fund; except that, since
the aggregate voting interest of all joint filers exceeds 25% of
the issuer's total voting interest, the sole voting power with
respect to the 100,000 shares held by The Gabelli Asset Fund, the
118,100 shares held by The Gabelli Equity Trust Inc. and the 35,000
shares held by The Gabelli Small Cap Growth Fund is exercised by
the respective Proxy Voting Committee of each such fund; except
that the power of Mr. Gabelli and GFI is indirect with
respect to Securities beneficially owned directly by other
Reporting Persons.
4275,836 of the shares shown as owned beneficially by each of Mr.
Ciancia, Mr. Dorme, Mr. Frieling, Mr. Lozyniak, the CTS Corporation
Benefit Plans Master Trust and 13 Directors and Officers as a Group
are the same shares, which shares are held by Harris Trust and
Savings Bank as Trustee of the CTS Corporation Employee Benefit
Plans Master Trust (the "Trust"). The Compensation Committee of
the Board of Directors has voting and investment authority over
said shares, except for shares held in participant-directed
accounts under the CTS Corporation Retirement Savings Plan, over
which individual participants hold investment authority. The
present members of the Compensation Committee are Lawrence J.
Ciancia, Patrick J. Dorme, Gerald H. Frieling, Jr., and Andrew
Lozyniak, who were appointed by the Board of Directors of CTS
Corporation.
The 275,836 shares held by the Master Trust include, in addition to
the shares attributed to the accounts of Joseph P. Walker,
Philip T. Christ, Stanley J. Aris, Jeannine M. Davis and James L.
Cummins in the CTS Corporation Retirement Savings Plan as set forth
in footnote numbers five, six, seven, eight and nine below,
respectively, 7,224 shares attributed to the accounts of other
officers of the Corporation in the CTS Corporation Retirement
Savings Plan, as shown as of December 31, 1994, the most recent
annual report of the Plan. The number of shares attributed to the
accounts of such other officers may not reflect shares that have
accrued to such accounts since the filing of the Plan's last
report.
5Includes 3,435 shares attributed to Joseph P. Walker's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1994, the most recent annual report of the Plan. The
number of shares attributed to Mr. Walker's account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report.
6Includes 1,335 shares attributed to Philip T. Christ's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1994, the most recent annual report of the Plan. The
number of shares attributed to Mr. Christ's account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report. Also includes 1,000 shares subject to
options exercisable on March 1, 1995 or which become exercisable
within 60 days thereafter.
7Includes 304 shares attributed to Stanley J. Aris' account in the
CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1994, the most recent annual report of the Plan. The
number of shares attributed to Mr. Aris' account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report. Also includes 1,000 shares subject to
options exercisable on March 1, 1995 or which become exercisable
within 60 days thereafter.
8Includes 323 shares attributed to Jeannine M. Davis' account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1994, the most recent report of the Plan. The number
of shares attributed to Ms. Davis' account may not reflect shares
that have accrued to her account since the filing of the Plan's
last annual report. Also includes 2,200 shares subject to options
exercisable on March 1, 1995 or which become exercisable within 60
days thereafter.
9Includes 274 shares attributed to James L. Cummins' spouse's
account in the CTS Corporation Retirement Savings Plan, as shown as
of December 31, 1994, the most recent report of the Plan. The
number of shares attributed to Mrs. Cummins' account may not
reflect shares that have accrued to her account since the filing of
the Plan's last annual report. Also includes 1,000 shares subject
to options exercisable on March 1, 1995 or which become exercisable
within 60 days thereafter.
10Messrs. Lozyniak and Dorme are directors of Dynamics Corporation
of America.
11Includes 8,700 shares subject to options exercisable on March 1,
1995 or which become exercisable within 60 days thereafter.
Election of Directors
At the Annual Meeting, five directors are to be elected for
terms of one year. Each director will hold office until the next
Annual Meeting of Stockholders and until his successor has been
elected and qualified. Each person listed below has been nominated
by the Board of Directors and has agreed to serve as a director, if
elected.
Year First
Elected
Director
GERALD H. FRIELING, JR. 1982
President of Frieling and Associates (a consulting
firm); Chairman of the Board of Tokheim Corporation (a
manufacturer of petroleum dispensing equipment, systems
and control devices); Chairman of the Audit Committee
and Member of the Executive and Compensation Committees
of CTS Corporation. During the past five years, Mr.
Frieling, age 64, served as Chief Executive Officer of
Tokheim Corporation, and served in his present
capacities at Frieling and Associates and Tokheim
Corporation.
ANDREW LOZYNIAK 1987
Chairman of the Board and President of Dynamics
Corporation of America (a manufacturer of electrical
appliances and electronic devices, fabricated metal
products and equipment, and power and controlled
environmental systems); Chairman of the Compensation
Committee and Member of the Executive and Audit
Committees of CTS Corporation. During the past five
years, Mr. Lozyniak, age 63, has served in his present
capacities at Dynamics Corporation of America. Mr.
Lozyniak serves as a director of Dynamics Corporation
of America.
JOSEPH P. WALKER 1987
Chairman of the Board, President and Chief Executive
Officer of CTS Corporation; Chairman of the Executive
Committee of CTS Corporation. During the past five
years, Mr. Walker, age 56, has served in his present
capacities at CTS. Mr. Walker is a director of NBD
Bank, N.A.
LAWRENCE J. CIANCIA 1990
Chief Executive Officer and Chief Operating Officer of
Uponor ETI Company (a supplier of PVC pipe products,
specialty chemicals and PVC compounds); Member of the
Audit and Compensation Committees of CTS Corporation.
During the past five years, Mr. Ciancia, age 52, has
served in his present capacities at Uponor ETI Company,
formerly Concorde Industries, Inc.
PATRICK J. DORME 1993
Vice President and Chief Financial Officer of Dynamics
Corporation of America (a manufacturer of electrical
appliances and electronic devices, fabricated metal
products and equipment, and power and controlled
environmental systems); Member of the Audit and
Compensation Committees of CTS Corporation. During the
past five years, Mr. Dorme, age 59, has served in his
present capacities at Dynamics Corporation of America.
Mr. Dorme serves as a director of Dynamics Corporation
of America.
The affirmative vote of the holders of a plurality of the shares
represented in person or by proxy at the meeting is required to
elect the Director-Nominees.
The Board of Directors unanimously recommends a vote in favor of
each of the Director-Nominees named above.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Corporation's directors and Executive Officers, and persons who
own more than ten percent of a registered class of the
Corporation's equity securities, to file with the Securities and
Exchange Commission and the New York Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Corporation. Executive
Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Corporation with copies
of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on its review of
the copies of such reports furnished to the Corporation and written
representations that no other reports were required during the year
ended December 31, 1994, all Section 16(a) filing requirements
applicable to its Executive Officers, directors and greater than
ten percent beneficial owners were complied with.
Board of Directors and Standing Committees
During 1994, the Board of Directors held six meetings. The
standing committees of the Board of Directors include an Audit
Committee, an Executive Committee and a Compensation Committee.
The Audit Committee, consisting of Lawrence J. Ciancia,
Patrick J. Dorme, Gerald H. Frieling, Jr., and Andrew Lozyniak,
held two meetings in 1994. The Committee performs the following
principal functions: recommendation of the engagement or discharge
of the Corporation's independent accountants; review of the plan
and results of the auditing engagement with the independent
accountants; review of the adequacy of the Corporation's internal
accounting controls; and review of the independence of the
independent accountants and the audit fees of the independent
accountants.
The Executive Committee, consisting of Gerald H. Frieling,
Jr., Andrew Lozyniak and Joseph P. Walker, held four meetings in
1994. The Committee reviews and advises management on financial
and operational matters between meetings of the Board of Directors.
The Compensation Committee, consisting of Lawrence J. Ciancia,
Patrick J. Dorme, Gerald H. Frieling, Jr., and Andrew Lozyniak,
held three meetings in 1994. The Committee performs the function
of recommending officer compensation arrangements and amounts to
the Board of Directors. The Committee also administers the CTS
Corporation 1986 Stock Option Plan, the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, and the CTS Corporation
Management Incentive Plan.
Each Director-Nominee attended at least 93% of the aggregate
of the meetings of the Board of Directors and the committees to
which he was assigned during 1994.
Executive Compensation
The following table sets forth annual and long-term
compensation information for each of the last three fiscal years of
the Chief Executive Officer and the four highest compensated
Executive Officers whose salary and bonus for fiscal year 1994
exceeded $100,000. Information which is not required to be
disclosed in the table is identified by the letters "N/R."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Restricted All Other
Name and Principal Position Year Salary ($) Bonus1 $ Other2 ($) Stock Award(s)3 ($) Compensation4 ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph P. Walker5,6 1994 311,878 147,200 N/R 231,250 8,496
Chairman of the 1993 297,083 0 N/R 0 6,426
Board, President and 1992 283,075 0 N/R 0 5,695
Chief Executive Officer
Philip T. Christ6 1994 168,301 90,200 N/R 0 7,326
Group Vice 1993 158,442 80,000 N/R 0 7,023
President 1992 150,983 0 N/R 41,000 6,080
Stanley J. Aris6 1994 160,105 75,600 N/R 57,813 4,991
Vice President 1993 153,663 20,250 5,555 0 4,813
Finance and Chief 1992 92,308 0 N/R 0 2,077
Financial Officer
Jeannine M. Davis6 1994 109,063 51,500 N/R 0 2,944
Vice President, 1993 95,035 0 N/R 0 2,762
General Counsel 1992 90,510 0 N/R 41,000 2,136
and Secretary
James L. Cummins6 1994 83,908 46,900 N/R 0 2,648
Vice President 1993 N/R N/R N/R N/R N/R
Human Resources 1992 N/R N/R N/R N/R N/R
</TABLE>
1Includes bonuses paid pursuant to the CTS Corporation Management
Incentive Plan, as described in the Report of the Compensation
Committee below.
2The value of other personal benefits received from the Corporation
by the named Executive Officers is below the reporting threshold
for perquisites.
3At the end of fiscal year 1994, Joseph P. Walker held 10,000
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which at
December 31, 1994 was $277,500. At the time that such restrictions
lapse, a cash bonus is paid in an amount equal to the market value
of the shares on the date the restriction lapses. For Joseph P.
Walker, the cash payments made pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan for the three identified years
were: 1994 - $49,250; 1993 - $39,250; and 1992 - $46,250.
At the end of fiscal year 1994, Philip T. Christ held 1,600
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on December
31, 1994 was $44,400. For Philip T. Christ, the cash payments made
pursuant to the CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan for the three identified years were: 1994 - $19,150;
1993 - $15,500; and 1992 - $9,400.
At the end of fiscal year 1994, Stanley J. Aris held 2,500
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on December
31, 1994 was $69,375. No cash payments have been made to Mr. Aris
pursuant to the CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan for the three identified years.
At the end of fiscal year 1994, Jeannine M. Davis held 1,200
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on
December 31, 1994 was $33,300. For Jeannine M. Davis, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1994 -
$9,200; 1993 - $7,300; and 1992 - 0.
The restrictions on 20% of the shares awarded under this Plan lapse
at the end of each of the five years following acquisition of the
shares. Regular dividends are paid to holders of restricted stock
awarded under this Plan. This Plan includes a change of control
provision which provides that, upon a change of control of the
Corporation, as defined in the Plan, all restrictions on shares
awarded under the Plan will lapse and cash bonuses will be paid
relative to those shares.
4Includes (i) the Corporation's matching contributions to the CTS
Corporation Retirement Savings Plan on behalf of the named
Executive Officers as follows: for Joseph P. Walker, 1994 -
$3,465; 1993 - $3,373 and 1992 - $3,273; for Philip T. Christ, 1994
- - $3,465; 1993 - $3,373 and 1992 - $3,204; for Stanley J. Aris,
1994 - $3,465; 1993 - $3,373 and 1992 - $2,077; for Jeannine M.
Davis, 1994 - $2,454; 1993 - $2,303 and 1992 - $1,911; and for
James L. Cummins, 1994 - $2,234 and (ii) the premiums paid by the
Corporation on the term life insurance policies with face values
greater than $50,000 provided to each of the named Executive
Officers as follows: for Joseph P. Walker, 1994 - $5,031, 1993 -
$3,053 and 1992 - $2,422; for Philip T. Christ, 1994 - $3,861,
1993 - $3,650 and 1992 - $2,876; for Stanley J. Aris, 1994 -
$1,526, 1993 - $1,440 and 1992 - $.00; for Jeannine M. Davis, 1994
- - $490, 1993 - $459 and 1992 - $225; and for James L. Cummins, 1994
- - $414.
5Joseph P. Walker has executed an employment agreement with the
Corporation, which provides that for a period of three years,
beginning June 24, 1994, Mr. Walker will be employed by the
Corporation as Chairman of the Board, President and Chief Executive
Officer, at an initial annual salary of $319,725. Termination of
Mr. Walker's employment agreement by the Corporation, for reasons
other than cause as defined in the agreement, entitles Mr. Walker
to receive his then current annual salary for the number of months
remaining under his agreement, the same to be paid in equal monthly
payments.
6The Corporation has entered into Indemnification Agreements with
each of the named Executive Officers and all other Executive
Officers of the Corporation which provide that the Corporation
agrees to indemnify the officer, to the fullest extent allowed by
the bylaws of the Corporation and the Indiana Business Corporation
Law, in the event that he/she was or is made a party or threatened
to be made a party to any action, suit or proceeding by reason of
the fact that he/she is an officer of the Corporation. The
indemnification agreements provide indemnification for acts
occurring prior to the execution of the agreements.
Stock Options
Shown below is information on grants of options for CTS
Corporation Common Stock awarded pursuant to the CTS Corporation
1986 Stock Option Plan to the named Executive Officers in 1994.
OPTION GRANTS IN 1994
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
For Option Term1
Number of % of Total
Securities Options Granted Exercise
Underlying to Employees Price Expiration
Name Options Granted2 in 1994 ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Joseph P. Walker 0 0 N/A N/A N/A N/A
Philip T. Christ 5,000 8.9% 24.75 6-23-99 34,190 75,550
Stanley J. Aris 3,000 5.3% 24.75 6-23-99 20,520 45,330
Jeannine M. Davis 4,000 7.0% 24.75 6-23-99 27,350 60,440
James L. Cummins 3,000 5.3% 24.75 6-23-99 20,520 45,330
</TABLE>
1Potential realizable value is determined by assuming an initial
value of $24.75 per share, the market closing price for CTS
Corporation Common Stock on the date of grant and applying the
stated annual appreciation rate compounded annually for the
remaining term of the option (five years), subtracting the exercise
price and multiplying the remaining number by the number of options
granted. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall
stock market condition.
2All options become exercisable over a four-year period at the rate
of 25% per year commencing on the first anniversary of the option
grant.
OPTION EXERCISES IN 1994
AND FISCAL YEAR END 1994 OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options At Options at
Fiscal Year End Fiscal Year End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Joseph P. Walker 0 0 0 0
Philip T. Christ 0 0 500/6,500 $ 4,313/27,938
Stanley J. Aris 0 0 500/4,500 4,313/21,938
Jeannine M. Davis 0 0 2,200/4,000 15,675/12,000
James L. Cummins 0 0 1,000/3,000 7,125/9,000
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The Compensation Committee of the Board of Directors,
comprised of Larry J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr., and Andrew Lozyniak, submits this report of
Executive Compensation to the Corporation's stockholders.
Compensation Principles and Philosophy
The Compensation Committee of the Board of Directors has
implemented executive compensation policies and programs designed
to achieve the following objectives:
Attract and retain key executives and managers
Align the financial interests of key
executives and managers with those of the
stockholders of the Corporation
Reward individual performance
Reward Corporate performance
These objectives are achieved through a combination of annual
and longer term compensation arrangements including base salary,
annual cash incentive compensation, and long-term incentive
compensation through stock options and restricted stock awards, in
addition to medical, pension and other benefits available to
employees in general.
The four principal components of the Executive Officer
Compensation package at CTS Corporation are: base salary, the CTS
Corporation Management Incentive Plan, the CTS Corporation 1986
Stock Option Plan and the CTS Corporation 1988 Restricted Stock and
Cash Bonus Plan.
Base Salary
The base salary of the Executive Officers of CTS Corporation
is determined in the same manner as the salaries of all exempt
salaried employees of the Corporation. A job classification system
is utilized to determine appropriate salary ranges for each
Executive Officer position, based on qualifications, job responsi-
bilities and market factors. The goal of CTS Corporation's job
classification system is that Executive Officers, and employees in
general, are paid a salary which is commensurate with their
qualifications, duties and responsibilities and which is competi-
tive in the market place. The Corporation retained in 1994 Towers
Perrin to assess the current salaries and classifications of the
Executive Officers compared with market data for similar positions
at similar companies. The report from Towers Perrin indicated that
the salaries of the Corporation's Executive Officers are generally
below competitive median salaries. When the financial performance
of the Corporation permits, salary adjustments above a cost-of-
living level are considered for those in the lower portion of their
salary range, if individual performance warrants such
consideration.
During each of the past three years, the named Executive
Officers have been granted salary increases during these years in
the cost-of-living range established for all exempt salaried employees
of the Corporation, except that in February of 1994, certain officer
salaries were increased at higher than cost-of-living rates in
response to competitive salary information provided by Towers
Perrin.
CTS Corporation Management Incentive Plan
All Executive Officers of the Corporation are participants in
the CTS Corporation Management Incentive Plan, which provides cash
compensation incentives, based on the financial performance of the
Corporation. Currently, financial performance is measured on the
basis of achieving target levels of return on assets (ROA). When
plan financial objectives are met at the 100% level, each of the
named Executive Officers is eligible for a bonus in an amount equal
to 40% of his/her base salary for the subject year. Maximum
incentive payments under this Plan range from 10% to 60% of the
annual salary of the Plan participants.
For 1994, the Corporation achieved 118% of its ROA target
under the 1994 Corporation Management Incentive Plan. Accordingly,
the named Executive Officers received formula bonuses under the
Plan equal to 47.2% of their base salaries, except that Philip T.
Christ's 1994 bonus also reflects the higher ROA performance
achievement of the operating units which report to him.
This Plan also authorizes the Compensation Committee to grant
discretionary bonuses when the Committee deems it appropriate to do
so. No discretionary bonuses have been paid to the named Executive
Officers during any of the three years for which compensation is
disclosed, except that for 1993 a discretionary award of $39,450
was made to Philip T. Christ, based on his direct and substantial
contribution to the success of the Corporation's Automotive
Products business unit.
CTS Corporation 1986 Stock Option Plan
The Compensation Committee administers the Corporation's stock
option plan and determines to whom options will be granted, the
dates of such option grants, the number of shares subject to
option, the option price, option periods and option terms. Stock
options were granted to Philip T. Christ, Stanley J. Aris,
Jeannine M. Davis and James L. Cummins during 1994 in order to
establish a direct link between these Executive Officers and long-
term Corporate performance, as reflected in stock price
appreciation.
CTS Corporation 1988 Restricted Stock and Cash Bonus Plan
The CTS Corporation 1988 Restricted Stock and Cash Bonus Plan
was adopted by the stockholders in 1989 for the purpose of
providing incentives to selected key employees who contribute or
are expected to contribute materially to the success of the
Corporation, and to closely align the financial interests of these
key employees with those of the Corporation's stockholders. The
participants are selected and their level of participation
determined by the Compensation Committee.
Shares acquired by participants pursuant to the Plan are
subject to restriction that, during the period of five years after
the date of acquisition, the participant may not sell, transfer or
otherwise dispose of such shares as to which the restrictions shall
not have lapsed. The restrictions lapse as to 20% of the shares
acquired pursuant to the Plan at the end of each year following the
acquisition of the shares. When the restrictions lapse, a cash
bonus is paid to the participant equal to the fair market value of
such shares as of the date of such lapse. In no event may the cash
bonuses payable to any participant be greater than twice the fair
market value of such shares on the date they were originally
acquired.
Dividends are paid to participants in this Plan on all shares
awarded to them under the Plan. The Plan also provides for
appropriate adjustment to the number of shares awarded in the event
of a stock dividend, stock split, recapitalization, merger,
combination or exchange of shares for other securities.
Awards under the Plan were made to Joseph P. Walker and
Stanley J. Aris, for 10,000 shares and 2,500 shares respectively in
1994. Mr. Walker and Mr. Aris were selected for awards in order to
align their interests with the Corporation's stockholders and in
view of their abilities, as Chief Executive Officer and Chief
Financial Officer, to contribute materially to the success of the
Corporation. The number of shares previously awarded to the named
Executive Officers, their market value, vesting schedules, and
bonuses paid relative thereto, are set forth in the Summary
Compensation Table above and the footnotes thereto.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as
amended, limits to $1,000,000 per person the amount that the
Corporation may deduct for compensation paid to any of its most
highly compensated officers in any year after 1993. The levels of
compensation paid to the Corporation's Executive Officers do not
exceed this limit. The Compensation Committee currently intends
for all compensation paid to its Executive Officers to be tax
deductible to the Company pursuant to Section 162(m).
Respectfully Submitted,
CTS CORPORATION COMPENSATION COMMITTEE
Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr. and Andrew Lozyniak
STOCK PERFORMANCE CHART
The following graph compares the cumulative total stockholder
return on the Corporation's common stock for the last five fiscal
years with the cumulative total return on the S & P 500 Index and
an index of peer companies over the same period.
CTS Corporation Salaried Employees' Pension Plan
The CTS Corporation Salaried Employees' Pension Plan is a
retirement plan for exempt salaried employees of some CTS Corpora
tion divisions and subsidiaries. The benefit formula is calculated
as 1% of a participant's highest average monthly pay during any
three calendar years of a participant's last ten calendar years of
service, multiplied by a participant's credited service. The
credited service for the named Executive Officers as of
December 31, 1994, is as follows: Joseph P. Walker, 6.52 years,
Philip T. Christ, 4.78 years, Stanley J. Aris, 1.78 years,
Jeannine M. Davis, 14 years, and James L. Cummins, 17 years.
Covered compensation for the named Executive Officers is essen
tially equivalent to the amount reported in the Annual Compensation
Section of the Summary Compensation Table above under the Salary
and Bonus Columns. No benefit under this plan is subject to Social
Security or other offsets.
The following table shows the annual benefits payable under
the plan to persons in specified compensation and credited service
classifications at normal retirement age of 65:
PENSION TABLE*
Years of Participation
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years
$100,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 35,000
125,000 18,750 25,000 31,250 37,500 43,750
150,000 22,500 30,000 37,500 45,000 52,500
175,000 26,250 35,000 43,750 52,500 61,250
200,000 30,000 40,000 50,000 60,000 70,000
225,000 33,750 45,000 56,250 67,500 78,750
250,000 37,500 50,000 62,500 75,000 87,500
300,000 45,000 60,000 75,000 90,000 105,000
400,000 60,000 80,000 100,000 120,000 140,000
*The benefit limitation under the Internal Revenue Code of 1986, as
amended, for 1995 is $120,000. Effective July 1, 1994, no more
than $150,000 (as adjusted from time to time for cost of living
increases of $10,000 or more) of cash compensation may be taken
into account in calculating benefits under this plan.
Director Compensation
Each member of the Board of Directors, who is not an employee
or an officer of the Corporation, is paid an annual retainer of
$12,000 per year for service on the Board of Directors, a meeting
fee of $1,000 for each meeting of the Board of Directors attended
in person, and $500 for each meeting of the Board of Directors
attended by telephone. In addition, each member of the Executive
Committee and each member of the Compensation Committee is entitled
to receive an annual retainer of $500, and each member of the Audit
Committee is entitled to receive an annual retainer of $1,000,
together with a meeting fee of $1,000 for attending each meeting of
a committee of which he is a member, except that he is entitled to
receive $500 per meeting for a second or subsequent meeting held on
the same day and for any such meetings attended by telephone.
On April 27, 1990 the Corporation adopted the CTS Corporation
Stock Retirement Plan for Non-Employee Directors of the Corporation
(the "Plan"). Under the Plan, separate accounts are opened by the
Corporation in the names of non-employee directors. On January 1
of each year, starting in 1991, a Deferred Stock Account in the
name of each non-employee director is credited with 100 Common
Stock Units if said director was a non-employee director of the
Corporation on the last day of the immediately preceding calendar
year or ceased to be a director during such preceding calendar year
by reason of his retirement, disability or death. In addition, on
May 1, 1990, the Corporation credited to the Deferred Stock Account
of each such director 50 Common Stock Units for each complete
calendar year of his service to the Corporation as a non-employee
director prior to May 1, 1990. Each Deferred Stock Account will
also be credited with Common Stock Units when credits equivalent to
cash dividends on the shares in an account aggregate an amount
equal to the value of a share of Common Stock on a dividend payment
date. All Deferred Stock Units in a director's account will be
distributed in Common Stock as of the January 1st after the
director leaves the Board of Directors. Until such time, the
Corporation's obligation under the Plan is an unsecured promise to
deliver shares of Common Stock. No Common Stock will be held in
trust or as a segregated fund because of the adoption of the Plan.
Four members of the Board of Directors are currently eligible to
participate in the Plan. The Corporation expensed $11,100 in 1994
in respect of Common Stock Units credited to the accounts of the
eligible directors as a group pursuant to the Plan.
Corporation's Independent Accountants
The Corporation's independent accountants are Price Water-
house. Representatives of the independent accountants will attend
the Annual Meeting, to be available to respond to appropriate
questions by stockholders and to have the opportunity to make
statements, if they so desire.
Stockholder Proposals
To be considered for inclusion in the 1996 proxy solicitation
material and proxy, stockholder proposals must be received by the
Corporation at its Corporate offices no later than November 24,
1995.
1994 Annual Report on S.E.C. Form 10-K
Upon the written request of a CTS stockholder owning shares of
Common Stock on the record date, to Jeannine M. Davis, Secretary of
CTS Corporation, 905 West Boulevard North, Elkhart, Indiana 46514,
the Corporation will provide to such stockholder, without charge,
a copy of its 1994 annual report on S.E.C. Form 10-K, including the
financial statements and financial statement schedules.
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 17, 1995
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1994
10-K and is qualified in its entirety by reference to such 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<CASH> 24,922
<SECURITIES> 0
<RECEIVABLES> 35,898
<ALLOWANCES> 869
<INVENTORY> 41,456
<CURRENT-ASSETS> 110,667
<PP&E> 190,426
<DEPRECIATION> 139,649
<TOTAL-ASSETS> 206,826
<CURRENT-LIABILITIES> 44,792
<BONDS> 0
<COMMON> 33,870
0
0
<OTHER-SE> 112,152
<TOTAL-LIABILITY-AND-EQUITY> 206,826
<SALES> 268,707
<TOTAL-REVENUES> 268,707
<CGS> 211,848
<TOTAL-COSTS> 248,023
<OTHER-EXPENSES> (1,517)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 714
<INCOME-PRETAX> 21,487
<INCOME-TAX> 7,520
<INCOME-CONTINUING> 13,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,967
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.70
</TABLE>
