SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
For Quarter Ended Commission File Number
October 1, 1995 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 293-7511
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 9, 1995: 5,207,329
Page 1 of 13
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Nine Months
Ended October 1, 1995, and October 2, 1994 3
Condensed Consolidated Balance Sheets -
As of October 1, 1995, and December 31, 1994 4
Condensed Consolidated Statements of Cash
Flows - For the Nine Months Ended October 1,
1995, and October 2, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Page 2 of 13
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(In thousands of dollars, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $73,890 $65,950 $226,281 $200,925
Costs and expenses:
Cost of goods sold 55,545 50,850 171,515 153,076
Selling, general and
administrative expenses 9,973 9,299 30,144 29,974
Research and development
expenses 1,956 1,433 6,306 4,422
Operating earnings 6,416 4,368 18,316 13,453
Other expenses (income):
Interest expense 430 90 1,356 506
Other (688) (447) (1,680) (891)
Total other expenses
(income) (258) (357) (324) (385)
Earnings before income
taxes 6,674 4,725 18,640 13,838
Income taxes 2,456 1,694 6,524 4,428
Net earnings $ 4,218 $ 3,031 $ 12,116 $ 9,410
Net earnings per share $ .81 $ .59 $ 2.33 $ 1.82
Cash dividends per share $ .15 $ .10 $ .45 $ .30
Average net shares
outstanding 5,204,690 5,174,075 5,198,092 5,167,956
See notes to condensed consolidated financial statements.
</TABLE>
Page 3 of 13
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
October 1, December 31,
1995 1994*
ASSETS (Unaudited)
Current Assets
Cash $ 29,644 $ 24,922
Accounts receivable, less allowances
(1995--$1,064; 1994--$869) 43,303 35,029
Inventories, net--Note C 40,119 41,456
Other current assets 3,939 3,032
Deferred income taxes 6,228 6,228
Total current assets 123,233 110,667
Property, Plant and Equipment, less accumulated
depreciation (1995--$136,825; 1994--$139,649) 49,421 50,777
Other Assets
Goodwill, less accumulated amortization
(1995--$7,518; 1994--$7,010) 4,766 5,221
Prepaid pension 43,478 39,408
Other 718 753
Total other assets 48,962 45,382
$221,616 $206,826
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 5,105 $ 7,436
Current maturities of long-term obligations 108 304
Accounts payable 15,940 12,768
Accrued liabilities 26,787 24,284
Total current liabilities 47,940 44,792
Long-term Obligations 15,602 15,595
Deferred Income Taxes 11,704 9,222
Postretirement Benefits 3,986 5,362
Stockholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,560 33,870
Retained earnings 122,281 112,506
Cumulative translation adjustment (154) (354)
155,687 146,022
Less cost of common stock held in treasury:
1995--599,702 shares; 1994--628,427 shares 13,303 14,167
Total stockholders' equity 142,384 131,855
$221,616 $206,826
*The balance sheet at December 31, 1994, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 13
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
Nine Months Ended
October 1, October 2,
1995 1994
Cash flows from operating activities:
Net earnings $12,116 $ 9,410
Depreciation and amortization 9,346 8,845
(Increase) decrease in:
Accounts receivable (8,274) (6,561)
Inventories 1,337 (4,229)
Other current assets (907) (1,391)
Prepaid pension expense (4,070) (4,297)
Other 1,212 (126)
Increase in:
Accounts payable and accrued liabilities 5,670 8,193
Total adjustments 4,314 434
Net cash provided by operating activities 16,430 9,844
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 272 317
Capital expenditures (7,576) (7,682)
Net cash used in investing activities (7,304) (7,365)
Cash flows from financing activities:
Payments of long-term obligations (197) (4,296)
Decrease in notes payable (2,331) (6,853)
Dividend payments (2,336) (1,552)
Net cash used in financing activities (4,864) (12,701)
Effect of exchange rate changes on cash 460 703
Net increase (decrease) in cash 4,722 (9,519)
Cash at beginning of year 24,922 23,534
Cash at end of period $29,644 $14,015
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest $ 1,678 $ 627
Income Taxes $ 4,202 $ 2,447
See notes to condensed consolidated financial statements.
Page 5 of 13
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 1, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is
unaudited; however, in the opinion of management, the interim data
includes all adjustments considered necessary for a fair
presentation of the results for the interim period. Operating
results for the nine-month period ended October 1, 1995, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1994 Annual Report on Form 10-K.
NOTE B--RECLASSIFICATIONS
Certain reclassifications have been made for all years presented in
the financial statements to conform to the classifications adopted
in 1995.
NOTE C--INVENTORIES
The components of inventory consist of the following:
(In thousands)
October 1, December 31,
1995 1994
Finished goods $ 6,785 $ 5,725
Work-in-process 15,593 16,531
Raw material 17,741 19,200
$40,119 $41,456
NOTE D--LITIGATION and CONTINGENCIES
Contested claims involving various matters, including environmental
claims brought by government agencies, are being litigated by CTS,
both in legal and administrative forums. In the opinion of
management, based upon currently available information, adequate
provision for potential costs has been made, or the costs which
might ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial
position of the Company or the results of operations.
Page 6 of 13
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of October 1,
1995, to December 31, 1994
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
October 1, December 31, Increase
1995 1994 (Decrease)
Cash $29,644 $24,922 $ 4,722
Accounts receivable, net 43,303 35,029 8,274
Inventories, net 40,119 41,456 (1,337)
Current assets 123,233 110,667 12,566
Notes payable 5,105 7,436 (2,331)
Accounts payable 15,940 12,768 3,172
Accrued liabilities 26,787 24,284 2,503
Current liabilities 47,940 44,792 3,148
Working capital 75,293 65,875 9,418
Current ratio 2.6 2.5 .1
Interest bearing debt 20,799 23,318 (2,519)
Net tangible worth 137,618 126,634 10,984
Ratio of interest bearing debt
to net tangible worth .15 .18 (0.03)
From December 31, 1994, to October 1, 1995, cash of CTS Corporation
and its subsidiaries ("CTS" or "Company") increased $4.7 million.
In addition to the significant earnings and non-cash adjustments,
the increase in cash primarily reflects increases in accounts
payable and accrued liabilities, and a decrease in inventory. The
working capital improvement of $4.7 million, excluding cash,
reflects an increase in accounts receivable of $8.3 million and a
decrease in notes payable of $2.3 million, offset by increases in
accounts payable of $3.2 million and accrued liabilities of $2.5
million. These increases are primarily a reflection of the
increase in sales and production levels during the third quarter of
1995, compared to the last quarter of 1994.
Capital expenditures were $7.6 million for the first nine months of
1995, compared with $7.7 million for the same period a year
earlier. Capital expenditures continued to relate to new product,
product variation and manufacturing improvement programs.
The $2.5 million decrease in interest bearing debt resulted
primarily from discretionary debt repayments.
Page 7 of 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of Third
Quarter 1995 to Third Quarter 1994
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending October 1, 1995, and October 2, 1994:
(Dollars in thousands)
October 1, October 2, (Decrease)
1995 1994 Increase
Net sales $73,890 $65,950 $7,940
Gross earnings 18,345 15,100 3,245
Gross earnings as a percent
of sales 24.83% 22.90% 1.93%
Selling, general and
administrative expenses 9,973 9,299 674
Selling, general and
administrative expenses as
a percent of sales 13.50% 14.10% (0.60)
Research and development
expenses 1,956 1,433 523
Operating earnings 6,416 4,368 2,048
Operating earnings as a percent
of sales 8.68% 6.62% 2.06%
Interest expense 430 90 340
Earnings before income taxes 6,674 4,725 1,949
Income taxes 2,456 1,694 762
Income tax rate 36.80% 35.85% 0.95%
Net sales increased by $7.9 million, or 12.0% from the third
quarter of 1994. Sales increases occurred principally in the
automotive, resistor network and microelectronics related products.
The major contributing factors to the automotive sales increase
were improved sales of existing products and additional market
penetration. The resistor network increase reflects market share
gain resulting from improved customer responses and increased sales
of new products. The microelectronics increase primarily results
from sales of the Light Emitting Diode (LED) based Fiber Optic Data
Link (ODL) products, which were acquired in late 1994.
Gross earnings improved primarily due to the sales and production
volume increases, as well as continuing efforts to control
manufacturing expenses.
Page 8 of 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Selling, general and administrative expenses in dollars increased
slightly as a result of the increased sales levels. As a percent
of sales, these expenses remained basically flat reflecting the
Company's continued cost control emphasis.
Research and development expenses increased by $0.5 million,
primarily due to the continuation of new product development
programs, particularly in the automotive and resistor network
product areas.
The increase in interest expense, similar to the first two quarters
of 1995, relates to a $15 million term loan established in December
1994.
The increase in the effective tax rate is a result of the Company's
ability to recognize and utilize, in 1994, net operating losses and
tax credits in certain jurisdictions for which valuation allowances
had previously been provided. The majority of these net operating
losses and tax credits were utilized in 1994 such that the impact
on the 1995 effective tax rate is not as significant. Also
contributing to the increased effective tax rate, are higher
Singapore losses for which there is no corresponding tax benefit
and higher taxable income in relatively high rate jurisdictions,
such as Canada and the United Kingdom.
Page 9 of 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of First
Nine Months of 1995 to First Nine Months of 1994
The following table highlights changes in significant components of
the consolidated statements of earnings for the nine-month periods
ending October 1, 1995, and October 2, 1994:
(Dollars in thousands)
October 1, October 2, (Decrease)
1995 1994 Increase
Net sales $226,281 $200,925 $25,356
Gross earnings 54,766 47,849 6,917
Gross earnings as a percent
of sales 24.20% 23.81% 0.39%
Selling, general and
administrative expenses 30,144 29,974 170
Selling, general and
administrative expenses as
a percent of sales 13.32% 14.92% (1.60)%
Research and development
expenses 6,306 4,422 1,884
Operating earnings 18,316 13,453 4,863
Operating earnings as a percent
of sales 8.09% 6.70% 1.39%
Interest expense 1,356 506 850
Earnings before income taxes 18,640 13,838 4,802
Income taxes 6,524 4,428 2,096
Income tax rate 35.00% 32.00% 3.00%
For the first nine months of 1995, net sales increased $25.4
million, or 12.6% compared to the first nine months of 1994.
Consistent with the third quarter of 1995, the significant 1995
year-to-date sales increases occurred in the microelectronics,
automotive and resistor network related products.
Gross earnings have improved throughout 1995, primarily due to the
sales and production volume increases which have favorably affected
operating efficiencies, as well as continuing efforts to control
manufacturing expenses.
Page 10 of 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Selling, general and administrative expenses in dollars remained
relatively flat compared to the first nine months of 1994.
However, these expenses in total have decreased as a percent of
sales, which reflects continuing efforts to control operating
expenses.
Research and development expenses have increased by $1.9 million,
primarily due to the new product development programs, particularly
in automotive products.
Interest expense has increased by $0.9 million as a result of the
$15 million term loan finalized in December 1994.
The increase in the effective tax rate is a result of the Company's
ability to recognize and utilize, in 1994, net operating losses and
tax credits in certain jurisdictions for which valuation allowances
had previously been provided. The majority of these net operating
losses and tax credits were utilized in 1994 such that the impact
on the 1995 effective tax rate is not as significant. Also
contributing to the increased effective tax rate, are higher
Singapore losses for which there is no corresponding tax benefit
and higher taxable income in relatively high rate jurisdictions,
such as Canada and the United Kingdom.
Page 11 of 13
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
CTS is involved in litigation and in other administrative
proceedings with government agencies regarding the protection of
the environment, and other matters, the results of which are not
yet determinable. In the opinion of management, based upon
currently available information, adequate provision for anticipated
costs has been made, or the ultimate costs resulting from such
litigation or administrative proceedings will not materially affect
the consolidated financial position of the Company or the results
of operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Forms 8-K
None
Page 12 of 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
/s/ Jeannine M. Davis /s/ Stanley J. Aris
Jeannine M. Davis Stanley J. Aris
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: November 13, 1995
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> OCT-01-1995
<CASH> 29,644
<SECURITIES> 0
<RECEIVABLES> 44,367
<ALLOWANCES> 1,064
<INVENTORY> 40,119
<CURRENT-ASSETS> 123,233
<PP&E> 186,246
<DEPRECIATION> 136,825
<TOTAL-ASSETS> 221,616
<CURRENT-LIABILITIES> 47,940
<BONDS> 0
<COMMON> 33,560
0
0
<OTHER-SE> 108,824
<TOTAL-LIABILITY-AND-EQUITY> 221,616
<SALES> 226,281
<TOTAL-REVENUES> 226,281
<CGS> 171,515
<TOTAL-COSTS> 207,965
<OTHER-EXPENSES> (1,680)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,356
<INCOME-PRETAX> 18,640
<INCOME-TAX> 6,524
<INCOME-CONTINUING> 12,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,116
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
</TABLE>
