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 September 29, 1996
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
September 29, 1996 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 8, 1996: 5,227,756
Page 1 of 12
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months and Nine Months
Ended September 29, 1996, and October 1, 1995 3
Condensed Consolidated Balance Sheets -
As of September 29, 1996, and December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows - For the Nine Months Ended September 29,
1996, and October 1, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 12
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $76,457 $73,890 $240,463 $226,281
Costs and expenses:
Cost of goods sold 55,731 55,545 178,064 171,515
Selling, general and
administrative expenses 9,987 9,973 31,967 30,144
Research and development
expenses 2,892 1,956 7,780 6,306
Operating earnings 7,847 6,416 22,652 18,316
Other expenses (income):
Interest expense 337 430 1,124 1,356
Other, net (521) (688) (1,986) (1,680)
Total other (income) (184) (258) (862) (324)
Earnings before income
taxes 8,031 6,674 23,514 18,640
Income taxes 2,971 2,456 8,700 6,524
Net earnings $ 5,060 $ 4,218 $ 14,814 $ 12,116
Net earnings per share $ .96 $ .81 $ 2.82 $ 2.33
Cash dividends declared
per share $ .18 $ .15 $ .48 $ .45
Average common and common
equivalent shares
outstanding 5,264,736 5,204,690 5,258,529 5,198,092
See notes to condensed consolidated financial statements.
(/table)
Page 3 of 12
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 29, December 31,
1996 1995*
ASSETS (Unaudited)
Current Assets
Cash $ 36,646 $ 37,271
Accounts receivable, less allowances
(1996--$657; 1995--$774) 48,780 41,737
Inventories--Note B 38,237 38,885
Other current assets 4,091 2,544
Deferred income taxes 5,676 5,676
Total current assets 133,430 126,113
Property, Plant and Equipment, less accumulated
depreciation (1996--$134,981; 1995--$131,445) 53,996 50,696
Other Assets
Goodwill, less accumulated amortization
(1996--$8,194; 1995--$7,687) 4,148 4,603
Prepaid pension 48,636 44,739
Other 915 976
Total other assets 53,699 50,318
$241,125 $227,127
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 0 $ 6,685
Current maturities of long-term obligations 2,203 2,211
Accounts payable 17,407 15,605
Accrued liabilities 32,952 26,461
Total current liabilities 52,562 50,962
Long-term Obligations 13,421 13,714
Deferred Income Taxes 11,909 11,909
Postretirement Benefits 4,311 4,289
Shareholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,444 33,355
Retained earnings 138,697 126,546
Cumulative foreign translation adjustment (461) (645)
171,680 159,256
Less cost of common stock held in treasury:
1996--581,775 shares; 1995--589,702 shares 12,758 13,003
Total shareholders' equity 158,922 146,253
$241,125 $227,127
*The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 12
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 29, October 1,
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net earnings $14,814 $12,116
Depreciation and amortization 9,552 9,346
(Increase) decrease in:
Accounts receivable (7,043) (8,274)
Inventories 648 1,337
Other current assets (1,547) (907)
Prepaid pension expense (3,897) (4,070)
Other 294 1,212
Increase in:
Accounts payable and accrued liabilities 8,135 5,670
Total adjustments 6,142 4,314
Net cash provided by operating activities 20,956 16,430
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 724 272
Capital expenditures (13,043) (7,576)
Net cash used in investing activities (12,319) (7,304)
Cash flows from financing activities:
Payments of long-term obligations (304) (197)
Decrease in notes payable (6,685) (2,331)
Dividend payments (2,505) (2,336)
Net cash used in financing activities (9,494) (4,864)
Effect of exchange rate changes on cash 232 460
Net increase (decrease) in cash (625) 4,722
Cash at beginning of year 37,271 24,922
Cash at end of period $36,646 $29,644
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest $ 1,134 $ 1,678
Income Taxes $ 3,855 $ 4,202
See notes to condensed consolidated financial statements.
</TABLE>
Page 5 of 12
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 29, 1996
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 September 29, 1996, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1995 Annual Report on Form 10-K.
NOTE B--INVENTORIES
The components of inventory consist of the following:
(In thousands)
September 29, December 31,
1996 1995
Finished goods $ 7,504 $ 7,445
Work-in-process 15,917 14,789
Raw material 14,816 16,651
$38,237 $38,885
NOTE C--LITIGATION and CONTINGENCIES
Contested claims involving various matters, including environmental
claims brought by government agencies, are being litigated by CTS,
both in legal and administrative forums. In the opinion of
management, based upon currently available information, adequate
provision for potential costs has been made, or the costs which
might ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial
position of the Company or the results of operations.
Page 6 of 12
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
September 29, 1996, to December 31, 1995
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
September 29, December 31, Increase
1996 1995 (Decrease)
Cash $36,646 $37,271 $ (625)
Accounts receivable, net 48,780 41,737 7,043
Inventories, net 38,237 38,885 (648)
Current assets 133,430 126,113 7,317
Accounts payable 17,407 15,605 1,802
Accrued liabilities 32,952 26,461 6,491
Current liabilities 52,562 50,962 1,600
Working capital 80,868 75,151 5,717
Current ratio 2.5 2.5 --
Interest bearing debt 15,392 22,267 (6,875)
Net tangible worth 154,774 141,650 13,124
Ratio of interest bearing debt
to net tangible worth .10 .16 (0.06)
From December 31, 1995, to September 29, 1996, cash of CTS
Corporation and its subsidiaries ("CTS" or "Company") decreased
$0.6 million. The decrease in cash reflects a reduction in
interest bearing debt and increased working capital, primarily due
to increases in accounts receivable. The working capital increase
is primarily a reflection of the increase in sales and production
levels during the third quarter of 1996, compared to the last
quarter of 1995.
Capital expenditures were $13.0 million for the first nine months
of 1996, compared with $7.6 million for the same period a year
earlier. Capital expenditures continued to relate to increased
manufacturing capacity, new products and manufacturing improvement
programs.
The $6.9 million decrease in interest bearing debt represented
short-term debt payments funded primarily from positive cash flows
from operations.
Page 7 of 12
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 1996 to Third Quarter 1995
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending September 29, 1996, and October 1, 1995:
(Dollars in thousands)
September 29, October 1, (Decrease)
1996 1995 Increase
Net sales $76,457 $73,890 $2,567
Gross earnings 20,726 18,345 2,381
Gross earnings as a percent
of sales 27.11% 24.83% 2.28%
Selling, general and
administrative expenses 9,987 9,973 14
Selling, general and
administrative expenses as
a percent of sales 13.06% 13.50% (0.44)%
Research and development
expenses 2,892 1,956 936
Operating earnings 7,847 6,416 1,431
Operating earnings as a percent
of sales 10.26% 8.68% 1.58%
Interest expense 337 430 (93)
Earnings before income taxes 8,031 6,674 1,357
Income taxes 2,971 2,456 515
Net earnings 5,060 4,218 842
Income tax rate 37.00% 36.80% 0.20%
Net sales increased by $2.6 million, or 3.5% from the third quarter
of 1995. The improvement in sales reflects continued demand for
electronic components, particularly for commercial interconnect and
automotive products in both domestic and European markets.
Gross earnings improved primarily due to the sales and production
volume increases, as well as continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses in dollars remained
basically flat. The Company continues to emphasize cost control
over all operating expenses.
Research and development expenses increased by $0.9 million, or
47.9%, primarily due to the continuation of new product development
programs, particularly in the automotive product area.
Page 8 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The decrease in interest expense resulted primarily from reduced
short-term debt.
The estimated effective tax rate for 1996 of 37% approximated the
actual 1995 tax rate of 38%.
Material Changes in Results of Operations: Comparison of First
Nine Months of 1996 to First Nine Months of 1995
The following table highlights changes in significant components of
the consolidated statements of earnings for the nine-month periods
ending September 29, 1996, and October 1, 1995:
(Dollars in thousands)
September 29, October 1, (Decrease)
1996 1995 Increase
Net sales $240,463 $226,281 $14,182
Gross earnings 62,399 54,766 7,633
Gross earnings as a percent
of sales 25.95% 24.20% 1.75%
Selling, general and
administrative expenses 31,967 30,144 1,823
Selling, general and
administrative expenses as
a percent of sales 13.29% 13.32% (0.03)%
Research and development
expenses 7,780 6,306 1,474
Operating earnings 22,652 18,316 4,336
Operating earnings as a percent
of sales 9.42% 8.09% 1.33%
Interest expense 1,124 1,356 (232)
Earnings before income taxes 23,514 18,640 4,874
Income taxes 8,700 6,524 2,176
Net earnings 14,814 12,116 2,698
Income tax rate 37.00% 35.00% 2.00%
For the first nine months of 1996, net sales increased $14.2
million, or 6.3% compared to the first nine months of 1995.
Consistent with the third quarter of 1996, improvement was realized
as a result of the continuing demand for commercial interconnect
and automotive products in both domestic and European markets.
Page 9 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Gross earnings have improved throughout 1996, primarily due to the
sales and production volume increases which have favorably affected
operating efficiencies, as well as continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses have remained
relatively flat as a percent of sales, which reflects continuing
efforts to control operating expenses.
Research and development expenses have increased by $1.5 million,
or 23.4%, during the first nine months of 1996, primarily due to
the new product development programs, particularly in automotive
products.
The estimated effective tax rate for 1996 of 37% approximated the
actual 1995 tax rate of 38%.
Page 10 of 12
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 11 of 12
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 11, 1996
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 36,646
<SECURITIES> 0
<RECEIVABLES> 49,437
<ALLOWANCES> 657
<INVENTORY> 38,237
<CURRENT-ASSETS> 133,430
<PP&E> 188,977
<DEPRECIATION> 134,981
<TOTAL-ASSETS> 241,125
<CURRENT-LIABILITIES> 52,562
<BONDS> 0
0
0
<COMMON> 33,444
<OTHER-SE> 125,478
<TOTAL-LIABILITY-AND-EQUITY> 241,125
<SALES> 240,463
<TOTAL-REVENUES> 240,463
<CGS> 178,064
<TOTAL-COSTS> 217,811
<OTHER-EXPENSES> (1,986)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,124
<INCOME-PRETAX> 23,514
<INCOME-TAX> 8,700
<INCOME-CONTINUING> 14,814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,814
<EPS-PRIMARY> 2.82
<EPS-DILUTED> 2.82
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