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, 1995
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 5,218,529 shares of Common Stock, without par value,
outstanding on March 8, 1996.
The aggregate market value of the voting stock held by non-affiliates
of CTS Corporation was approximately $99 million on March 8, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the CTS Corporation 1995 Annual Report for
the fiscal year ended December 31, 1995, incorporated by
reference in Part I and Part II.
(2) Portions of the 1996 Proxy Statement for annual meeting
of shareholders to be held on April 26, 1996,
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 shareholders 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.
(9) Certain portions of the CTS Corporation Form 10-K for the
1994 fiscal year ended December 31, 1994, 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 shareholders 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 shareholders 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 1995, DCA owned 2,303,100 shares (44.1%) 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 million 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 $12 million as of December 31,
1995. 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. $355,000.
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. However, the Company maintains a sales office 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 are manufactured in the
Microelectronics West Lafayette, Indiana, facility.
The manufacturing space owned by CTS in Singapore consists of four
floors in a multi-story building. The current manufacturing
requirements require three of the four floors, leaving one level
available for lease. During 1995, a lease for an initial term of
two years with a two-year renewal option was finalized with an
international semiconductor manufacturer for one floor of the
Singapore facility. The annual rental amount is approximately U.S.
$800,000.
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 H - Business
Segment and Non-U.S. Operations," pages 22-23, of the CTS
Corporation 1995 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 Insulated metal circuits
Interconnect products Loudspeakers
Fiber-optic transceivers 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 1995 1994 1993
Automotive control devices 29 30 26
Frequency control devices 16 15 15
Interconnect products 14 17 14
Resistor networks 12 11 14
Hybrid microcircuits 8 10 14
Other 21 17 17
Total 100% 100% 100%
MARKETS
CTS estimates that its products have been sold in the following
electronics OEM and distribution markets and in the following
percentages during the preceding three fiscal years:
Percent of Consolidated Revenue
Markets 1995 1994 1993
Automotive 36 38 32
Data Processing 19 17 22
Communications Equipment 18 17 17
Instruments and Controls 10 9 9
Defense and Aerospace 8 11 12
Distribution 6 5 4
Consumer Electronics 3 3 4
Total 100% 100% 100%
Products for the automotive market include throttle position
sensors, switch assemblies for operator interface, exhaust gas
recirculation subsystems, variable resistors and switches for
automotive entertainment systems and other applications, and
loudspeakers.
Products for the data processing market include resistor networks,
frequency control devices, programmable switches, fiber-optic
transceivers 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, fiber-optic
transceivers, switches and resistor networks. Products for this
market are principally used in telephone equipment and in telephone
switching systems.
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.
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.
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 39% of net sales in 1995 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 1995, about 55% of net sales were at-
tributable to coverage by sales representatives. Independent
distributors purchase products from CTS for resale to customers.
In 1995, independent distributors accounted for about 6% 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 1995, 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 may vary significantly, 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 1995, working capital increased
significantly to $75.2 million, as receivables increased in
response to the greater sales. 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, 1995. 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 1995,
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 61%, 62% and 62% of net
sales in 1995, 1994 and 1993, respectively.
Of the net sales to unaffiliated customers, approximately $54.9
million, $49.4 million and $40.1 million were derived from sales to
a major manufacturer of automobiles in 1995, 1994 and 1993,
respectively. During 1993, $24.0 million was derived from sales to
a major manufacturer of data processing equipment. However, during
1995 and 1994, sales to this customer amounted to $9.9 and $4.4
million, respectively. CTS is dependent upon these and other
customers for a significant percentage of its sales and profits,
and the loss of one or more of these customers or reduction of
orders by one or more of these customers 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 1995, the Company's backlog of orders was $85.3 million,
compared with $82.7 million at the end of 1994. This increase was
primarily attributable to increased demand from automotive and
electronic connector customers.
The backlog of orders at the end of 1995 will generally be filled
during the 1996 fiscal year.
GOVERNMENT CONTRACTS
CTS believes that about 8% 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 inherent to the electronics industry such as
shorter product life cycles and technical obsolescence.
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 H - Business Segment and Non-U.S. Operations,"
pages 22-23, of the CTS Corporation 1995 Annual Report, and is
incorporated herein by reference.
In 1995, approximately 35% of net sales to unaffiliated customers,
after eliminations, were attributable to non-U.S. operations. This
represents an increase from 34% of net sales attributable to non-
U.S. operations in 1994. 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 1995, 1994 and 1993, CTS spent $8.0, $6.2 and $5.7 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 1995, 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 4,007 persons during 1995. About 39% of
these persons were employed outside the United States at the end of
1995. Approximately 361 employees in the United States were
covered by collective bargaining agreements as of December 31,
1995. One of the two collective bargaining agreements covering
these employees will expire in 1999. The other agreement will
expire in 2000.
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 April
1997
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
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 $90,000.
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. $355,000.
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 1995, no issue was submitted to a vote
of CTS shareholders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder 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 "Shareholder Information," page 10, of the
CTS Corporation 1995 Annual Report, incorporated herein by
reference. On March 8, 1996, there were approximately 1,042
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 1995 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 (1993-1995)," pages 25-27, of the CTS
Corporation 1995 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 1995 Annual Report,
incorporated herein by reference. Quarterly per share financial
data is provided in "Shareholder Information," under the
subheadings, "Quarterly Results of Operations" and "Per Share
Data," on page 10 of the CTS Corporation 1995 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 1996 Proxy
Statement under the caption "Election of Directors," pages 5-6,
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 1996 Proxy Statement under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of
1934," page 6, filed with the Securities and Exchange Commission,
and is incorporated herein by reference.
The individuals listed, except for Mr. Hannan, were elected as
executive officers of CTS at the annual meeting of the Board of
Directors on April 28, 1995, and are expected to serve as executive
officers until the next annual meeting of the Board of Directors,
scheduled on April 26, 1996, at which time the election of officers
will be considered again by the Board of Directors.
Name Age Position and Offices
Joseph P. Walker 57 Director, Chairman,
President and Chief
Executive Officer
Philip T. Christ 64 Group Vice President
D. Richard Hannan 54 Group Vice President
Stanley J. Aris 55 Vice President Finance and
Chief Financial Officer
Jeannine M. Davis 47 Vice President, Secretary
and General Counsel
James L. Cummins 40 Vice President Human Resources
James N. Hufford 56 Vice President Research,
Development and Engineering
Donald R. Schroeder 47 Vice President Sales and
Marketing
George T. Newhart 53 Corporate Controller
Gary N. Hoipkemier 41 Treasurer
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.
D. Richard Hannan was elected Group Vice President on May 22, 1995.
Prior to joining CTS, Mr. Hannan worked for two years as a business
consultant. Prior to 1993, Mr. Hannan served as Vice President and
General Manager of an operating unit of TRW, Inc.
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.
Jeannine M. Davis has served as Vice President, General Counsel
and Secretary since 1988.
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.
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.
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.
George T. Newhart has served as Corporate Controller since 1989.
Gary N. Hoipkemier has served as Treasurer since 1989.
Item 11. Executive Compensation
Information responsive to Item 402 of Regulation S-K pertaining to
management remuneration is contained in the 1996 Proxy Statement in
the captions "Executive Compensation," pages 7-8 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 1996 Proxy Statement in the caption "Securities
Beneficially Owned by Principal Shareholders 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 2,303,100 (44.1%) of
the Company's outstanding common stock as of December 31, 1995.
CTS purchased products from DCA totaling about $143,000 in 1995,
$233,000 in 1994 and $145,000 in 1993, principally consisting of
certain component parts used by CTS in the manufacture of frequency
control devices. CTS had minimal sales to DCA in 1995 and 1994,
and no sales in 1993.
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, previously 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, Gary N.
Hoipkemier, 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 shareholders 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
shareholders at the 1989 annual meeting of -
shareholders 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
shareholders 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.
(10)(f) CTS Corporation 1996 Stock Option Plan, subject to
shareholder approval at the annual meeting of
shareholders to be held on April 26, 1996, filed as
exhibit (10)(f) to the Company's Form 10-K for
1995.
(10)(g) Prototype indemnification agreement, with James N.
Hufford, Donald R. Schroeder and D. Richard Hannan,
filed as exhibit (10)(g) to the Company's Form 10-K
for 1995.
(13) CTS Corporation 1995 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 1995 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 FORM 10-K
ITEM 14(a) (1) AND (2) AND ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
CTS CORPORATION AND SUBSIDIARIES
ELKHART, INDIANA
FORM 10-K - ITEM 14(a) (1) AND (2) AND ITEM 14 (d)
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, 1995, are incorpo-
rated by reference in Item 8:
Consolidated balance sheets - December 31, 1995, and
December 31, 1994
Consolidated statements of earnings - Years ended
December 31, 1995, December 31, 1994, and December 31,
1993
Consolidated statements of shareholders' equity - Years
ended December 31, 1995, December 31, 1994, and Decem-
ber 31, 1993
Consolidated statements of cash flows - Years ended
December 31, 1995, December 31, 1994, and December 31,
1993
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 21
CTS CORPORATION AND SUBSIDIARIES
CTS Corporation (Registrant), an Indiana corporation
Subsidiaries
CTS Corporation, a Delaware corporation
CTS of Panama, Inc., a Republic of Panama corporation
CTS Components Taiwan, Ltd.,(1) a Taiwan, Republic of China
corporation
CTS Singapore, Pte. Ltd., a Republic of Singapore
corporation
CTS de Mexico S.A.,(1) a Republic of Mexico corporation
CTS Export Corporation, a Virgin Islands corporation
CTS Japan, Inc., a Japan 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 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 21, 1996 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 21, 1996 By /S/ Lawrence J. Ciancia
Lawrence J. Ciancia,
Director
Date March 21, 1996 By /S/ Patrick J. Dorme
Patrick J. Dorme,
Director
Date March 21, 1996 By /S/ Gerald H. Frieling, Jr.
Gerald H. Frieling, Jr.,
Director
Date March 21, 1996 By /S/ Andrew Lozyniak
Andrew Lozyniak,
Director
Date March 21, 1996 By /S/ Joseph P. Walker
Joseph P. Walker,
Director
Date March 21, 1996 By /S/ George T. Newhart
George T. Newhart,
Corporate Controller
and principal accounting
officer
Date March 21, 1996 By /S/ Jeannine M. Davis
Jeannine M. Davis,
Vice President, Secretary
and General Counsel
<TABLE>
CTS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
<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, 1995:
Allowance for
<S> <C> <C> <C> <C> <C>
doubtful receivables $869 $ 1 $ 0 $ 96 $774
Year ended December 31, 1994:
Allowance for
doubtful receivables $709 $277 $ 0 $117 $869
Year ended December 31, 1993:
Allowance for
doubtful receivables $303 $521 $85 $200 $709
S-3
</TABLE>
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 1, 1996,
appearing on page 24 of the CTS Corporation 1995 Annual Report
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 21, 1996
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 1, 1996, appearing on page 24 of the CTS
Corporation 1995 Annual Report (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 1, 1996
S-2
FINANCIAL HIGHLIGHTS
(In thousands of dollars except per share data)
For the Year 1995 1994 1993
Net sales $300,157 $268,707 $236,979
Net earnings 17,164 13,967 1,956
Average shares outstanding 5,201 5,170 5,153
Per share data:
Earnings before accounting
changes $ 3.30 $ 2.70 $ 1.27
Accounting changes (.89)
Net earnings 3.30 2.70 .38
Dividends declared .60 .45 .40
Capital expenditures 11,181 13,401 11,696
At Year-End
Working capital $ 75,151 $ 65,875 $ 47,378
Notes payable 6,685 7,436 12,822
Long-term obligations (including
current maturities) 15,925 15,899 5,336
Shareholders' equity 146,253 131,855 119,203
Equity per outstanding share 28.03 25.46 23.13
SHAREHOLDER INFORMATION
(In thousands of dollars except per share data)
Quarterly Results of Operations
(Unaudited)
Net Gross Operating Net
Sales Earnings Earnings Earnings
1995
1st quarter$ 75,978 $17,273 $ 4,877 $ 3,256
2nd quarter 76,413 19,148 7,023 4,642
3rd quarter 73,890 18,345 6,416 4,218
4th quarter 73,876 20,038 9,172 5,048
$300,157 $74,804 $27,488 $17,164
1994
1st quarter$ 64,357 $15,597 $ 3,560 $ 2,490
2nd quarter 70,618 17,152 5,525 3,889
3rd quarter 65,950 15,100 4,368 3,031
4th quarter 67,782 15,218 7,231 (a) 4,557 (a)
$268,707 $63,067 $20,684 $13,967
Per Share Data
Dividends Net
High(b) Low(b) Declared Earnings
1995
1st quarter $32.00 $27.38 $.15 $ .63
2nd quarter 33.50 29.25 .15 .89
3rd quarter 34.50 29.94 .15 .81
4th quarter 37.75 29.63 .15 .97
$.60 $3.30
1994
1st quarter $24.00 $19.50 $.10 $ .48
2nd quarter 26.13 21.88 .10 .75
3rd quarter 29.13 24.63 .10 .59
4th quarter 31.00 27.13 .15 .88
$.45 $2.70
(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.
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars except per share amounts)
Year Ended
<CAPTION>
December 31 December 31 December 31
1995 1994 1993
<S> <C> <C> <C>
Net sales $300,157 $268,707 $236,979
Costs and expenses:
Cost of goods sold 225,353 205,640 183,927
Selling, general and
administrative expenses 39,312 36,175 36,323
Research and development expenses 8,004 6,208 5,708
Operating earnings 27,488 20,684 11,021
Other (expenses) income:
Interest expense (1,790) (714) (980)
Interest income 1,421 657 580
Other 565 860 (361)
Total other income (expenses) 196 803 (761)
Earnings before income taxes and
cumulative effect of changes
in accounting principles 27,684 21,487 10,260
Income taxes--Note G 10,520 7,520 3,690
Earnings before cumulative effect of
changes in accounting principles 17,164 13,967 6,570
Cumulative effect of accounting change -
postretirement benefits--Notes A and F (5,096)
Cumulative effect of accounting change -
income taxes--Notes A and G 482
Net earnings $ 17,164 $ 13,967 $ 1,956
Net earnings per share:
Before accounting changes $3.30 $2.70 $1.27
Cumulative effect on prior years of
accounting changes (.89)
Net earnings per share $3.30 $2.70 $ .38
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
Consolidated Statements of Shareholders' Equity
(In thousands of dollars)
<CAPTION> Cumulative Deferred
Common Retained Translation Compen- Treasury
Stock Earnings Adjustment sation Stock Total
<S> <C> <C> <C> <C> <C> <C>
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
Cumulative 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
Cumulative 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
Net earnings 17,164 17,164
Cash dividends of $.60 per share (3,124) (3,124)
Nonemployee Directors' stock retirement plan 15 15
Cumulative translation adjustment (291) (291)
Issued 18,500 shares on restricted stock and
cash bonus plan 76 (632) 556
Issued 17,325 shares on exercise of stock
options (163) 522 359
Acquired 200 shares traded on options--net 7 (7)
Stock compensation 3 93 96
Deferred compensation recognized 17 162 179
Balances at December 31, 1995 $34,138 $126,546 $(645) $(783) $(13,003) $146,253
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS December 31 December 31
(In thousands of dollars) 1995 1994
ASSETS
Current Assets
<S> <C> <C>
Cash and equivalents $ 37,271 $ 24,922
Accounts receivable, less
allowances (1995--$774; 1994--$869) 41,737 35,029
Inventories
Finished goods 7,445 5,725
Work-in-process 14,789 16,531
Raw materials 16,651 19,200
Total inventories 38,885 41,456
Other current assets 2,544 3,032
Deferred income taxes--Note G 5,676 6,228
Total current assets 126,113 110,667
Property, Plant and Equipment
Buildings and land 42,547 41,945
Machinery and equipment 139,594 148,481
Total property, plant and equipment 182,141 190,426
Less accumulated depreciation 131,445 139,649
Net property, plant and equipment 50,696 50,777
Other Assets
Goodwill, less accumulated
amortization (1995--$7,687; 1994--$7,010) 4,603 5,221
Prepaid pension expense--Note F 44,739 39,408
Other 976 753
Total other assets 50,318 45,382
Total Assets $227,127 $206,826
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable--Note C $ 6,685 $ 7,436
Current maturities of long-term
obligations--Note D 2,211 304
Accounts payable 15,605 12,768
Accrued salaries, wages and vacation 6,695 6,483
Accrued taxes other than income 1,740 1,577
Income taxes payable 3,991 2,288
Other accrued liabilities--Note I 14,035 13,936
Total current liabilities 50,962 44,792
Long-term Obligations--Note D 13,714 15,595
Deferred Income Taxes--Note G 11,909 9,222
Postretirement Benefits--Note F 4,289 5,362
Contingencies--Note I
Shareholders' Equity
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,355 33,870
Retained earnings 126,546 112,506
Cumulative translation adjustment (645) (354)
159,256 146,022
Less cost of common stock held in treasury
(1995-- 589,702 shares; 1994--628,427 shares) 13,003 14,167
Total shareholders' equity 146,253 131,855
Total Liabilities and Shareholders' Equity $227,127 $206,826
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year Ended
<CAPTION>
December 31 December 31 December 31
1995 1994 1993
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $17,164 $13,967 $ 1,956
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 11,683 11,236 12,143
Deferred income taxes 3,239 2,519 767
Other (52) (421) 458
Changes in assets and liabilities (net of effects of
purchase of ODL)--Note B:
Accounts receivable (6,708) (4,402) (2,747)
Inventories 2,571 (3,297) 1,163
Prepaid pension asset (5,331) (6,563) (5,986)
Accounts payable and accrued liabilities 4,280 (38) 1,627
Income taxes payable 1,703 882 1,629
Other (1,688) (1,328) 1,941
Total adjustments 9,697 (1,412) 15,609
Net cash provided by operating activities 26,861 12,555 17,565
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 236 411 998
Capital expenditures (excluding ODL) (11,181) (10,000) (11,696)
Payment for purchase of ODL (5,501)
Net cash used in investing activities (10,945) (15,090) (10,698)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 15,000
Payments of long-term obligations (286) (4,479) (6,179)
(Decrease) increase in notes payable (751) (6,050) 6,898
Proceeds from stock options exercised 359 176
Dividends paid (3,118) (2,067) (2,061)
Net cash (used in) provided by
financing activities (3,796) 2,580 (1,342)
Effect of exchange rate changes on cash 229 1,343 (446)
Net increase in cash 12,349 1,388 5,079
Cash and equivalents at beginning of year 24,922 23,534 18,455
Cash and equivalents at end of year $37,271 $24,922 $23,534
Supplemental cash flow information
Cash paid during the year for:
Interest $ 1,791 $ 658 $ 1,076
Income taxes - net 5,590 4,009 1,294
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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. Useful lives for buildings and improvements range from 10
to 45 years, and machinery and equipment from 3 to 8 years.
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 minimum required under the
Employee Retirement Income Security Act of 1974 (ERISA).
Research and Development: Research and development costs consist
of expenditures incurred during the course of planned search and
investigation aimed at discovery of new knowledge which will be
useful in developing new products or processes, or significantly
enhancing existing products or production processes, and the
implementation of such through design, testing of product
alternatives or construction of prototypes. The Company expenses
all research and development costs as they are incurred.
Income Taxes: The Company provides deferred income taxes for
transactions reported in different periods for financial reporting
and income tax return purposes pursuant to the requirements of
Financial Accounting Standards Board (FASB) Statement No. 109,
"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 1995.
NOTE A - Summary of Significant Accounting Policies (continued)
Translation of Foreign Currencies: The financial statements of
all of the Company's non-U.S. subsidiaries, except the United
Kingdom subsidiary, are remeasured into U.S. dollars using the
U.S. dollar as the functional currency with all remeasurement
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
shareholders' equity. Statements of earnings 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, 1995, and 1994 approximates fair value
where fair value is based on market prices for the same or similar
debt and maturities.
The Company occasionally uses forward exchange currency contracts
to minimize the impact of foreign currency fluctuations on the
Company's costs and expenses. At December 31, 1995, the Company's
forward foreign exchange currency contracts were not material.
These contracts are accounted for as hedges and 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 instruments and controls 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.
In October 1995, the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation." This Statement, which must be
adopted in 1996, allows for either continued recognition of stock
compensation cost under the intrinsic value based method of
accounting as prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees," ("Disclosure Method"), or recognition
through the statements of earnings under a fair value based
method. Selection of the Disclosure Method will require certain
pro forma disclosures. The Company has not yet decided on the
method of adoption, nor has the Company determined the effect of
the fair value method.
In March 1995, the FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This Statement, which must be adopted in 1996,
requires companies to investigate potential impairments of long-
lived assets, certain identifiable intangibles and associated
goodwill on an exception basis, when there is evidence that events
or changes in circumstances have made recovery of an asset's
carrying value unlikely. The Company does not believe that the
adoption of this standard will have a material effect on its
financial position or results of operations.
Earnings Per Share: Earnings per common share are based on the
weighted average number of shares outstanding.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
NOTE B - Purchase of Assets
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.
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, 1995,
and 1994, and 4.4% at December 31, 1993. The notes were issued in
connection with unsecured lines of credit arrangements, the unused
portions of which totaled $8,591,000 at December 31, 1995. 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 1995, 1994 and 1993
were $6,781,000, $11,776,000 and $12,051,000, respectively. The
weighted average interest rates, computed by relating interest
expense to average daily short-term borrowings, were 6.5% in 1995,
5.5% in 1994 and 4.3% in 1993.
The maximum amount of short-term borrowings at the end of any
month during 1995, 1994 and 1993 was $8,440,000, $12,977,000 and
$13,842,000, respectively. The short-term borrowings outstanding
at December 31, 1993, were $12,822,000.
NOTE D - Long-term Obligations
Long-term obligations were comprised of the following:
(In thousands)
1995 1994
Long-term debt:
Five-year term loan at 8.4%, due in
1996 through 1999. $15,000 $15,000
Other 608 899
15,608 15,899
Less current maturities 2,211 304
Total long-term debt 13,397 15,595
Other 317
Total long-term obligations $13,714 $15,595
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, tangible net worth and interest coverage
requirements and maximum total liabilities to tangible net worth
ratio.
Annual maturities of long-term obligations during the three years
subsequent to 1996 are as follows: 1997--$2,520,000; 1998--
$2,194,000; 1999--$9,000,000.
NOTE E - Stock Plans
Under the Company's stock option plans, options may be granted to
officers and key employees in the form of incentive stock options
or nonqualified stock options.
Options are granted at the fair market value on the grant date and
are exercisable generally in cumulative annual installments over a
maximum ten-year period, commencing at least one year from the
date of grant. Upon the exercise of stock options, payment may be
made using cash, shares of the Company's common stock or any
combination thereof.
Information regarding the Company's stock option plans is as
follows:
Number of Price Per
Shares Share
Outstanding at January 1, 1994 44,650 $19.125 to $20.625
Granted 57,000 24.750
Exercised (8,650) 19.125 to 20.625
Expired or canceled (7,000) 19.125 to 24.750
Outstanding at December 31, 1994 86,000 19.125 to 24.750
Granted 94,050 31.250 to 37.375
Exercised (17,325) 20.625 to 24.750
Expired or canceled (9,800) 19.125 to 31.250
Outstanding at December 31, 1995 152,925 19.125 to 37.375
Exercisable at December 31, 1995 19,225 19.125 to 24.750
Available for future grants at
December 31, 1995 113,450
Under the 1986 Stock Option Plan, options to purchase a total of
66,375 shares were outstanding as of December 31, 1995. At
December 31, 1995, 19,225 of these shares were exercisable.
In December 1995, the Board of Directors adopted, subject to
shareholders' approval at the 1996 Annual Meeting, the
1996 Stock Option Plan, under which a maximum of 200,000 shares
were reserved for issuance to certain officers and key employees.
Subject to shareholders' approval, options to purchase a total of
86,550 shares were granted and considered outstanding as of
December 31, 1995.
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
NOTE E - Stock Plans (continued)
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 1995, 18,500 shares were awarded leaving
345,400 shares available for award or sale at December 31, 1995.
Under the Plan, in 1994 and 1993, 15,500 and 1,000 shares were
awarded, respectively. In addition to the shares issued and the
amortization of deferred compensation included in the Consolidated
Statements of Shareholders' Equity, the Company accrued $306,000,
$212,000 and $68,000 for additional compensation payable under the
provisions of the Plan in 1995, 1994 and 1993, 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 $15,100, $11,100 and $7,900 in
1995, 1994 and 1993, respectively.
NOTE F - Employee Retirement Plans
Defined benefit plans
The Company has a number of noncontributory defined benefit
pension plans (Plans) covering approximately 44% 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 1995, 1994 and 1993 includes
the following components:
(In thousands)
1995 1994 1993
Service cost--benefits earned
during the year $ 2,216 $ 2,374 $ 2,143
Interest cost on projected
benefit obligation 5,330 4,769 4,632
Actual (return) loss on plan
assets (23,252) 2,565 (13,622)
Net amortization and deferral 10,375 (16,271) 861
Net pension income $(5,331) $(6,563) $(5,986)
The following table details the funded status of the Plans at
December 31, 1995, and December 31, 1994:
(In thousands)
1995 1994
Actuarial present value of benefit obligations:
Vested benefits $ 66,736 $ 58,224
Nonvested benefits 2,960 2,461
Accumulated benefit obligation $ 69,696 $ 60,685
Plan assets at fair value $134,595 $115,319
Projected benefit obligation 77,138 66,775
Plan assets in excess of the projected
benefit obligation 57,457 48,544
Unrecognized prior year service cost 154 212
Unrecognized net (gain) loss (1,935) 3,672
Unrecognized net asset (10,937) (13,020)
Prepaid pension expense $44,739 $ 39,408
NOTE F - 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:
1995 1994 1993
Discount rates (funded status) 7.25% 8.25% 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% 9% 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, 1995, measurement date, the discount rate was
reduced 100 basis points to 7.25% to reflect current market
conditions. This change had no impact on 1995 pension income,
but will reduce 1996 pension income by $310,000. 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
reduced 1995 pension income by $1.2 million.
The majority of U.S. defined benefit pension plan assets are
invested in common stock, including approximately $7,518,000 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 1995, 1994 or 1993. Benefits paid by all
Plans during 1995, 1994 and 1993 were $4,085,000, $4,175,000 and
$4,289,000, respectively.
Pension coverage for employees of certain non-U.S. subsidiaries
is provided through separate plans. Contributions of $237,000,
$172,000 and $174,000 were made to the non-U.S. Plans in 1995,
1994 and 1993, 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
$2,294,000 in 1995, $2,506,000 in 1994 and $2,532,000 in 1993.
NOTE F - 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. 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.
Substantially all of the Company's domestic employees are
eligible for life insurance benefits. Substantially all of the
Company's domestic employees hired before December 31, 1993,
became eligible for health care benefits under the plan if they
attained normal retirement age prior to discontinuance of those
benefits effective January 1, 1996.
Summary information on the Company's plans as of December 31,
1995, and December 31, 1994, is as follows:
(In thousands)
1995 1994
Accumulated postretirement benefit obligation:
Active employees $(1,282) $(1,089)
Retirees and dependents (2,912) (3,589)
(4,194) (4,678)
Unrecognized net gain (345) (1,910)
Postretirement benefit obligation $(4,539) $(6,588)
The components of net periodic postretirement benefit expense for
1995 and 1994 are as follows:
(In thousands)
1995 1994
Service cost--benefits earned during period $ 28 $ 43
Interest cost on accumulated benefit obligation 330 511
Net amortization and deferral (1,008)
Net (income) expense $ (650) $554
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 Company has no accrued
postretirement medical obligation at December 31, 1995, due to
the elimination of the Company's postretirement medical coverage
effective January 1, 1996. The elimination of this coverage and
improved favorable medical plan experience resulted in
approximately a $1 million gain recognized throughout 1995. For
measurement purposes, a 7.25 and 8.25 percent annual discount
rate was used to determine the remaining life obligation for 1995
and 1994, respectively.
NOTE F - Employee Retirement Plans (continued)
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 term life insurance
premiums on a pay-as-you-go basis.
NOTE G - 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.
The components of earnings before income taxes and cumulative
effect of changes in accounting principles are comprised of the
following:
(In thousands)
1995 1994 1993
Domestic $17,563 $15,391 $8,965
Non-U.S. 10,121 6,096 1,295
Total $27,684 $21,487 $10,260
The provision for income taxes charged to earnings before
cumulative effect of changes in accounting principles is
comprised of the following:
(In thousands)
1995 1994 1993
Current:
Federal $1,935 $1,998 $ 908
State 963 604 375
Non-U.S. 4,383 2,367 2,124
Total current 7,281 4,969 3,407
Deferred:
Federal 2,534 1,268 154
State 578 400 429
Non-U.S. 127 883 (300)
Total deferred 3,239 2,551 283
Total provision for income taxes $10,520 $7,520 $3,690
Significant components of the Company's deferred tax liabilities
and assets at December 31, 1995, and 1994, are:
NOTE G - Income Taxes (continued)
(In thousands)
1995 1994
Depreciation $ 1,063 $ 913
Pensions 15,767 13,396
Other 2,282 2,192
Gross deferred tax liabilities 19,112 16,501
Postemployment benefits 1,611 2,240
Inventory reserves 2,613 2,778
Loss carryforwards 5,847 6,575
Credit carryforwards 5,537 5,705
Nondeductible accruals 3,200 3,013
Other 710 425
Gross deferred tax assets 19,518 20,736
Net deferred tax assets 406 4,235
Deferred tax assets valuation allowance (6,639) (7,229)
Total $(6,233) $(2,994)
During 1995, 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 and scheduled tax credits in other
jurisdictions. The net decrease in the valuation allowance was
$590,000.
A reconciliation of the Company's effective income tax to the
statutory federal income tax follows:
(In thousands)
1995 1994 1993
Taxes at the U.S. statutory rate $9,689 $ 7,306 $3,488
State income taxes, net of federal
income tax benefit 1,002 663 531
Non-U.S. income taxed at rates
different than the U.S. statutory rate 1,159 1,639 1,494
Utilization of net operating loss
carryforwards and benefit of scheduled
tax credits (2,024) (2,544) (1,842)
Foreign distributions, net of foreign
tax credits 372
Other 322 456 19
Provision for income taxes $10,520 $ 7,520 $3,690
NOTE G - Income Taxes (continued)
Undistributed earnings of certain non-U.S. subsidiaries amounting
to $46,965,000 at December 31, 1995, 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
$4,629,000 of withholding tax would be imposed.
The Company has U.S. tax basis business tax credits of
approximately $2,559,000 at December 31, 1995. The U.S. business
credit carryforwards expire between the years 2001 and 2009. In
addition, the Company has various non-U.S. tax basis net
operating losses and business credit carryforwards of $21,218,000
and $74,000, respectively. The non-U.S. credit carryforwards
expire in 1997. The non-U.S. net operating losses have an
unlimited carryforward period. In addition, the Company has
alternative minimum tax credit carryforwards of approximately
$2,904,000, which have no expiration date.
NOTE H - 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, interconnect products,
hybrid microcircuits, automotive control devices, switches,
loudspeakers, fiber-optic transceivers, insulated metal circuits
and industrial electronics.
Sales to a major automotive manufacturer were $54,900,000 in
1995, $49,400,000 in 1994 and $40,100,000 in 1993. Although
sales to a major data processing equipment manufacturer were
$9,900,000 in 1995 and $4,400,000 in 1994, sales to the same
customer were significantly higher in 1993 at $24,000,000.
The non-U.S. operations or facilities are located in Taiwan,
Singapore, Hong Kong, Thailand, United Kingdom, Canada, Mexico
and Japan. Net sales to unaffiliated customers from other non-
U.S. operations in the aggregate equaled 19%, 18% and 16% of the
consolidated total for each of the years 1995, 1994 and 1993,
respectively. Net sales to unaffiliated customers from the
United Kingdom operation equaled 17%, 16% and 12% of the
consolidated total for 1995, 1994 and 1993, respectively.
Net assets of subsidiaries located in non-U.S. countries as of
December 31, 1995, and December 31, 1994, are summarized as
follows:
(In thousands)
1995 1994
Net current assets $27,275 $23,751
Property, plant and equipment--net 22,423 23,342
Goodwill and other long-term assets 1,625 2,331
Long-term obligations (714) (586)
Deferred income taxes (1,526) (1,485)
Total net assets of non-U.S. subsidiaries $49,083 $47,353
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 earnings is total
revenue less operating expenses. In computing operating
earnings, 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 1995, 1994 and 1993 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 H - Business Segment and Non-U.S. Operations (continued)
Geographic Area (In thousands)
1995 1994 1993
Net Sales
Domestic:
Sales to unaffiliated customers $194,016 $178,032 $170,566
Transfers to non-U.S. areas 5,439 4,179 4,484
199,455 182,211 175,050
Other non-U.S.:
Sales to unaffiliated customers 56,570 47,896 37,868
Transfers to other areas 6,092 7,692 11,172
62,662 55,588 49,040
United Kingdom:
Sales to unaffiliated customers 49,571 42,779 28,545
Transfers to other areas 732 514 156
50,303 43,293 28,701
Eliminations (12,263) (12,385) (15,812)
Total net sales $300,157 $268,707 $236,979
Operating Earnings
Domestic $22,204 $ 18,109 $ 12,060
Other non-U.S. 6,345 3,708 4,476
United Kingdom 6,483 4,569 910
35,032 26,386 17,446
Eliminations 140 1 (19)
35,172 26,387 17,427
General corporate expenses 7,684 5,703 6,406
Operating earnings 27,488 20,684 11,021
Other income (expenses)--net 196 803 (761)
Earnings before income taxes and
cumulative effect of changes in
accounting principles $27,684 $ 21,487 $ 10,260
Assets Apportioned by Area
Domestic $87,862 $ 86,605 $ 73,256
Other non-U.S. 49,848 43,272 54,452
United Kingdom 24,718 23,419 18,398
162,428 153,296 146,106
Eliminations (3,783) (3,305) (5,047)
158,645 149,991 141,059
Corporate assets 68,482 56,835 44,005
Total assets $227,127 $206,826 $185,064
NOTE H - Business Segment and Non-U.S. Operations (continued)
Geographic Area
(In thousands)
1995 1994 1993
Capital Expenditures
Domestic $ 7,505 $ 9,738 $7,318
Other non-U.S. 2,468 2,367 3,300
United Kingdom 1,208 1,296 1,078
Total $11,181 $13,401 $11,696
NOTE I - 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, 1995, totaled $4.5
million, compared with $3.8 million at December 31, 1994. 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 J - Related Party Transactions
Dynamics Corporation of America (DCA) owned 2,303,100 shares
(44.1%) of the Company's outstanding common stock at December 31,
1995. 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, 1995, 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
Price Waterhouse LLP
To the Shareholders and
Board of Directors of CTS Corporation
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings, shareholders'
equity and of cash flows present fairly, in all material
respects, the financial position of CTS Corporation and its
subsidiaries at December 31, 1995, and 1994, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1995, 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 1, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (1993 - 1995)
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
1995 1994 1993
Net cash provided by (used in):
Operating activities $ 26,861 $ 12,555 $ 17,565
Investing activities (10,945) (15,090) (10,698)
Financing activities (3,796) 2,580 (1,342)
Cash and equivalents $ 37,271 $ 24,922 $ 23,534
Accounts receivable, net 41,737 35,029 30,627
Inventories, net 38,885 41,456 36,059
Current assets 126,113 110,667 97,266
Notes payable 6,685 7,436 12,822
Accounts payable 15,605 12,768 11,611
Accrued liabilities 26,461 24,284 25,114
Current liabilities 50,962 44,792 49,888
Working capital 75,151 65,875 47,378
Current ratio 2.47 2.47 1.95
Interest-bearing debt $ 22,267 $ 23,318 $ 17,992
Net tangible worth 141,650 126,634 113,402
Ratio of interest-bearing debt
to net tangible worth .16 .18 .16
The 1995 cash flow from operating activities of $26.9 million
improved substantially, by $14.3 million from 1994, primarily as a
result of higher net earnings and reduction in inventories,
partially offset by an increase in accounts receivable.
Spending of cash for investing activities in 1995 was $10.9 million
and almost comparable to 1994 after the impact of the 1994
expenditures for the ODL product line of $3.4 million. In terms of
financing activities, the impact of the notes payable reduction
during 1995 was $5.3 million from the increased cash flow.
During 1994, cash flow of $12.6 million was positive from operating
activities, primarily as a result of the significant improvement in
operating earnings when compared to 1993. 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 the acquisition of 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 for which $2.1 million of additional expenditures were
made for inventory.
During 1993, positive cash flow of $17.6 million was generated from
operating activities, primarily due to the increase in sales and
earnings, before noncash charges for accounting changes.
A significant noncash component of operating earnings during the
1993 to 1995 period was pension income of $5.3 million, $6.6
million and $6.0 million in 1995, 1994 and 1993, respectively. The
1995 income amount dropped from prior years primarily as a result
of lower actuarial estimated earnings on the Plan assets. 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 $11.2 million in 1995, $13.4
million in 1994 and $11.7 million in 1993. The major capital
expenditures in 1995 were for new products and product line
enhancements. Also during 1995, and similar to 1994, capacity
increases were required in our automotive and European interconnect
product lines. The Company expects to increase its capital
expenditures in 1996 over 1995 levels. These capital expenditures
will be primarily for new products and cost reduction programs, as
well as selected manufacturing equipment capacity expansion.
The most recent major financing activity occurred during 1994, when
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.
Dividends paid were $3.1 million in 1995, and $2.1 million in 1994
and 1993. 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 and cash position,
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 and the Company's intention is 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 1995, 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 following table highlights significant information with regard
to the Company's twelve months results of operations during the
past three fiscal years.
(In thousands)
December 31 December 31 December 31
1995 1994 1993
Net sales $300,157 $268,707 $236,979
Gross earnings 74,804 63,067 53,052
Gross earnings as a percent
of sales 24.9% 23.5% 22.4%
Selling, general and
administrative expenses $ 39,312 $ 36,175 $ 36,323
Selling, general and
administrative expenses
as a percent of sales 13.1% 13.5% 15.3%
Research and development
expenses $ 8,004 $ 6,208 $ 5,708
Research and development
expenses as a percent of
sales 2.7% 2.3% 2.4%
Operating earnings $ 27,488 $ 20,684 $ 11,021
Operating earnings as a
percent of sales 9.1% 7.7% 4.7%
Interest expense, net $ 369 $ 57 $ 400
Earnings before income taxes and
cumulative effect of changes
in accounting principles 27,684 21,487 10,260
Income taxes 10,520 7,520 3,690
Income tax rate 38.0% 35.0% 36.0%
The 1995 net sales increased $31.5 million, or 11.7% over 1994,
primarily due to broad increases in demand for electronic component
products into our automotive, data processing and communications
equipment markets. Within these overall increases, the ODL product
line acquired late in 1994, contributed approximately $14 million
in higher revenues in 1995.
From 1993 to 1994, total sales increased by 13.4%, primarily as a
result of substantial increases in our automotive and European
interconnect product lines.
During the three-year period 1993-1995, the percentage of overall
sales to the automotive market increased from 32% to 36%. During
this same period, our sales into the defense and aerospace markets
declined from 12% to 9%, as a percent of total sales. Sales into
other markets have generally remained constant.
The Company's 15 largest customers represented 61% of net sales in
1995, and 62% in 1994 and 1993. One customer, a major manufacturer
of automobiles, comprised 18% of net sales in 1995 and 1994,
compared with 17% for 1993. Although at a lower level in 1995 and
1994, a major manufacturer of data processing equipment comprised
10% of total net sales in 1993.
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.
In 1995 and 1994, improvements were realized over the preceding
year in gross earnings dollars and as a percent of sales,
principally due to higher sales volume, production efficiencies and
higher absorption of fixed manufacturing overhead expenses. Gross
earnings were lower in 1993, due to the lower sales and lower
absorption of manufacturing expenses.
During 1995 and 1994, selling, general and administrative expenses
increased in dollars in 1995 over 1994, and in 1994 remained at the
same level as 1993. The increase in 1995 was principally as a
result of increases in salaries and related expenses. Selling,
general and administrative expenses decreased as a percent of sales
in 1995 and 1994 from the previous year, as the Company continued
to control these expenses while increasing sales. 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.
Research and development expenses increased by $1.8 million or 29%
in 1995 over 1994, with much of the additional effort devoted to
the "hall effect" non-contacting sensor development for our
automotive products, as well as other new product development
programs in the automotive and the resistor network product areas.
The net of interest expense and interest income is reflective of
the levels of debt during the 1993-1995 period. The lower amount
in 1994 relates to the timing of the $15.0 million loan secured in
late 1994.
During 1995, the primary reasons for the substantial operating
earnings improvement include the higher overall sales and related
productivity in our automotive, resistor network and interconnect
products, and the reduction of losses on our frequency control
products. These improvements substantially offset losses from our
defense and aerospace products, caused primarily by the declining
market conditions. In 1994, compared to 1993, the improved
operating earnings were a result of the higher automotive and
interconnect product sales, and improved performance with our
resistor networks and electromechanical products, which more than
offset losses from our frequency controls and hybrid
microelectronic products.
The higher 1995 effective tax rate of 38%, compared to 35% in 1994,
was due to foreign distributions, a lower benefit from the
utilization of U.S. net operating loss carryforwards and scheduled
tax credits. The Company has net operating loss carryforwards of
approximately $21 million in Singapore, Thailand and Hong Kong, and
has established a 100% valuation reserve based upon previous pretax
losses and a current planned breakeven position. The slightly
lower 1994 effective tax rate compared to 1993 was a result of
improved earnings, generating an increase in net operating loss
carryforward utilization.
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
F and Note G, respectively. With respect to the recently issued
FASB Statements No. 121 and 123, and as described in the Notes to
Consolidated Financial Statements, the Company anticipates no
substantial impact on financial position or results of operations
upon adoption in 1996.
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 I - Contingencies.
<TABLE>
Five-Year Summary
(In thousands of dollars except per share data)
<CAPTION>
% of % of % of % of % of
1995 Sales 1994 Sales 1993 Sales 1992 Sales 1991 Sales
Summary of Operations
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $300,157 100.0 $268,707 100.0 $236,979 100.0 $227,391 100.0 $229,536 100.0
Cost of goods sold 225,353 75.1 205,640 76.5 183,927 77.6 180,198 79.2 183,462 79.9
Selling, general and
administrative expenses 39,312 13.1 36,175 13.5 36,323 15.3 37,855 16.6 35,980 15.7
Research and development
expenses 8,004 2.7 6,208 2.3 5,708 2.4 6,092 2.7 5,656 2.5
(Gain) on sale of property
and other related provisions (852) (0.3) (1,857) (0.8)
Operating earnings 27,488 9.1 20,684 7.7 11,021 4.7 4,098 1.8 6,295 2.7
Other income (expenses)--net 196 0.1 803 0.3 (761) (0.4) (277) (0.1) (51) 0.0
Earnings before income
taxes and cumulative effect
of changes in accounting
principles 27,684 9.2 21,487 8.0 10,260 4.3 3,821 1.7 6,244 2.7
Income taxes 10,520 3.5 7,520 2.8 3,690 1.6 1,920 0.9 2,030 0.9
Net earnings--before
accounting changes 17,164 5.7 13,967 5.2 6,570 2.7 1,901 0.8 4,214 1.8
Cumulative effect on prior
years of accounting changes (a) (4,614) (1.9)
Net earnings 17,164 5.7 13,967 5.2 1,956 0.8 1,901 0.8 4,214 1.8
Retained earnings--beginning
of year 112,506 100,868 100,973 102,482 102,110
Dividends declared (3,124) (2,329) (2,061) (3,410) (3,842)
Retained earnings--end of
year $126,546 $112,506 $100,868 $100,973 $102,482
Average shares
outstanding 5,200,818 5,170,406 5,152,556 5,141,936 5,122,433
Net earnings per share:
Before accounting changes $3.30 $2.70 $1.27 $0.37 $0.82
Cumulative effect on prior
years of accounting changes (a) (0.89)
Net earnings $3.30 $2.70 $0.38 $0.37 $0.82
Cash dividends per share $0.60 $0.45 $0.40 $0.6625 $0.75
Capital expenditures 11,181 13,401 11,696 8,831 15,967
Depreciation and amortiza-
tion 11,683 11,236 12,143 11,665 13,102
Financial Position at Year-End
Current assets $126,113 $110,667 $97,266 $87,376 $91,493
Current liabilities 50,962 44,792 49,888 37,262 39,569
Current ratio 2.5 to 1 2.5 to 1 1.9 to 1 2.3 to 1 2.3 to 1
Working capital $75,151 $65,875 $47,378 $50,114 $51,924
Inventories 38,885 41,456 36,059 37,222 40,855
Property, plant and
equipment--net 50,696 50,777 47,842 48,529 53,828
Total assets 227,127 206,826 185,064 170,773 176,361
Short-term notes payable 6,685 7,436 12,822 5,827 8,160
Long-term obligations 13,714 15,595 4,995 10,826 11,297
Shareholders' equity 146,253 131,855 119,203 119,372 122,485
Common shares outstanding 5,217,329 5,178,604 5,153,424 5,150,824 5,123,824
Equity (book value) per
share $28.03 $25.46 $23.13 $23.18 $23.91
Other Data
Stock price range (dollars
per share to the nearest
1/8) $37.75-$27.38 $31.00-$19.50 $22.38-$17.00 $24.50-$17.13 $24.00-$16.38
Average number of employees 4,007 4,056 3,975 4,335 4,847
Number of shareholders at
year-end 1,062 1,136 1,198 1,278 1,343
(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 Shareholders
To Be Held April 26, 1996
To CTS Shareholders:
The Annual Meeting of Shareholders of CTS Corporation will be
held at 9:00 a.m. Eastern Standard Time, Friday, April 26, 1996, at
the CTS Corporate Headquarters, 905 West Boulevard North, Elkhart,
Indiana 46514, for the following purposes:
1. To elect five directors to serve for one year and
until their successors are elected and qualified;
2. To consider and vote on approval of the CTS
Corporation 1996 Stock Option Plan;
3. To transact other business properly presented at
the meeting.
Only shareholders of record at the close of business on
March 8, 1996 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, 1995.
By Order of the Board of Directors,
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 18, 1996
It is important that your shares 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 Shareholders to be held
April 26, 1996. 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 shareholders about
March 18, 1996.
The Corporation had outstanding 5,218,529 shares of Common
Stock as of the close of business on March 8, 1996, the record date
for the Annual Meeting as set by the Board of Directors. As a
result of shareholder 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 shareholder 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 shareholders, the proxy will be
voted in accordance with the judgment on such matters of the person
or persons acting as proxy.
Shareholders 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
shareholder, all shares represented by valid proxies will be voted
in favor of the election of all director-nominees and the approval
of the CTS Corporation 1996 Stock Option Plan.
Securities Beneficially Owned by Principal
Shareholders 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, 1996. 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, 1996 (1) of Class
Dynamics Corporation of 2,303,100 (2) 44.14
America
475 Steamboat Road
Greenwich, CT 06830
The Gabelli Group, Inc., 1,269,100 (3) 24.32
GAMCO Investors, Inc.,
and Gabelli Funds, Inc.
655 Third Avenue
New York, NY 10017
Gerald H. Frieling, Jr. 200,150 (4) 3.84
Lawrence J. Ciancia 199,650 (4) 3.83
Patrick J. Dorme 199,150 (4,10) 3.82
Andrew Lozyniak 199,150 (4,10) 3.82
Joseph P. Walker 24,107 (5) *
Philip T. Christ 15,322 (6) *
Stanley J. Aris 7,609 (7) *
D. Richard Hannan 2,226 (8) *
Jeannine M. Davis 6,751 (9) *
14 directors and officers 275,893 (4,11) 5.29
as a group
___________________________
*Less than 1%.
(1) Information with respect to beneficial ownership is based upon
information furnished by each shareholder or contained in filings
made with the Securities and Exchange Commission. Except where
otherwise indicated, the shareholders listed in the table have sole
voting and investment authority with respect to the shares owned by
them.
(2) Includes 1,020,000 shares for which voting authority was not
granted by a vote of the independent shareholders of the Corpora-
tion at the 1987 Annual Meeting of Shareholders, pursuant to the
Control Share Acquisition Chapter of the Indiana Business Corpora-
tion Law.
(3) Includes 260,000 shares held by Gabelli Funds, Inc., and 1,009,100
shares held by GAMCO Investors, Inc., which were reported on a
joint Schedule 13D filed April 17, 1995, 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 156,600 of the reported shares, and
except that Gabelli Funds, Inc. has sole dispositive and voting
power with respect to the 260,000 reported shares held by The
Gabelli ABC Fund, The Gabelli Asset Fund, The Gabelli Equity Trust,
Inc., The Gabelli Value Fund, The Gabelli Small Cap Growth Fund,
The Gabelli Global Multimedia Trust Inc., 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 Convert-
ible Securities Fund and The Gabelli Equity Income Fund, 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, at any time, the Proxy Voting Committee of each such Fund may
take and exercise in its sole discretion the entire voting power
with respect to the shares held by such Fund under special
circumstances such as regulatory considerations; and that the power
of Mr. Gabelli and Gabelli Funds, Inc. is indirect with respect to
securities beneficially owned directly by other Reporting Persons.
(4) 199,150 of the shares shown as owned beneficially by each of Mr.
Ciancia, Mr. Dorme, Mr. Frieling, Mr. Lozyniak and 14 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 Compensa-
tion Committee of the Board of Directors has voting and investment
authority over said shares. The present members of the Compensa-
tion 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.
(5) Includes 3,907 shares attributed to Joseph P. Walker's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1995, 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.
(6) Includes 1,522 shares attributed to Philip T. Christ's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1995, 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 2,800 shares subject to
options exercisable on March 1, 1996 or which become exercisable
within 60 days thereafter.
(7) Includes 309 shares attributed to Stanley J. Aris' account in the
CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1995, 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 2,300 shares subject to
options exercisable on March 1, 1996 or which become exercisable
within 60 days thereafter.
(8) Includes 126 shares attributed to D. Richard Hannan's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1995, the most recent annual report of the Plan. The
number of shares attributed to Mr. Hannan's account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report.
(9) Includes 329 shares attributed to Jeannine M. Davis' account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1995, the most recent annual 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 1,000 shares subject to
options exercisable on March 1, 1996 or which become exercisable
within 60 days thereafter.
(10) Messrs. Dorme and Lozyniak are directors of Dynamics Corporation
of America.
(11) Includes 8,300 shares subject to options exercisable on March 1,
1996 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 Shareholders 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
Chairman of the Board of Tokheim Corporation (a
manufacturer of petroleum dispensing equipment,
systems and control devices); President of Frieling
and Associates (a consulting firm); Chairman of the
Audit Committee and Member of the Executive and
Compensation Committees of CTS Corporation. During
the past five years, Mr. Frieling, age 65, served
as Chief Executive Officer of Tokheim Corporation,
and in his present capacities at Tokheim
Corporation and Frieling and Associates.
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 64,
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 57, 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 53, 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 60, 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 that the shareholders vote in favor of each of the
director-nominees named above.
In the event that any of such nominees are unable or unwilling to
serve as a director, an event which the Corporation does not
anticipate, the proxies hereby solicited will be voted for the
remaining nominees named above or for such substitute person or
persons as the Board of Directors may select.
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, 1995, 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 1995, the Board of Directors held seven 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 1995. 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
1995. 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 1995. 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 100% of the meetings of the
Board of Directors and the committees to which he was assigned
during 1995.
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 1995
exceeded $100,000. Information which is not required to be
disclosed in the table is identified by the letters "N/R."
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and Restricted All Other
Principal Salary Bonus(1) Other(2) Stock Award(s)(3) Compensation(4)
Position Year ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph P. Walker(5,6) 1995 327,411 196,400 N/R 0 11,270
Chairman of the 1994 311,878 147,200 N/R 231,250 8,496
Board, President 1993 297,083 0 N/R 0 6,426
and Chief Executive
Officer
Philip T. Christ(6) 1995 178,775 107,300 N/R 231,000 7,677
Group Vice 1994 168,301 90,200 N/R 0 7,326
President 1993 158,442 80,000 N/R 0 7,023
Stanley J. Aris(6) 1995 168,078 100,800 N/R 37,375 5,994
Vice President 1994 160,105 75,600 N/R 57,813 4,991
Finance and Chief 1993 153,663 20,250 5,555 0 4,813
Financial Officer
D. Richard Hannan(6) 1995 98,365 107,000 N/R 0 3,198
Group Vice 1994 0 0 0 0 0
President 1993 0 0 0 0 0
Jeannine M. Davis(6) 1995 115,421 69,300 N/R 37,375 4,064
Vice President, 1994 109,063 51,500 N/R 0 2,944
General Counsel and 1993 95,035 0 N/R 0 2,762
Secretary
</TABLE>
(1) Includes bonuses paid pursuant to the CTS Corporation Management
Incentive Plan, as described in the Report of the Compensation
Committee below. For D. Richard Hannan, includes $77,500 which was
the market value of the 2,500 shares of CTS Common Stock
transferred to Mr. Hannan upon attainment of one incentive goal
included in his employment offer letter.
(2) The value of other personal benefits received from the Corporation
by the named Executive Officers is below the reporting threshold
for perquisites.
(3) At the end of fiscal year 1995, Joseph P. Walker held 8,000
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, 1995 was $302,000. 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: 1995 - $62,000; 1994 - $49,250; and 1993 - $39,250.
At the end of fiscal year 1995, Philip T. Christ held 7,800
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, 1995 was $294,450. 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: 1995 -
$24,200; 1994 - $19,150; and 1993 - $15,500.
At the end of fiscal year 1995, Stanley J. Aris held 3,000
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 on
December 31, 1995 was $113,250. For Stanley J. Aris, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1995 -
$15,500; 1994 - $0; and 1993 - $0.
At the end of fiscal year 1995, Jeannine M. Davis held 1,800
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, 1995 was $67,950. 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: 1995 -
$12,100; 1994 - $9,200; and 1993 - $7,300.
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.
(4) Includes (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, 1995 -
$3,465; 1994 - $3,465; and 1993 - $3,373; for Philip T. Christ,
1995 - $3,465; 1994 - $3,465; and 1993 - $3,373; for Stanley J.
Aris, 1995 - $3,465; 1994 - $3,465; and 1993 - $3,373; for D.
Richard Hannan, 1995 - $2,213; 1994 - $0; and 1993 - $0; and for
Jeannine M. Davis, 1995 - $3,465; 1994 - $2,454; and 1993 - $2,303
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, 1995 - $5,310; 1994 - $5,031; and 1993 - $3,053; for
Philip T. Christ, 1995 - $4,212; 1994 - $3,861; and 1993 - $3,650;
for Stanley J. Aris, 1995 - $2,529; 1994 - $1,526; and
1993 - $1,440; for D. Richard Hannan, 1995 - $985; 1994 - $0; and
1993 - $0; and for Jeannine M. Davis, 1995 - $599; 1994 - $490; and
1993 - $459. For Joseph P. Walker, also includes $2,495, the
imputed income value of the term life insurance portion of the
coverage under a "split dollar" life insurance policy.
(5) Joseph 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 $319,725. Termination of
Mr. Walker's employment agreement by the Corporation, for reasons
other than cause as defined in the agreement, entitles Mr. Walker
to receive his then current annual salary for the number of months
remaining under his agreement, the same to be paid in equal monthly
payments.
(6) The Corporation has entered into Indemnification Agreements with
each of the named Executive Officers and all other Executive
Officers of the Corporation which provide that the Corporation
agrees to indemnify the officer, to the fullest extent allowed by
the bylaws of the Corporation and the Indiana Business Corporation
Law, in the event that he/she was or is made a party or threatened
to be made a party to any action, suit or proceeding by reason of
the fact that he/she is an officer of the Corporation. The
indemnification agreements provide indemnification for acts
occurring prior to the execution of the agreements.
Stock Options
Shown below is information on grants of options for CTS
Corporation Common Stock awarded to the named Executive Officers in
1995.
<TABLE>
OPTION GRANTS IN 1995
INDIVIDUAL GRANTS(1)
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
For Option Term(2)
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted(3) in 1995 ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C>
Joseph P. Walker 10,000 10.6% $37.375 12-14-2000 103,260 228,178
Philip T. Christ 8,000 8.5% 37.375 12-14-2000 82,608 182,542
Stanley J. Aris 8,500 9.0% 37.375 12-14-2000 87,771 193,951
D. Richard Hannan 0 0 N/A N/A N/A N/A
Jeannine M. Davis 6,300 6.7% 37.375 12-14-2000 65,054 143,752
</TABLE>
(1) These options were granted to the named Executive Officers
pursuant to the proposed CTS Corporation 1996 Stock Option Plan,
subject to the approval of said Plan by the shareholders as
proposed herein.
(2) Potential realizable value is determined by assuming an initial
value of $37.375 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 shares
subject to options granted. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common
Stock and overall stock market conditions.
(3) All 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 1995
AND FISCAL YEAR END 1995 OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year End
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
Joseph P. Walker 0 0 0/10,000 $0/3,750
Philip T. Christ 0 0 2,300/12,700 35,325/69,725
Stanley J. Aris 0 0 1,800/11,700 29,025/50,413
D. Richard Hannan 0 0 0 0
Jeannine M. Davis 2,200 $21,725 1,000/9,300 13,000/41,363
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors,
comprised of Lawrence J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr. and Andrew Lozyniak, submits this report of Executive
Compensation to the Corporation's shareholders.
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
shareholders 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 Stock
Option Plans 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 salaries and job 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 the Corpora-
tion's salary budget for all exempt salaried employees 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 in the same range
established for all exempt salaried employees of the Corporation,
except that on occasion, certain officer salaries were increased at
higher rates in response to the 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 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 1995, the Corporation achieved 150% of its ROA target
under the 1995 CTS Corporation Management Incentive Plan. On this
basis, the named Executive Officers, other than D. Richard Hannan
and Philip T. Christ, received formula bonuses under the Plan equal
to 60% of their base salaries. Mr. Hannan and Mr. Christ received
formula bonuses under the Plan, half of which were based on the
Corporation's achieving 150% of its ROA target and the other half
of which were based on the ROA performance of the units for which
each Group Vice President was responsible.
For 1994, the Corporation achieved 118% of its ROA target
under the 1994 CTS 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 reflected the higher ROA
performance achievement of the 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 unit.
CTS Corporation 1986 Stock Option Plan
The Compensation Committee administers the CTS Corporation
1986 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. No options were granted to Executive Officers of the
Corporation during 1995 under this Plan which expired in December,
1995.
CTS Corporation 1988 Restricted Stock and Cash Bonus Plan
The CTS Corporation 1988 Restricted Stock and Cash Bonus Plan
was adopted by the shareholders 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 shareholders. 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 Philip T. Christ,
Stanley J. Aris and Jeannine M. Davis, for 7,000 shares, 1,000
shares and 1,000 shares, respectively in 1995. Mr. Christ, Mr.
Aris and Ms. Davis were selected for awards in order to align their
interests with the Corporation's shareholders and in view of their
abilities, as Group Vice President, Chief Financial Officer and
General Counsel, respectively 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 Corporation pursuant to Section 162(m).
Respectfully Submitted,
CTS CORPORATION COMPENSATION COMMITTEE
Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr. and Andrew Lozyniak
New CTS Corporation 1996 Stock Option Plan
In 1986 CTS shareholders approved a stock option plan designed
to offer key employees the opportunity to participate in the
ownership of the Corporation by increased stock holdings. The 1986
plan has now expired. The 1986 plan reserved 300,000 shares for
issue upon exercise of options granted under that plan.
The Board of Directors believes that stock option plans
further the growth and profitability of the Corporation, in the
interest of shareholders, by providing incentives to key employees
who contribute to the management of the Corporation to acquire and
increase equity interests in the Corporation. Accordingly, in
December 1995, the Board of Directors adopted the CTS Corporation
1996 Stock Option Plan (hereinafter, the "Plan"), subject to the
approval of shareholders at the 1996 annual meeting.
When the CTS Corporation 1986 Stock Option Plan expired in
1995, approximately 200,000 shares remained in the plan, not
subject to future grants or option exercises under that plan. The
purpose of the CTS Corporation 1996 Stock Option Plan is to reserve
anew those remaining 200,000 shares for stock options to key
employees of the Corporation.
The Plan provides for the reservation of 200,000 shares of
Common Stock, which may be either authorized and unissued shares or
shares held as treasury stock, for issue upon exercise of options
granted under the Plan. The number and price of shares reserved
for issuance upon exercise of options granted under the Plan are
subject to adjustment to reflect the effects of stock splits, stock
dividends or any other change in the capital structure of the
Corporation or to reflect any merger, consolidation, sale or
exchange of assets or stock of the Corporation. The closing market
value per share of Common Stock on March 1, 1996 was $38.00.
The Plan will be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee shall determine
the recipients of the options, the dates options are to be granted,
the number of shares subject to each option, the option price,
option periods and option terms. The Compensation Committee may
also prescribe, amend and rescind rules and procedures for the
convenient administration of the Plan. The Plan permits shares
subject to option, which expire without being exercised, to again
be made subject to option.
Options granted under the Plan are irrevocable and may be
nonqualified or may be incentive stock options in conformity with
Section 422A of the Internal Revenue Code of 1954, as amended
(hereinafter, the "Code").
Options may not be granted under the Plan at prices lower than
the fair market value of the shares on the date of grant. Fair
market value of the shares shall be the closing price of the shares
on the New York Stock Exchange on the date the option is granted,
or if not reported on such date, the next preceding date for which
such a closing price is reported.
The period during which options may be granted under the Plan
by the Compensation Committee shall extend no longer than ten years
from the date of the Plan's adoption, December 15, 1995. The
period during which an option may be exercised shall not extend
more than ten years from the date an option is granted. The right
to exercise options granted under the Plan shall accrue in such
annual, cumulative installments as designated by the Compensation
Committee, commencing at least one year after the date the option
is granted. Unless designated otherwise by the Compensation
Committee, the number of installments shall be the number of years
of the option period minus one; each installment shall be equal to
the number of shares under such option divided by the number of
installments, and each installment cumulatively shall permit the
exercise of any previously unexercised installment.
Under the Code, the grant of nonqualified or incentive stock
options under the Plan does not result in taxable income to the
employee or provide a business expense deduction to the
Corporation. An optionee realizes ordinary income upon the
exercise of a nonqualified option, measured by the difference
between the option price and the fair market value of the stock on
the date of exercise. Such amount is also deductible on the
federal income tax return of the Corporation for that year.
However, the exercise of an incentive stock option does not result
in taxable income to the employee and does not provide a business
expense deduction to the Corporation. If the shares obtained upon
exercise of an incentive stock option are held for two years after
the date of grant and one year after the date of exercise, the
holder will be entitled to long-term capital gain treatment on the
disposition of the shares. If such shares are disposed of before
the completion of the one and two year periods, the optionee will
be taxed on the excess of the market value of the stock on the date
of exercise over the option price as ordinary income, and such
amount will be deductible by the Corporation for the same year.
The Compensation Committee presently expects about 70 key
employees, including officers of the Corporation, to be eligible to
receive options under the Plan. Directors of the Corporation, who
are not also employees or officers of the Corporation, are not
eligible to receive options. The aggregate fair market value
(determined as of the time the option is granted) of the shares of
Common Stock for which any participant may be granted incentive
stock options which become first exercisable in any calendar year
may not exceed $100,000. No option holder shall have rights as a
shareholder with respect to shares subject to option unless or
until such shares are issued, and no option holder can assign or
transfer options except by the laws of descent and distribution.
In the event of death, total and permanent disability or
retirement of the option holder, all unexpired option installments
shall be accelerated and shall accrue as of the date of death,
disability or retirement. Such options shall be exercisable within
one year from the date of death or disability and within three
months of retirement, or sooner if the option period expires
earlier. Upon termination of employment of the option holder with
the Corporation for any other reason, the option holder may
exercise options which are exercisable on such date for a period of
thirty days thereafter, or for a shorter period of time if the
option period expires earlier.
An option may be exercised by immediate payment of the option
price in cash or in previously acquired Common Stock of the
Corporation.
The Board of Directors may amend the Plan at any time without
further shareholder approval except that any such amendment may not
increase the number of reserved shares, decrease an option price,
change the class of eligible employees or option ceiling or impair
any option previously granted.
The Plan and the resolution to be voted on are attached as
Appendix A to this Proxy Statement.
The affirmative vote of the holders of a plurality of the shares
represented in person or by proxy at the meeting is required to
adopt the Plan. The Board of Directors unanimously recommends a
vote in favor of the adoption of the CTS Corporation 1996 Stock
Option Plan.
STOCK PERFORMANCE CHART
The following graph compares the cumulative total shareholder
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, 1995, is as follows: Joseph P. Walker, 7.78 years,
Philip T. Christ, 6.56 years, Stanley J. Aris, 3.78 years,
D. Richard Hannan, .78 years and Jeannine M. Davis, 15.78 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 1996 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
$13,000 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 Nonemployee Directors of the Corporation
(the "Plan"). Under the Plan, separate accounts are opened by the
Corporation in the names of nonemployee directors. On January 1 of
each year, starting in 1991, a deferred stock account in the name
of each nonemployee director is credited with 100 Common Stock
Units if said director was a nonemployee 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 nonemployee
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 Common 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 $15,100 in 1995
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 shareholders and to have the opportunity to make
statements, if they so desire.
Shareholder Proposals
To be considered for inclusion in the 1997 proxy solicitation
material and proxy, shareholder proposals must be received by the
Corporation at its Corporate Offices no later than November 22,
1996.
1995 Annual Report on S.E.C. Form 10-K
Upon the written request of a CTS shareholder 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 shareholder, without charge,
a copy of its 1995 annual report on S.E.C. Form 10-K, including the
financial statements and financial statement schedules.
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 18, 1996
APPENDIX A
The following resolution will be presented at the Annual
Meeting of Shareholders:
RESOLVED, that the CTS Corporation 1996 Stock Option
Plan, hereinafter referred to as the "Plan", adopted by
the Board of Directors on December 15, 1995, be adopted
and approved by the shareholders of CTS Corporation and
that a copy of the Plan be appended to the minutes of
this Annual Meeting of Shareholders.
CTS CORPORATION 1996 STOCK OPTION PLAN
FIRST: Shares Reserved for Options
Two hundred thousand (200,000) shares of CTS Corporation
Common Stock, without par value, which may be either authorized and
unissued shares or shares held as treasury stock, are reserved for
issuance upon exercise of options granted under the Plan. The
number and kind of shares reserved for issuance may be adjusted as
provided by ITEM FOURTEENTH. Shares subject to an unexercised
installment of any canceled, surrendered or expired installment or
option may be again subject to option under the Plan.
SECOND: Administration
The Plan shall be administered by the CTS Corporation
Compensation Committee appointed by the Board of Directors,
hereinafter the "Committee." Within the provisions of the Plan,
the Committee shall have full power and authority:
(a) to determine and designate the recipients of
options, the dates options are granted, the number
of shares subject to option, option prices, option
periods and option terms, except as otherwise
limited herein, and
(b) to prescribe, amend and rescind rules and
procedures for convenient administration of the
Plan.
Action by the Committee shall be authorized or ratified by a
majority of the Committee members and may be without notice or
meeting, by a writing signed by a majority of the Committee
members.
In any dispute or disagreement as to the interpretation of the
Plan, or any rule or procedure of the Committee, or any question,
right or obligation under the Plan, the decision of the Board of
Directors shall be final and binding upon all persons.
THIRD: Eligibility
Key employees, including officers, of CTS shall be eligible to
receive options and shall receive options when, and if, designated
by the Committee. Directors who are not also employees or officers
of CTS shall not be eligible to receive options.
FOURTH: Option Grant
The Committee shall determine and designate (i) the recipients
of options, (ii) the dates options are granted, (iii) the number of
shares subject to option, (iv) the option prices and (v) the option
periods.
FIFTH: Option Price
The option price shall be not less than the fair market value
of the shares on the date the option is granted. Fair market value
of the shares shall be the reported closing price of the shares on
the New York Stock Exchange on the date the option is granted, or,
if not reported on such date, on the next preceding date for which
such a closing price is reported.
SIXTH: Option Ceiling
The aggregate fair market value (determined as of the time the
option is granted) of the shares of Common Stock for which any
participant may be granted incentive stock options which become
first exercisable in any calendar year, shall not exceed $100,000.
SEVENTH: Option Grant Period
The period during which an option may be granted shall, in no
case, extend more than ten years after the Plan is adopted, or the
date such Plan is approved by the shareholders, whichever is
earlier.
EIGHTH: Option Exercise Period
The period during which an option may be exercised shall, in
no case, extend more than ten years after the date the option is
granted.
NINTH: Option Terms
The options shall be irrevocable and shall, on the date of
grant, conform in all respects with the Plan and may be non-
qualified or may conform with Section 422A of the Internal Revenue
Code of 1986, as amended, hereinafter the "Code," or with any law
supplemental thereto or substituted therefor. Inconsistencies
between an option and the Plan shall be resolved according to the
terms of the Plan.
TENTH: Exercise of Option
The right to exercise an option shall accrue in such annual
and cumulative installments and at such times as designated by the
Committee, commencing at least one year from the date the option is
granted. Unless otherwise designated by the Committee (i) the
number of installments shall be equal to the total number of years
of the option period minus one, (ii) each installment shall be
equal to the total number of shares under option divided by the
number of installments and (iii) each installment cumulatively
shall permit the exercise of any previously unexercised install-
ment.
ELEVENTH: Payment
Payment of the option price shall be made upon exercise of any
installment of an option, and the person exercising such option
shall supply the Committee such pertinent information as the
Committee may deem necessary. Payment may be made in cash or in
previously acquired CTS Common Stock. Except as provided in ITEM
THIRTEENTH, no option may be exercised unless, from the date the
option is granted to the date of exercise, the option holder is an
employee of CTS. An option holder shall have no rights as a
shareholder with respect to shares subject to option until such
shares are issued.
TWELFTH: Nontransferability of Option
Options shall not be assignable or transferable by the option
holder other than by will or by the laws of descent and distribu-
tion.
THIRTEENTH: Effect of Termination of Employment
Upon the death of an option holder, all unexpired installments
of his options shall be accelerated and shall accrue as of the
date of death, and his estate or the person or persons to whom his
rights under the option shall pass by will or by the laws of
descent and distribution may exercise the options, but only within
one year after his death or, if sooner, until the option period
expires.
Upon total and permanent disability of an option holder,
within the meaning of Section 105(d)(4) of the Code, all unexpired
installments of his options shall be accelerated and shall accrue
as of the date of such disability, and he may exercise the options
but only within one year of the date of such disability or, if
sooner, until the option period expires.
Upon retirement of an option holder, all unexpired install-
ments of his options shall be accelerated and shall accrue as of
the date of retirement, and he may exercise the options, but only
within three months after retirement or, if sooner, until the
option period expires.
Upon termination of employment of the option holder with CTS
for any reason, other than death, disability, or retirement, he may
exercise his options only to the extent he is entitled by the
option terms on the date of termination, but such exercise may only
be within thirty days after termination or, if sooner, until the
option period expires.
FOURTEENTH: Adjustment for Capital Change
The number, kind and price of shares subject to option and the
number and kind of securities or property reserved for issuance,
and to be issued, upon exercise of options shall be proportionately
and appropriately adjusted by the Committee to reflect the effects
of stock splits, stock dividends and any other change in the
capital structure of CTS Corporation or to reflect any merger,
consolidation or exchange or sale of assets or shares of CTS
Corporation.
FIFTEENTH: Amendment and Termination
The Board of Directors may modify or amend the Plan without
shareholder approval at any time for the purpose of conforming to
changes in pertinent law or government regulations or for any
purpose permitted by law. In no event, however, shall any such
action of the Board of Directors (i) increase, except as provided
by ITEM FOURTEENTH, the number of shares of Common Stock which may
be issued hereunder, (ii) decrease the option price, provided by
ITEM FIFTH, (iii) change the class of eligible employees, provided
by ITEM THIRD, (iv) change the option ceiling, provided by ITEM
SIXTH or (v) impair any option granted prior to such action.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into this _____ day of ___________,
19__ by and between _____________________ (the "Officer") and CTS
CORPORATION, an Indiana corporation (the "Company").
WHEREAS, the Officer is an officer of the Company; and
WHEREAS, to induce the Officer to continue to serve as an
officer, the Company has provided for indemnification in Article
XIX of its bylaws, a copy of which is attached hereto as Exhibit A
("Bylaw Indemnity"), and has maintained insurance and has a policy
of continuing to maintain insurance for such persons against
liabilities or losses incurred by the Officer as a consequence of
his service in such capacity ("O & D Insurance"), to the extent
available on terms acceptable to the Company; and
WHEREAS, the Company has determined that O & D Insurance may
not be available to it on acceptable terms in the future; and
WHEREAS, in order to induce the Officer to serve as an
Officer, the Company is willing to provide the indemnification
provided herein;
NOW, THEREFORE, in consideration of the premises and the
Officer's continued service as an officer, the parties hereto agree
as follows:
Section 1. Indemnification. The Company shall, to the
fullest extent to which it is empowered to do so under the Indiana
Business Corporation Law, or other applicable laws, as from time to
time in effect, indemnify the Officer in the event that he was or
is made a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and
whether formal or informal, by reason of the fact that he is or was
an officer, director, employee or agent of the Company, or who,
while serving as such officer, director, employee or agent of the
Company, is or was serving at the request of the Company as an
officer, director, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including counsel
fees), judgments, settlements, penalties and fines (including
excise taxes assessed with respect to employee benefit plans)
("Indemnifiable Expenses") actually or reasonably incurred by him
in accordance with such action, suit or proceeding (net of any
related insurance proceeds received by him or paid on his behalf),
if the Officer (a) was wholly successful, on the merits or
otherwise, in the defense of any such action, suit or proceeding or
(b) acted in good faith and if he reasonably believed, in the case
of conduct in his official capacity, that his conduct was not
opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, he either had reasonable cause
to believe his conduct was lawful or no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the Officer did not meet the prescribed
standard of conduct.
For purposes of any determination under this Section 1, a
person shall be deemed to have acted in good faith and to have
otherwise met the applicable standard of conduct set forth in
Section 1 if his action is based on information, opinions, reports,
or statements, including financial statements and other financial
data, if prepared or presented by (1) one or more officers or
employees of the corporation or another enterprise whom he
reasonably believes to be reliable and competent in the matters
presented; (2) legal counsel, public accountants, appraisers or
other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (3) a committee of
the Board of Directors of the corporation or another enterprise of
which the person is not a member if he reasonably believes the
committee merits confidence. The term "another enterprise" as used
in this Section 3 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee
or agent. The provisions of this paragraph shall not be deemed to
be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of
conduct set forth in this Section 1.
Section 2. Method of Indemnification. If the Officer is
wholly successful, on the merits or otherwise, in the defense of
any action, suit or proceeding, the Officer shall be entitled to
receive from the Company, and the Company hereby covenants and
agrees to provide the Officer, within ten business days of the
Company's receipt of a written request of the Officer, accompanied
by the supporting documentation set forth below, reimbursement in
cash for the total amount of his Indemnifiable Expenses with
respect thereto which shall not have been previously reimbursed by
the Company. In making a written request for such reimbursement of
Indemnifiable Expenses, the Officer shall submit to the Company a
schedule setting forth in reasonable detail his Indemnifiable
Expenses and the dollar amount expended for each such Indemnifiable
Expense. Such schedule shall be accompanied by a copy of the bill,
agreement, judgment or other documentation relating to each
Indemnifiable Expense listed therein.
If the Officer is unsuccessful on the merits in the defense of
any action, suit or proceeding, the Officer shall be similarly
entitled to receive from the Company, and the Company covenants and
agrees to provide the Officer, reimbursement in cash for the total
amount of his Indemnifiable Expenses with respect thereto which
shall not have been previously reimbursed by the Company, within
three business days after a determination has been made that the
Officer has met the applicable standards of conduct set forth in
Section 1. Such determination shall be made in good faith (1) by
the Board by a majority vote of a quorum consisting of directors
who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision
(1), by majority vote of a committee duly designated by the Board
(in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties
to such action, suit or proceeding; or (3) by special legal
counsel: (A) selected by the Board or its committee in the manner
prescribed in subdivision (1) or (2), or (B) if a quorum of the
Board cannot be obtained under subdivision (1) and a committee
cannot be designated under subdivision (2), selected by a majority
vote of the full Board (in which selection directors who are
parties may participate); or (4) by the shareholders, but stock
owned by or voted under the control of directors who are at the
time parties to such action, suit or proceeding may not be voted on
the determination. The foregoing determination shall be made
within ten business days of the Company's receipt of a written
request of the Officer, accompanied by the supporting documentation
described above, unless the determination is to be made by the
shareholders, in which case the Company covenants and agrees to
call a special meeting of the shareholders within ten business days
of such receipt. The evaluation of the reasonableness of expenses
shall be made at the same time and in the same manner; provided
that if the determination that indemnification is permissible is to
be made by special legal counsel, the evaluation as to the
reasonableness of expenses shall be made by those entitled to
select such counsel.
Section 3. Payment of Expenses in Advance. Expenses
previously incurred by the Officer or reasonably expected by the
Officer to be incurred in connection with any action, suit or
proceeding shall be paid for or reimbursed by the Company in
advance of the final disposition of such action, suit or
proceeding, within ten business days of the Company's receipt of a
written request of the Officer accompanied by a written affirmation
of the Officer's good faith belief that he has met the standards of
conduct described in Section 1 of this Agreement, and a schedule
setting forth in reasonable detail the amount incurred or
reasonably expected to be incurred for any expenses, but only upon
a determination made in the manner and by any of the persons
described in the second paragraph of Section 2 of this Agreement
that the facts then known to them would not preclude
indemnification hereunder because the Officer failed to meet the
applicable standards of conduct described in Section 1 of this
Agreement. The Officer hereby covenants and agrees with the
Company to repay such amount if it is ultimately determined that
the Officer did not meet the standards of conduct described in
Section 1 of this Agreement. The Officer may make as many requests
for advances under this Section 3 as he deems reasonably necessary
to cover his actual or reasonably expected expenses.
Section 4. Provisions Not Exclusive. The indemnification
provided by this Agreement shall not be deemed exclusive of any
other right to be indemnified or insured by the Company or any
other person or entity to which the Officer may be entitled under
any statute, agreement, policy of insurance or surety, the Articles
of Incorporation or bylaws of the Company, any resolution of the
Board of Directors or shareholders, or otherwise, both as to action
in his official capacity and as to action in another capacity while
holding such office, and shall continue after the Officer has
ceased to be an officer, employee or agent of the Company, and
shall inure to the benefit of his heirs, executors and
administrators.
Section 5. Definitions. For purposes of this Agreement,
serving an employee benefit plan at the request of the Company
shall include any service as a director, officer, employee or agent
of the Company which imposes duties on, or involves services by the
Officer with respect to an employee benefit plan, its participants,
or beneficiaries. If the Officer acted in good faith and in a
manner he reasonably believed to be in the best interests of the
participants and beneficiaries of an employee benefit plan, he
shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" referred to in Section 1 of this
Agreement.
For purposes of this Agreement, "party" includes any
individual who is or was a plaintiff, defendant or respondent in
any action, suit or proceeding, or who is threatened to be made a
named defendant or respondent in any action, suit or proceeding.
For purposes of this Agreement, "Official capacity," when used
with respect to the Officer, shall mean the office of director of
the Company and any office of the Company held by the Officer or
other employment or agency relationship undertaken by the Officer
on behalf of the Company. "Official capacity" does not include
service for any other foreign or domestic corporation or any
partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
Section 6. Good Faith. The Company agrees to perform
its obligations under this Agreement in good faith; and in any
litigation brought by the Officer to enforce any such obligations,
the Company shall have the burden of establishing by a
preponderance of the evidence that it (and the Board or a committee
thereof, if applicable) so performed such obligations, and in the
absence of fulfilling such burden, the Company hereby consents to
the entry of the judgment, decree and other relief sought by the
Officer in such litigation and further agrees not to appeal or
otherwise resist the enforcement thereof.
Section 7. Notice. All notices and other communications
pursuant to this Agreement shall be in writing and shall be deemed
to have been duly given when delivered in person or mailed by
United States registered mail, return receipt requested, postage
prepaid, as follows:
If to the Officer:
__________________________
__________________________
__________________________
If to the Company:
CTS Corporation
905 West Boulevard North
Elkhart, In 46514
Attention: General Counsel
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
Section 8. Miscellaneous.
(a) This Agreement shall be binding on the successors and
assigns of the Company.
(b) This Agreement contains the entire agreement of the
parties with respect to the matters covered herein, and may not be
amended except by a written instrument executed by the parties
hereto.
(c) This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Indiana.
(d) The invalidity or unenforceability in any respect of any
provision of this Agreement shall not affect the validity or enfor-
ceability of such provision in any other respect or of any other
provision of this Agreement, all of which shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
THE OFFICER THE COMPANY
___________________________ _____________________________
Jeannine M. Davis
Vice President, General
Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 37,271
<SECURITIES> 0
<RECEIVABLES> 42,511
<ALLOWANCES> 774
<INVENTORY> 38,885
<CURRENT-ASSETS> 126,113
<PP&E> 182,141
<DEPRECIATION> 131,445
<TOTAL-ASSETS> 227,127
<CURRENT-LIABILITIES> 50,962
<BONDS> 0
<COMMON> 33,355
0
0
<OTHER-SE> 112,898
<TOTAL-LIABILITY-AND-EQUITY> 227,127
<SALES> 300,157
<TOTAL-REVENUES> 300,157
<CGS> 225,353
<TOTAL-COSTS> 272,669
<OTHER-EXPENSES> (1,986)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,790
<INCOME-PRETAX> 27,684
<INCOME-TAX> 10,520
<INCOME-CONTINUING> 17,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,164
<EPS-PRIMARY> 3.30
<EPS-DILUTED> 3.30
</TABLE>
