SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
For Quarter Ended Commission File Number
June 30, 1996 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 293-7511
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 6, 1996: 5,225,004
Page 1 of 12
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months and Six
Months ended June 30, 1996, and July 2, 1995 3
Condensed Consolidated Balance Sheets -
As of June 30, 1996, and December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows - For the Six Months Ended June 30,
1996, and July 2, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 12
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(In thousands of dollars, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $83,820 $76,413 $164,006 $152,391
Costs and expenses:
Cost of goods sold 61,946 57,265 122,333 115,970
Selling, general and
administrative expenses 11,028 10,098 21,980 20,171
Research and development
expenses 2,628 2,027 4,888 4,350
Operating earnings 8,218 7,023 14,805 11,900
Other expenses (income):
Interest expense 351 439 787 926
Other, net (610) (523) (1,465) (992)
Total other (income) (259) (84) (678) (66)
Earnings before income
taxes 8,477 7,107 15,483 11,966
Income taxes 3,137 2,465 5,729 4,068
Net earnings $ 5,340 $ 4,642 $ 9,754 $ 7,898
Net earnings per share $ 1.03 $ .89 $ 1.86 $ 1.52
Cash dividends declared
per share $ .18 $ .15 $ .33 $ .30
Average common and common
equivalent shares
outstanding 5,257,468 5,202,746 5,254,122 5,194,811
See notes to condensed consolidated financial statements.
</TABLE>
Page 3 of 12
Part I. -- FINANCIAL INFORMATION
<TABLE>
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
June 30, December 31,
1996 1995*
ASSETS (Unaudited)
Current Assets
<S> <C> <C>
Cash $32,747 $ 37,271
Accounts receivable, less allowances
(1996--$800; 1995--$774) 49,471 41,737
Inventories--Note B 37,633 38,885
Other current assets 3,719 2,544
Deferred income taxes 5,676 5,676
Total current assets 129,246 126,113
Property, Plant and Equipment, less accumulated
depreciation (1996--$133,640; 1995--$131,445) 53,638 50,696
Other Assets
Goodwill, less accumulated amortization
(1996--$8,024; 1995--$7,687) 4,298 4,603
Prepaid pension 47,382 44,739
Other 846 976
Total other assets 52,526 50,318
$235,410 $227,127
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 28 $ 6,685
Current maturities of long-term obligations 2,204 2,211
Accounts payable 19,417 15,605
Accrued liabilities 29,446 26,461
Total current liabilities 51,095 50,962
Long-term Obligations 13,525 13,714
Deferred Income Taxes 11,909 11,909
Postretirement Benefits 4,304 4,289
Shareholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,390 33,355
Retained earnings 134,577 126,546
Cumulative foreign translation adjustment (598) (645)
167,369 159,256
Less cost of common stock held in treasury:
1996--582,877 shares; 1995--589,702 shares 12,792 13,003
Total shareholders' equity 154,577 146,253
$235,410 $227,127
*The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
</TABLE>
Page 4 of 12
Part I. -- FINANCIAL INFORMATION
<TABLE>
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
<CAPTION>
Six Months Ended
June 30, July 2,
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 9,754 $ 7,898
Depreciation and amortization 6,492 6,283
(Increase) decrease in:
Accounts receivable (7,734) (10,691)
Inventories 1,252 (989)
Other current assets (1,175) (770)
Prepaid pension expense (2,643) (2,732)
Other 225 (816)
Increase in:
Accounts payable and accrued liabilities 6,639 4,075
Total adjustments 3,056 (5,640)
Net cash provided by operating activities 12,810 2,258
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 213 356
Capital expenditures (9,298) (4,989)
Net cash used in investing activities (9,085) (4,633)
Cash flows from financing activities:
Payments of long-term obligations (197) (197)
Decrease in notes payable (6,657) (1,903)
Dividend payments (1,565) (1,555)
Net cash used in financing activities (8,419) (3,655)
Effect of exchange rate changes on cash 170 392
Net decrease in cash (4,524) (5,638)
Cash at beginning of year 37,271 24,922
Cash at end of period $32,747 $19,284
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest $ 799 $ 901
Income Taxes $ 2,664 $ 2,787
See notes to condensed consolidated financial statements.
</TABLE>
Page 5 of 12
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is
unaudited; however, in the opinion of management, the interim data
includes all adjustments considered necessary for a fair
presentation of the results for the interim period. Operating
results for the six-month period ended June 30, 1996, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1995 Annual Report on Form 10-K.
NOTE B--INVENTORIES
The components of inventory consist of the following:
(In thousands)
June 30, December 31,
1996 1995
Finished goods $ 7,609 $ 7,445
Work-in-process 14,845 14,789
Raw material 15,179 16,651
$37,633 $38,885
NOTE C--LITIGATION and CONTINGENCIES
Contested claims involving various matters, including environmental
claims brought by government agencies, are being litigated by CTS,
both in legal and administrative forums. In the opinion of
management, based upon currently available information, adequate
provision for potential costs has been made, or the costs which
might ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial
position of the Company or the results of operations.
Page 6 of 12
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of June 30,
1996, to December 31, 1995
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
June 30, December 31, Increase
1996 1995 (Decrease)
Cash $32,747 $ 37,271 (4,524)
Accounts receivable, net 49,471 41,737 7,734
Inventories, net 37,633 38,885 (1,252)
Current assets 129,246 126,113 3,133
Accounts payable 19,417 15,605 3,812
Accrued liabilities 29,446 26,461 2,985
Current liabilities 51,095 50,962 133
Working capital 78,151 75,151 3,000
Current ratio 2.5 2.5 -
Interest bearing debt 15,418 22,267 (6,849)
Net tangible worth 150,279 141,650 8,629
Ratio of interest bearing debt
to net tangible worth .10 .16 (.06)
From December 31, 1995, to June 30, 1996, cash of CTS Corporation
and its subsidiaries ("CTS" or "Company") decreased $4.5 million.
The decrease in cash reflects a reduction in interest bearing debt
and increased working capital, primarily due to increases in
accounts receivable. The working capital increase is primarily a
reflection of the increase in sales and production levels during
the second quarter of 1996, compared to the last quarter of 1995.
Capital expenditures were $9.3 million during the first six months
of 1996, compared with $5.0 million for the same period a year
earlier. These capital expenditures were primarily for increased
manufacturing capacity, new products and manufacturing improvement
programs.
The $6.8 million decrease in interest bearing debt represented
short-term debt payments funded primarily from positive cash flows
from operations.
Page 7 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of Second
Quarter 1996 to Second Quarter 1995
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending June 30, 1996, and July 2, 1995:
(Dollars in thousands)
June 30, July 2, Increase
1996 1995 (Decrease)
Net sales $83,820 $76,413 $7,407
Gross earnings 21,874 19,148 2,726
Gross earnings as a percent
of sales 26.10% 25.06% 1.04%
Selling, general and
administrative expenses 11,028 10,098 930
Selling, general and
administrative expenses as
a percent of sales 13.16% 13.22% (.06%)
Research and development
expenses 2,628 2,027 601
Operating earnings 8,218 7,023 1,195
Operating earnings as a
percent of sales 9.80% 9.19% .61%
Interest expense 351 439 (88)
Earnings before income taxes 8,477 7,107 1,370
Income taxes 3,137 2,465 672
Net earnings 5,340 4,642 698
Income tax rate 37.00% 35.00% 2.00%
Net sales increased by $7.4 million, or 9.7% compared to the second
quarter of 1995. The improvement in sales reflects continued
demand for electronic components, particularly for automotive and
commercial interconnect products in both domestic and European
markets.
Gross earnings improved primarily due to the sales and production
volume increases, as well as continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses in dollars increased
slightly. The Company continues to emphasize cost control over all
operating expenses.
Page 8 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Research and development expenses increased by $0.6 million, or
29.6%, primarily due to the continuation of new product development
programs, particularly in the automotive product areas.
The decrease in interest expense resulted primarily from reduced
short-term debt.
The estimated effective tax rate for 1996 of 37% approximated the
actual 1995 tax rate of 38%.
Material Changes in Results of Operations: Comparison of First
Half of 1996 to First Half of 1995
The following table highlights changes in significant components of
the consolidated statements of earnings for the six-month periods
ending June 30, 1996, and July 2, 1995:
(Dollars in thousands)
June 30, July 2, Increase
1996 1995 (Decrease)
Net sales $164,006 $152,391 $11,615
Gross earnings 41,673 36,421 5,252
Gross earnings as a percent
of sales 25.41% 23.90% 1.51%
Selling, general and
administrative expenses 21,980 20,171 1,809
Selling, general and
administrative expenses as
a percent of sales 13.40% 13.24% .16%
Research and development
expenses 4,888 4,350 538
Operating earnings 14,805 11,900 2,905
Operating earnings as a
percent of sales 9.03% 7.81% 1.22%
Interest expense 787 926 (139)
Earnings before income taxes 15,483 11,966 3,517
Income taxes 5,729 4,068 1,661
Net earnings 9,754 7,898 1,856
Income tax rate 37.00% 34.00% 3.00%
Page 9 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
For the first half of 1996, net sales increased $11.6 million, or
a 7.6% increase compared to the first half of 1995. Consistent
with the second quarter of 1996, improvement was realized as a
result of the continuing demand for automotive and commercial
interconnect products.
Gross earnings have improved over the first half of 1995, primarily
as a result of the higher sales volume. Sales and production
volume increases have favorably affected operating efficiencies.
Selling, general and administrative expenses have remained
relatively flat as a percent of sales, which reflects continuing
efforts to control operating expenses.
Research and development expenses have increased by $0.5 million,
or 12.4%, during the first half of 1996, primarily due to the new
product development programs, particularly in automotive products.
The estimated effective tax rate for 1996 of 37% approximates the
actual 1995 tax rate of 38%.
10 of 12
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
CTS is involved in litigation and in other administrative
proceedings with government agencies regarding the protection of
the environment, and other matters, the results of which are not
yet determinable. In the opinion of management, based upon
currently available information, adequate provision for anticipated
costs has been made, or the ultimate costs resulting from such
litigation or administrative proceedings will not materially affect
the consolidated financial position of the Company or the results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of CTS Corporation was held on
April 26, 1996.
Each of the five director-nominees identified below was re-elected
to a one-year term as director of the Corporation and the CTS
Corporation 1996 Stock Option Plan was approved with the following
votes reported of the 3,617,463 eligible to vote and represented at
the meeting:
Votes
Votes Cast Broker
Director-Nominee Cast For Against Abstentions Non-Votes
Lawrence J. Ciancia 3,579,584 1,612 15,305 69,255
Patrick J. Dorme 3,577,300 3,896 15,305 69,255
Gerald H. Frieling, Jr. 3,579,584 1,612 15,305 69,255
Andrew Lozyniak 3,577,270 3,926 15,305 69,255
Joseph P. Walker 3,576,564 4,632 15,305 69,255
Stock Option Plan 3,542,740 11,011 4,051 107,954
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Forms 8-K
None
Page 11 of 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
/s/ Jeannine M. Davis /s/ Stanley J. Aris
Jeannine M. Davis Stanley J. Aris
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: August 6, 1996
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,747
<SECURITIES> 0
<RECEIVABLES> 50,271
<ALLOWANCES> 800
<INVENTORY> 37,633
<CURRENT-ASSETS> 129,246
<PP&E> 187,278
<DEPRECIATION> 133,640
<TOTAL-ASSETS> 235,410
<CURRENT-LIABILITIES> 51,095
<BONDS> 0
0
0
<COMMON> 33,390
<OTHER-SE> 121,187
<TOTAL-LIABILITY-AND-EQUITY> 235,410
<SALES> 164,006
<TOTAL-REVENUES> 164,006
<CGS> 122,333
<TOTAL-COSTS> 149,201
<OTHER-EXPENSES> (1,465)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 787
<INCOME-PRETAX> 15,483
<INCOME-TAX> 5,729
<INCOME-CONTINUING> 9,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,754
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
</TABLE>
