CTS CORPORATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
1996
FORM 10-K
ANNUAL REPORT
CTS
UNITED STATES
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, 1996
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
Web site address: http://www.ctscorp.com
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 5,226,496 shares of Common Stock, without par value,
outstanding on March 7, 1997.
The aggregate market value of the voting stock held by non-affiliates
of CTS Corporation was approximately $132.5 million on March 7, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the CTS Corporation 1996 Annual Report for the fiscal
year ended December 31, 1996, incorporated by reference in Part I and
Part II.
(2) Portions of the 1997 Proxy Statement for annual meeting of share-
holders to be held on April 25, 1997, 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 1996, DCA owned 2,303,100 shares (44.1%) of
CTS common stock, including the 1,020,000 shares which were not
granted voting authority.
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 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 component products in Europe. The total
capital investment has been approximately $13 million as of
December 31, 1996. 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. In early 1997, this lease was
extended to March 31, 1999. 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.
During 1996, the Company sold property in New Hope, Minnesota, for $550,000
in cash and a promissory note. The Company recognized a pretax gain of
$35,000.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
All of the Company's products are considered one industry segment.
Sales to unaffiliated customers, operating earnings and
identifiable assets, by geographic area, are contained in "Note G -
Business Segment and Non-U.S. Operations," page 22, of the CTS
Corporation 1996 Annual Report, and is incorporated herein by
reference.
PRINCIPAL BUSINESS AND PRODUCTS OF CTS
CTS is primarily in the business of designing, 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
Fiber-optic transceivers Interconnect products
Flex cable assemblies Loudspeakers
Frequency control devices Resistor networks
Hybrid microcircuits 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, six 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 1996 1995 1994
Automotive control devices 30 29 30
Interconnect products 20 14 17
Frequency control devices 13 16 15
Resistor networks 12 12 11
Hybrid microcircuits 5 8 10
Other 20 21 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 1996 1995 1994
Automotive 34 36 38
Computer Equipment 21 19 17
Communications Equipment 20 18 17
Instruments and Controls 11 10 9
Defense and Aerospace 7 8 11
Distribution 6 6 5
Consumer Electronics 1 3 3
Total 100% 100% 100%
Products for the automotive market include throttle position
sensors, exhaust gas recirculation sensors, other automotive
application sensors, resistor networks, variable resistors, and
loudspeakers for automotive entertainment systems.
Products for the computer equipment market include flex cable
assemblies, backpanels, resistor networks, switches, frequency
control devices, fiber-optic transceivers and insulated metal
circuits. Products for this market are principally used in
computers and computer peripheral equipment.
In the communications equipment market, CTS products include
backpanels, frequency control devices, hybrid microcircuits, fiber-optic
transceivers, switches, resistor networks and insulated metal
circuits. Products for this market are principally used in
telephone equipment and in telephone switching systems.
Products for the instruments and controls market include resistor
networks, 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, frequency control devices,
programmable key storage devices and backpanels.
In the distribution market, CTS' primary products include switches,
resistor networks and frequency control devices. In this market,
standard CTS products are sold for a wide variety of applications.
Products for the consumer electronics market, primarily variable
resistors and switches, are principally used in home entertainment
equipment and appliances.
MARKETING AND DISTRIBUTION
Sales of CTS electronic components to original equipment
manufacturers are principally by CTS sales engineers and
manufacturers' representatives. CTS maintains sales offices in
Elkhart, Indiana; Detroit, Michigan; and in the United Kingdom,
Hong Kong, Taiwan and Japan. Various regions of the United States
are serviced by sales engineers working out of their homes. The
sale of electronic components is relatively integrated such that
most of the product lines of CTS are sold through the same field
sales force. Approximately 40% of net sales in 1996 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 1996, about 54% of net sales were at-
tributable to coverage by sales representatives. Independent
distributors purchase products from CTS for resale to customers.
In 1996, 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 1996, 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
switches, interconnect products, resistor networks and hybrid
microcircuits. 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 1996, working capital increased
significantly to $86.8 million, primarily because cash increased
and notes payable were paid off. During 1996, cash increased
primarily as a result of the higher level of earnings. 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, 1996. The cash, other than
approximately $4.8 million, is generally available to the parent
Company. During 1996, the other changes in working capital were
primarily a result of the higher business activity level.
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 1996,
license and royalty income was less than 1% of net sales. CTS
believes that the success of its business is not materially
dependent upon any licensing arrangement where CTS is either the
licensor or licensee.
MAJOR CUSTOMERS
CTS' 15 largest customers represented about 62%, 61% and 62% of net
sales in 1996, 1995 and 1994, respectively.
Of the net sales to unaffiliated customers, approximately $49.1
million, $54.9 million and $49.4 million were derived from sales to
a major manufacturer of automobiles in 1996, 1995 and 1994,
respectively. CTS is dependent upon this 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 components, 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 1996, the Company's backlog of orders was $85.5 million,
compared with $85.3 million at the end of 1995.
The backlog of orders at the end of 1996 will generally be filled
during the 1997 fiscal year.
GOVERNMENT CONTRACTS
CTS believes that about 7% 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, technology,
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 NON-U.S. AND DOMESTIC
OPERATIONS AND EXPORT SALES
Information about revenue from sales to unaffiliated customers,
operating earnings and identifiable assets, by geographic area, is
contained in "Note G - Business Segment and Non-U.S. Operations,"
page 22, of the CTS Corporation 1996 Annual Report, and is
incorporated herein by reference.
In 1996, approximately 40% of net sales to unaffiliated customers,
after eliminations, were attributable to non-U.S. operations. This
represents an increase from 35% of net sales attributable to non-U.S.
operations in 1995. About 33% 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 1996, 1995 and 1994, CTS expended $10.7, $8.0 and $6.2 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 1996, 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 3,815 persons during 1996. About 39% of
these persons were employed outside the United States at the end of
1996. Approximately 390 employees in the United States were
covered by collective bargaining agreements as of December 31,
1996. 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 Expires
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.
In 1994, the Company entered into a three-year lease of the
Bangkok, Thailand, property. In early 1997, this lease was
extended to March 31, 1999. The annual rental amount is
approximately U.S. $355,000.
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.
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 1996, 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 1996 Annual Report, incorporated herein by
reference. On March 7, 1997, there were approximately 977 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 is 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 1996 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 (1994-1996)," pages 25-27, of the CTS
Corporation 1996 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 1996 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 1996 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 1997 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 1997 Proxy Statement under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance," page 7,
filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
The individuals listed were elected as executive officers of CTS at
the annual meeting of the Board of Directors on April 26, 1996, and
are expected to serve as executive officers until the next annual
meeting of the Board of Directors, scheduled on April 25, 1997, at
which time the election of officers will be considered again by the
Board of Directors.
Name Age Position and Offices
Joseph P. Walker 58 Director, Chairman,
President and Chief
Executive Officer
Philip T. Christ 65 Group Vice President
Stanley J. Aris 56 Vice President Finance and
Chief Financial Officer
Jeannine M. Davis 48 Vice President, Secretary
and General Counsel
James L. Cummins 41 Vice President Human Resources
James N. Hufford 57 Vice President Research,
Development and Engineering
Donald R. Schroeder 48 Vice President Sales and
Marketing
George T. Newhart 54 Corporate Controller
Gary N. Hoipkemier 42 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.
Stanley J. Aris has served as Vice President Finance and Chief
Financial Officer since 1992. Prior to joining CTS, Mr. Aris
worked for two years as a business consultant.
Jeannine M. Davis has served as Vice President, Secretary and General
Counsel 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.
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 1997 Proxy Statement in
the captions "Executive Compensation," pages 8-9 and "Director
Compensation," pages 13-14, 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 1997 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, 1996.
CTS purchased products from DCA totaling $157,000 in 1996, $143,000
in 1995 and $233,000 in 1994, principally consisting of certain
component parts used by CTS in the manufacture of frequency control
devices. CTS had no sales to DCA in 1996, and minimal sales in
1995 and 1994.
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, Jeannine M. Davis, George T.
Newhart and 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, approved by
the shareholders at the annual meeting on April 26,
1996. The CTS Corporation 1996 Stock Option Plan
is contained in Exhibit 4 to Registration Statement
No. 333-5730, effective October 3, 1996, and is
incorporated herein by reference.
(10)(g) Prototype indemnification agreement, with Stanley
J. Aris, James L. Cummins, James N. Hufford and
Donald R. Schroeder, filed as exhibit (10)(g) to
the Company's Form 10-K for 1995.
(13) CTS Corporation 1996 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 1996 to Registration Statement 33-27749
on Form S-8 and Registration Statement 333-5730.
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. 33-27749 (filed March 23, 1989)and 333-5730 (filed
October 3, 1996):
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.
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 20, 1997 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 20, 1997 By /S/ Lawrence J. Ciancia
Lawrence J. Ciancia,
Director
Date March 20, 1997 By /S/ Patrick J. Dorme
Patrick J. Dorme,
Director
Date March 20, 1997 By /S/ Gerald H. Frieling, Jr.
Gerald H. Frieling, Jr.,
Director
Date March 20, 1997 By /S/ Andrew Lozyniak
Andrew Lozyniak,
Director
Date March 20, 1997 By /S/ Joseph P. Walker
Joseph P. Walker,
Director
Date March 20, 1997 By /S/ George T. Newhart
George T. Newhart,
Corporate Controller
and principal accounting
officer
Date March 20, 1997 By /S/ Jeannine M. Davis
Jeannine M. Davis,
Vice President, Secretary
and General Counsel
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, 1996
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, 1996, are incorpo-
rated by reference in Item 8:
Consolidated balance sheets - December 31, 1996, and
December 31, 1995
Consolidated statements of earnings - Years ended
December 31, 1996, December 31, 1995, and December 31, 1994
Consolidated statements of shareholders' equity - Years
ended December 31, 1996, December 31, 1995, and December 31, 1994
Consolidated statements of cash flows - Years ended
December 31, 1996, December 31, 1995, and December 31, 1994
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
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 January 27, 1997, appearing on page 24 of the
CTS Corporation 1996 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
January 27, 1997
S-2
<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(1) End of Period
Year ended December 31, 1996:
Allowance for
<S> <C> <C> <C> <C> <C>
doubtful receivables $774 $239 $ 0 $391 $622
Year ended December 31, 1995:
Allowance for
doubtful receivables $869 $ 1 $ 0 $ 96 $774
Year ended December 31, 1994:
Allowance for
doubtful receivables $709 $277 $ 0 $117 $869
(1) Uncollectible accounts written off.
</TABLE>
S-3
EXHIBIT 21
CTS CORPORATION AND SUBSIDIARIES
CTS Corporation (Registrant), an Indiana corporation
Subsidiaries
CTS Corporation (Delaware), 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 Electro de Matamoros, 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 corporation
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.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-27749 and No. 333-5730) of CTS Corporation
of our report dated January 27, 1997, appearing on page 24 of the CTS
Corporation 1996 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 20, 1997
FINANCIAL HIGHLIGHTS
(In thousands except per share data)
For the Year 1996 1995 1994
Net sales $321,297 $300,157 $268,707
Net earnings 21,170 17,164 13,967
Average common and common
equivalent shares outstanding 5,259 5,201 5,170
Per share data:
Net earnings $4.03 $3.30 $2.70
Dividends declared .69 .60 .45
Capital expenditures 17,210 11,181 13,401
At Year-End
Working capital $ 86,810 $ 75,151 $ 65,875
Notes payable 6,685 7,436
Long-term obligations (including
current maturities) 13,647 15,925 15,899
Shareholders' equity 166,232 146,253 131,855
Equity per outstanding share 31.82 28.03 25.46
SHAREHOLDER INFORMATION
(In thousands of dollars except per share data)
Quarterly Results of Operations
(Unaudited)
Net Gross Operating Net
Sales Earnings Earnings Earnings
1996
1st quarter $ 80,186 $19,799 $ 6,587 $ 4,414
2nd quarter 83,820 21,874 8,218 5,340
3rd quarter 76,457 20,726 7,847 5,060
4th quarter 80,834 25,097 10,768 6,356
$321,297 $87,496 $33,420 $21,170
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
Per Share Data
(Unaudited)
Dividends Net
High(a) Low(a) Declared Earnings
1996
1st quarter $38.63 $36.00 $.15 $.83
2nd quarter 47.00 37.38 .18 1.03
3rd quarter 47.00 40.50 .18 .96
4th quarter 43.00 38.13 .18 1.21
$.69 $4.03
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
(a) 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)
<CAPTION>
Year Ended
December 31 December 31 December 31
1996 1995 1994
<S> <C> <C> <C>
Net sales $321,297 $300,157 $268,707
Costs and expenses:
Cost of goods sold 233,801 225,353 205,640
Selling, general and administrative
expenses 43,333 39,312 36,175
Research and development expenses 10,743 8,004 6,208
Operating earnings 33,420 27,488 20,684
Other (expenses) income:
Interest expense (1,449) (1,790) (714)
Interest income 1,881 1,421 657
Other (250) 565 860
Total other income (expenses) 182 196 803
Earnings before income taxes 33,602 27,684 21,487
Income taxes--Note F 12,432 10,520 7,520
Net earnings $ 21,170 $ 17,164 $ 13,967
Net earnings per share $4.03 $3.30 $2.70
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 RetainedTranslation Compen- Treasury
Stock Earnings Adjustment sation Stock Total
<S> <C> <C> <C> <C> <C>
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
Net earnings 21,170 21,170
Cash dividends of $.69 per share (3,604) (3,604)
Nonemployee Directors' stock retirement plan 17 17
Cumulative translation adjustment 2,018 2,018
Issued 1,500 shares on restricted stock and
cash bonus plan 23 (70) 47
Issued 6,300 shares on exercise of stock options (51) 197 146
Acquired 73 shares traded on options--net 3 (3)
Stock compensation 27 100 127
Deferred compensation recognized 236 236
Acquired 3,200 shares for treasury stock (131) (131)
Balances at December 31, 1996 $34,140 $144,112 $1,373 $(600) $(12,793)$166,232
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS December 31 December 31
(In thousands of dollars) 1996 1995
ASSETS
Current Assets
Cash and equivalents $ 44,957 $ 37,271
Accounts receivable, less allowances
(1996--$622; 1995--$774) 43,984 41,737
Inventories
Finished goods 8,504 7,445
Work-in-process 17,138 14,789
Raw materials 13,119 16,651
Total inventories 38,761 38,885
Other current assets 3,787 2,544
Deferred income taxes--Note F 6,712 5,676
Total current assets 138,201 126,113
Property, Plant and Equipment
Buildings and land 42,800 42,547
Machinery and equipment 146,589 139,594
Total property, plant and equipment 189,389 182,141
Less accumulated depreciation 133,286 131,445
Net property, plant and equipment 56,103 50,696
Other Assets
Goodwill, less accumulated amortization
(1996--$8,361; 1995--$7,687) 4,039 4,603
Prepaid pension expense--Note E 50,152 44,739
Other 877 976
Total other assets 55,068 50,318
Total Assets $249,372 $227,127
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable--Note B $ 6,685
Current maturities of long-term obligations--Note C $ 2,427 2,211
Accounts payable 17,146 15,605
Accrued salaries, wages and vacation 6,836 6,695
Accrued taxes other than income 2,070 1,740
Income taxes payable 5,946 3,991
Other accrued liabilities--Note H 16,966 14,035
Total current liabilities 51,391 50,962
Long-term Obligations--Note C 11,220 13,714
Deferred Income Taxes--Note F 16,146 11,909
Postretirement Benefits--Note E 4,383 4,289
Contingencies--Note H
Shareholders' Equity
Common stock-authorized 8,000,000 shares without
par value; issued 5,807,031 shares 33,540 33,355
Retained earnings 144,112 126,546
Cumulative translation adjustment 1,373 (645)
179,025 159,256
Less cost of common stock held in treasury
(1996-- 582,075 shares; 1995--589,702 shares) 12,793 13,003
Total shareholders' equity 166,232 146,253
Total Liabilities and Shareholders' Equity $249,372 $227,127
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<CAPTION>
Year Ended
December 31 December 31 December 31
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $21,170 $17,164 $13,967
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 12,491 11,683 11,236
Deferred income taxes 3,201 3,239 2,519
Other (160) (52) (421)
Changes in assets and liabilities:
Accounts receivable (2,247) (6,708) (4,402)
Inventories 124 2,571 (3,297)
Prepaid pension asset (5,413) (5,331) (6,563)
Accounts payable and accrued
liabilities 4,943 4,280 (38)
Income taxes payable 1,955 1,703 882
Other (961) (1,688) (1,328)
Total adjustments 13,933 9,697 (1,412)
Net cash provided by operating
activities 35,103 26,861 12,555
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 822 236 411
Capital expenditures (17,210) (11,181) (10,000)
Payment for purchase of business acquisitions (5,501)
Net cash used in investing
activities (16,388) (10,945) (15,090)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 15,000
Payments of long-term obligations (2,208) (286) (4,479)
Decrease in notes payable (6,685) (751) (6,050)
Proceeds from stock options exercised 146 359 176
Dividends paid (3,446) (3,118) (2,067)
Purchases of treasury stock (131)
Net cash (used in) provided by
financing activities (12,324) (3,796) 2,580
Effect of exchange rate changes on cash 1,295 229 1,343
Net increase in cash 7,686 12,349 1,388
Cash and equivalents at beginning of year 37,271 24,922 23,534
Cash and equivalents at end of year $44,957 $37,271 $24,922
Supplemental cash flow information
Cash paid during the year for:
Interest $1,467 $ 1,791 $ 658
Income taxes - net 7,276 5,590 4,009
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 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 relate
primarily to depreciation differences, pension income,
postemployment benefits, certain nondeductible accruals and
inventory reserves.
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 earnings. The
assets and liabilities of the Company's United Kingdom subsidiary
are translated into U.S. dollars principally at the current
exchange rate at period end, with resulting translation adjust-
ments 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, 1996, and 1995 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, 1996, 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, computer equipment,
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.
Stock-Based Compensation: FASB Statement No. 123, "Accounting for
Stock-Based Compensation" encourages, but does not require,
companies to record compensation cost for stock-based compensation
at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related
Interpretation. See Note D for the required pro forma net income
and earnings per share disclosures required by FASB Statement No.
123.
Earnings Per Share: Earnings per common share are based on the
weighted average number of common and common equivalent 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 - Short-term Borrowings
The Company has no outstanding short-term borrowings at December
31, 1996. At December 31, 1995, short-term borrowings consisted
of demand notes payable to various banks, with an average
interest rate of 6.6%. The Company has unsecured lines of credit
arrangements which totaled $15,855,000 at December 31, 1996.
These arrangements are generally subject to annual renewal and
renegotiation, and may be withdrawn at the banks' option.
Average daily short-term borrowings over the year, including
borrowings denominated in non-U.S. currencies, during 1996, 1995
and 1994 were $2,308,000, $6,781,000 and $11,776,000,
respectively. The weighted average interest rates, computed by
relating interest expense to average daily short-term borrowings,
were 6.1% in 1996, 6.5% in 1995 and 5.5% in 1994.
The maximum amount of short-term borrowings at the end of any
month during 1996, 1995 and 1994 was $8,055,000, $8,440,000 and
$12,977,000, respectively. The short-term borrowings outstanding
at December 31, 1994, were $7,436,000.
NOTE C - Long-term Obligations
Long-term obligations were comprised of the following:
(In thousands)
1996 1995
Long-term debt:
Term loan at 8.4%, due in annual
installments through 1999. $13,000 $15,000
Other 647 608
13,647 15,608
Less current maturities 2,427 2,211
Total long-term debt 11,220 13,397
Other 317
Total long-term obligations $11,220 $13,714
The Company has a $13,000,000 term loan with four banks, of which
$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
$45,000,000 with four banks, which expire in 2001. Interest rates
on these borrowings fluctuate based upon market rates. The
Company pays a commitment fee that varies based on performance
under certain financial covenants applicable to the revolving
credit agreements. Currently, that fee is .15 percent per annum.
The credit agreements and term loan require, among other things,
that the Company maintain certain tangible net worth, interest
coverage requirements and a specified total liabilities to
tangible net worth ratio.
Annual maturities of long-term obligations during the three years
subsequent to 1997 are as follows: 1998--$2,220,000; 1999--$9,000,000;
2000--$0.
NOTE D - Stock Plans
At December 31, 1996, the Company has four stock-based
compensation plans, which are described below. The Company
applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option
plans while compensation expense has been recognized for its
compensatory plans. Had compensation cost for the Company's two
fixed stock-based compensation plans been determined based on the
fair value based method, as defined in FASB Statement No. 123, the
Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
(In thousands, except per share amounts)
1996 1995
Net earnings As reported $21,170 $17,164
Pro forma $20,936 $17,141
Net earnings per share As reported $4.03 $3.30
Pro forma $3.99 $3.30
The effects of applying FASB Statement No. 123 in the above pro
forma disclosures are not indicative of future amounts as they do
not include the effects of awards granted prior to 1995, some of
which would have had income statement effects in 1995 and 1996 due
to the five-year vesting period associated with the fixed stock
option awards.
The Company's two fixed stock option plans, approved by the
shareholders, provide for grants of incentive stock options or
nonqualified stock options to officers and key employees. Under
the 1986 Stock Option Plan which expired in 1995, the Company
could grant options to its officers and key employees for up to
300,000 shares of common stock. Of the 300,000 shares,
approximately 100,000 shares were granted. Under the 1996 Stock
Option Plan, the Company may grant options to its officers and key
employees for up to 200,000 shares of common stock.
Under the 1996 Stock Option Plan, 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.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1995:
dividend yield of 1.63%; expected volatility of 19.93%, risk-free
interest rate of 5.62%; and expected life of 4.3 years. There
were no grants in 1996.
A summary of the status of the Company's two fixed stock option
plans as of December 31, 1996, 1995 and 1994, and changes during
the years ending on those dates, is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
-Average -Average -Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
Outstanding at begin-
<S> <C> <C> <C> <C> <C> <C>
ning of year 152,925 $31.82 86,000 $23.15 44,650 $20.13
Granted 94,050 36.89 57,000 24.75
Exercised (6,300) 23.56 (17,325) 21.05 (8,650) 20.44
Expired or canceled (9,100) 33.47 (9,800) 23.39 (7,000) 20.30
Outstanding at end
of year 137,525 $32.09 152,925 $31.82 86,000 $23.15
Options exercisable
at year-end 51,425 19,225 22,150
Weighted-average fair
value of options
granted during the
year $ 8.26
</TABLE>
The following table summarizes information about fixed stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life (Years) Price at 12/31/96 Price
$19.125--
<C> <C> <C> <C> <C> <C>
24.750 53,475 2.37 $24.07 29,925 $23.81
$31.250--
37.375 84,050 3.94 $37.19 21,500 $37.18
</TABLE>
Under the 1986 Stock Option Plan, options to purchase a total of
55,975 shares were outstanding as of December 31, 1996. At
December 31, 1996, 30,625 of these shares were exercisable.
During 1996, the shareholders of the Company approved the 1996
Stock Option Plan, under which a maximum of 200,000 shares of
common stock were reserved for issuance to certain officers and
key employees. Under the 1996 Stock Option Plan, options to
purchase a total of 81,550 shares were outstanding as of December
31, 1996. At December 31, 1996, 20,800 of these shares were
exercisable.
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 sold or awarded are subject to restrictions
against transfer and repurchase rights of the Company. In
general, restrictions lapse at the rate of 20% per year beginning
one year from the award or sale. In addition, the Plan provides
for a cash bonus to the participant equal to the fair market value
of the shares on the dates restrictions lapse, in the case of an
award, or the excess of the fair market value over the original
purchase price if the shares were purchased. The total bonus paid
to any participant during the restricted period is limited to
twice the fair market value of the shares on the date of award or
sale.
Under the Plan, during 1996, 1,500 shares were awarded leaving
343,900 shares available for award or sale at December 31, 1996.
Under the Plan, in 1995 and 1994, 18,500 and 15,500 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 $408,000,
$306,000, and $212,000 for additional compensation payable under
the provisions of the Plan in 1996, 1995 and 1994, 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 $17,100, $15,100 and $11,100 in 1996, 1995
and 1994, respectively.
NOTE E - Employee Retirement Plans
Defined benefit plans
The Company has a number of noncontributory defined benefit
pension plans (Plans) covering approximately 46% 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 1996, 1995 and 1994 includes
the following components:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
Service cost--benefits earned
<S> <C> <C> <C>
during the year $ 2,787 $ 2,216 $ 2,374
Interest cost on projected
benefit obligation 5,430 5,330 4,769
Actual (return) loss on plan
assets (20,982) (23,252) 2,565
Net amortization and deferral 7,352 10,375 (16,271)
Net pension income $(5,413) $(5,331) $(6,563)
</TABLE>
The following table details the funded status of the Plans at
December 31, 1996, and December 31, 1995:
(In thousands)
1996 1995
Actuarial present value of benefit obligations:
Vested benefits $ 68,570 $ 66,736
Nonvested benefits 2,598 2,960
Accumulated benefit obligation $ 71,168 $ 69,696
Plan assets at fair value $151,841 $134,595
Projected benefit obligation 78,046 77,138
Plan assets in excess of the projected
benefit obligation 73,795 57,457
Unrecognized prior year service cost 397 154
Unrecognized net (gain) loss (15,146) (1,935)
Unrecognized net asset (8,894) (10,937)
Prepaid pension expense $50,152 $ 44,739
Assumptions used in determining net pension income and the funded
status of U.S. defined benefit pension plans were as follows:
1996 1995 1994
Discount rates (funded status) 7.75% 7.25% 8.25%
Rates of increase in compensation levels
(salaried plan only) 5%-7% 5%-7% 5%-7%
Expected long-term rate of return on assets 9.75% 9.00% 9.00%
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, 1996, measurement date, the discount rate was
increased to 7.75% to reflect current market conditions. This
change had no impact on 1996 pension income, but will increase
1997 pension income by $562,000. Effective with the December 31,
1995, measurement date, the discount rate was reduced to 7.25% to
reflect market conditions. This change had no impact on 1995
pension income, but reduced 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 $8.5 million in
CTS common stock. The balance is invested in corporate bonds,
U.S. government backed mortgage securities and bonds, asset
backed securities, a private equity fund, non-U.S. corporate
bonds and convertible issues.
Because the domestic plans are fully funded, the Company made no
contributions during 1996, 1995 or 1994. Benefits paid by all
Plans during 1996, 1995 and 1994 were $4,240,000, $4,085,000 and
$4,175,000, respectively.
Pension coverage for employees of certain non-U.S. subsidiaries
is provided through separate plans. Contributions of $167,000,
$237,000 and $172,000 were made to the non-U.S. Plans in 1996,
1995 and 1994, 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
$2,382,000 in 1996, $2,294,000 in 1995 and $2,506,000 in 1994.
Postretirement life insurance plans
In addition to providing pension benefits, the Company provides
certain life insurance programs for retired employees.
Substantially all of the Company's domestic employees are
eligible for life insurance benefits.
Summary information on the Company's plans as of December 31,
1996, and December 31, 1995, is as follows:
(In thousands)
1996 1995
Accumulated postretirement benefit obligation:
Active employees $(1,298) $(1,282)
Retirees and dependents (2,698) (2,912)
(3,996) (4,194)
Unrecognized net gain (574) (345)
Postretirement benefit obligation $(4,570) $(4,539)
The components of net periodic postretirement benefit expense for
1996, 1995 and 1994 are as follows:
(In thousands)
1996 1995 1994
Service cost--benefits earned
during the year $ 34 $ 28 $ 43
Interest cost on accumulated
benefit obligation 295 330 511
Net amortization and deferral (1,008)
Net expense (income) $329 $ (650) $554
The accumulated postretirement benefit obligation was determined
using relevant actuarial assumptions and the terms of the
Company's life insurance plans. For measurement purposes, a
7.75%, 7.25% and 8.25% annual discount rate was used to determine
the remaining life obligation for 1996, 1995 and 1994,
respectively.
The Company funds life insurance benefits through term life
insurance policies. The Company plans to continue funding
premiums on a pay-as-you-go basis.
NOTE F - Income Taxes
The components of earnings before income taxes are as follows:
(In thousands)
1996 1995 1994
Domestic $16,381 $17,563 $15,391
Non-U.S. 17,221 10,121 6,096
Total $33,602 $27,684 $21,487
The provision for income taxes consists of the following:
(In thousands)
1996 1995 1994
Current:
Federal $3,105 $1,935 $1,998
State 1,012 963 604
Non-U.S. 5,114 4,383 2,367
Total current 9,231 7,281 4,969
Deferred:
Federal 2,761 2,534 1,268
State 313 578 400
Non-U.S. 127 127 883
Total deferred 3,201 3,239 2,551
Total provision for income taxes $12,432 $10,520 $7,520
Significant components of the Company's deferred tax liabilities
and assets at December 31, 1996, and 1995, are:
(In thousands)
1996 1995
Depreciation $ 1,460 $ 1,063
Pensions 17,683 15,767
Other 3,185 2,282
Gross deferred tax liabilities 22,328 19,112
Postemployment benefits 1,622 1,611
Inventory reserves 2,721 2,613
Loss carryforwards 5,778 5,847
Credit carryforwards 4,355 5,537
Nondeductible accruals 4,365 3,200
Other 818 710
Gross deferred tax assets 19,659 19,518
Net deferred tax (liabilities) assets (2,669) 406
Deferred tax asset valuation allowance (6,765) (6,639)
Total $(9,434) $(6,233)
During 1996, 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 increase in the valuation allowance was
$126,000.
A reconciliation from the statutory federal income tax to the
Company's effective income tax follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
<S> <C> <C> <C>
Taxes at the U.S. statutory rate $11,761 $ 9,689 $7,306
State income taxes, net of federal
income tax benefit 861 1,002 663
Non-U.S. income taxed at rates
different than the U.S. statutory rate (728) 1,159 1,639
Utilization of net operating loss
carryforwards and benefit of scheduled
tax credits (279) (2,024) (2,544)
Foreign distributions, net of foreign
tax credits 297 372
Other 520 322 456
Provision for income taxes $12,432 $10,520 $7,520
</TABLE>
Undistributed earnings of certain non-U.S. subsidiaries amount to
$52,892,000 at December 31, 1996. These earnings are intended to
be permanently invested and, accordingly, no provision has been
made for non-U.S. withholding taxes. In the event all
undistributed earnings were remitted, approximately $4,795,000 of
withholding tax would be imposed, which would be substantially
offset by foreign tax credits.
The Company has U.S. tax basis business tax credits and foreign
tax credits of approximately $1,624,000 at December 31, 1996.
The U.S. business credit carryforwards expire between the years
2001 and 2010. In addition, the Company has various non-U.S. tax
basis net operating losses and business credit carryforwards of
$20,937,000 and $70,000, respectively. The non-U.S. net
operating losses have an unlimited carryforward period. The non-U.S.
credit carryforwards expire in 1997. In addition, the
Company has alternative minimum tax credit carryforwards of
approximately $2,661,000, which have no expiration dates.
NOTE G - 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 automotive control devices, fiber-optic
transceivers, flex cable assemblies, frequency control
devices, hybrid microcircuits, industrial electronics, insulated
metal circuits, interconnect products, loudspeakers, resistor
networks, switches and variable resistors.
Sales to a major automotive manufacturer were $49,100,000 in
1996, $54,900,000 in 1995 and $49,400,000 in 1994.
The non-U.S. operations or facilities are located in Canada, Hong
Kong, Japan, Mexico, Singapore, Taiwan, Thailand and the United
Kingdom. Net sales to unaffiliated customers from the United
Kingdom equaled 24%, 17% and 16% of the consolidated total for
1996, 1995 and 1994, respectively. Net sales to unaffiliated
customers from Other non-U.S. operations in the aggregate equaled
16%, 19% and 18% of the consolidated total for each of the years
1996, 1995 and 1994, respectively.
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 are total net
sales less operating expenses. In computing operating earnings,
none of the following items have been added or deducted: general
corporate expenses, interest income, 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 cash and equivalents and the prepaid pension asset.
Summarized financial information concerning the geographic areas
of operation for 1996, 1995 and 1994 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.
Geographic Area (In thousands)
1996 1995 1994
Net Sales
United States:
Sales to unaffiliated customers $193,474 $194,016 $178,032
Transfers to non-U.S. area 8,181 5,439 4,179
201,655 199,455 182,211
United Kingdom:
Sales to unaffiliated customers 76,204 49,571 42,779
Transfers to other areas 730 732 514
76,934 50,303 43,293
Other non-U.S.:
Sales to unaffiliated customers 51,619 56,570 47,896
Transfers to other areas 7,400 6,092 7,692
59,019 62,662 55,588
Eliminations (16,311) (12,263) (12,385)
Total net sales $321,297 $300,157 $268,707
Operating Earnings
United States $23,226 $ 22,204 $ 18,109
United Kingdom 10,192 6,483 4,569
Other non-U.S. 9,141 6,345 3,708
42,559 35,032 26,386
Eliminations (72) 140 1
42,487 35,172 26,387
General corporate expenses 9,067 7,684 5,703
Operating earnings 33,420 27,488 20,684
Other income--net 182 196 803
Earnings before income taxes $33,602 $ 27,684 $ 21,487
Assets Apportioned by Area
United States $88,189 $ 87,862 $ 86,605
United Kingdom 36,037 24,718 23,419
Other non-U.S. 47,689 49,848 43,272
171,915 162,428 153,296
Eliminations (4,672) (3,783) (3,305)
167,243 158,645 149,991
Corporate assets 82,129 68,482 56,835
Total assets $249,372 $227,127 $206,826
NOTE H - 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, 1996, totaled $4.8
million, compared with $4.5 million at December 31, 1995. 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 I - 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,
1996. Of these shares, 1,020,000 were not granted voting
authority by CTS shareholders in 1987. In addition to stock
ownership, as of December 31, 1996, two representatives of DCA
serve on the Company's Board of Directors. The normal business
transactions between the Company and DCA are insignificant.
REPORT OF INDEPENDENT ACCOUNTANTS
To the 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, 1996, and 1995, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1996, 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.
/S/PRICE WATERHOUSE LLP
South Bend, Indiana
January 27, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (1994 - 1996)
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
1996 1995 1994
Net cash provided by (used in):
Operating activities $ 35,103 $ 26,861 $ 12,555
Investing activities (16,388) (10,945) (15,090)
Financing activities (12,324) (3,796) 2,580
Cash and equivalents $ 44,957 $ 37,271 $ 24,922
Accounts receivable, net 43,984 41,737 35,029
Inventories, net 38,761 38,885 41,456
Current assets 138,201 126,113 110,667
Notes payable 6,685 7,436
Accounts payable 17,146 15,605 12,768
Accrued liabilities 31,818 26,461 24,284
Current liabilities 51,391 50,962 44,792
Working capital 86,810 75,151 65,875
Current ratio 2.69 2.47 2.47
Interest-bearing debt $ 13,428 $ 22,267 $ 23,318
Net tangible worth 162,193 141,650 126,634
Ratio of interest-bearing debt
to net tangible worth .08 .16 .18
During 1996, $35.1 million of positive cash flow was generated from
operating activities. This amount, which exceeded 1995 by 31%, or
$8.2 million, was primarily a result of the higher level of
earnings and improved management of working capital, particularly
accounts receivable.
The 1995 cash flow from operating activities of $26.9 million
improved 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.
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.
Cash expenditures for investing activities totaled $16.4 million in
1996, exceeding the prior year's amount by $5.4 million, or 50%.
The major change in financing activities was cash payments of $8.9
million for short and long-term debt. As of year-end, the Company
had no short-term debt.
Spending of cash for investing activities in 1995 was $10.9 million
and comparable to 1994 after the impact of the 1994 expenditures
for the light emitting diode (LED)-based fiber-optic data link
(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.
Investing requirements increased during 1994, 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.
A significant noncash component and a decreasing component of
operating earnings during the 1994 to 1996 period was pension
income of $5.4 million, $5.3 million and $6.6 million in 1996, 1995
and 1994, respectively. The 1996 pension income amount was
approximately the same as 1995, but decreased from 1994 as a result
of actuarial changes. As a result of the Company's overfunded
pension position, no overall cash contributions are anticipated to
be required in the immediate future to meet the Company's pension
obligations.
The major investment activity during the last three years has been
capital expenditures, which totaled $17.2 million in 1996, $11.2
million in 1995 and $13.4 million in 1994. The major capital
expenditures in 1996 were for new products and product line
enhancements. Also during 1996, as in 1995, capacity increases
were required in our automotive and European interconnect product
lines. The Company expects to increase its capital expenditures in
1997 over 1996 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 long-term financing activity outside the CTS
revolving credit agreements occurred during 1994, when the Company
negotiated a five-year, $15.0 million long-term loan which expires
in 1999. As of December 31, 1996, $13.0 million remains
outstanding on this loan.
Dividends paid were $3.4 million in 1996, $3.1 million in 1995 and
$2.1 million in 1994. During 1996, as a result of continuing
improved earnings performance and positive cash flow, the Company
increased its quarterly dividend to $.18 per share, effective with
the August payment. 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
$4.8 million of withholding taxes would accrue, but would be
substantially offset by foreign tax credits.
In 1996, CTS renegotiated its long-term revolving credit agreement
and at the end of 1996, CTS had $45.0 million of borrowing capacity
available under long-term revolving credit agreements with four
banks. These revolving agreements, which expire in 2001, are the
Company's primary credit vehicles 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
1996 1995 1994
Net sales $321,297 $300,157 $268,707
Gross earnings 87,496 74,804 63,067
Gross earnings as a percent
of sales 27.2% 24.9% 23.5%
Selling, general and
administrative expenses $ 43,333 $ 39,312 $ 36,175
Selling, general and
administrative expenses
as a percent of sales 13.5% 13.1% 13.5%
Research and development
expenses $ 10,743 $ 8,004 $ 6,208
Research and development
expenses as a percent of
sales 3.3% 2.7% 2.3%
Operating earnings $ 33,420 $ 27,488 $ 20,684
Operating earnings as a
percent of sales 10.4% 9.1% 7.7%
Interest (income) expense, net $ (432) $ 369 $ 57
Earnings before income taxes 33,602 27,684 21,487
Income taxes 12,432 10,520 7,520
Income tax rate 37.0% 38.0% 35.0%
Net sales for 1996 increased by $21.1 million, or 7.0% over 1995,
principally due to the increased demand in the domestic and
European automotive, computer equipment and communications
equipment markets.
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, computer equipment and communications
equipment markets.
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 1994-1996, the percentage of overall
sales to the automotive market decreased from 38% to 34%. During
this same period, our sales into the computer equipment market
increased from 19% to 24%, as a percent of total sales. Sales into
other markets have generally remained constant.
The Company's 15 largest customers represented 62% of net sales in
1996, 61% in 1995 and 62% in 1994. One customer, a major
manufacturer of automobiles, comprised 15% of net sales in 1996 as
compared to 18% in 1995 and 1994.
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 1996, 1995 and 1994, improvements in gross earnings were
realized over each of the preceding years in absolute terms and as
a percent of sales, principally due to higher sales volume,
production efficiencies and higher absorption of fixed
manufacturing overhead expenses.
Selling, general and administrative expenses as a percent of sales
have remained constant over the last three years, ranging from
13.1% to 13.5%. In 1996, as in previous years, 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.
During 1996, research and development expenses increased by $2.7
million, or 34% over 1995, as the Company continued investment
efforts in new product development and product improvements,
particularly in automotive, frequency control and hybrid
microcircuit products. 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 1994-1996 period. The lower amount
of expense in 1994 relates to the timing of the $15.0 million loan
secured in late 1994, while the 1996 income amount is a result of
lower levels of short-term debt compared to 1995.
During 1996 and 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 from our
frequency control products. These improvements substantially
offset losses from our defense and aerospace products, caused
primarily by the declining market conditions. In 1994, the level
of operating earnings was a result of the higher automotive and
interconnect product sales, and improved performance within our
resistor network and electromechanical products, which more than
offset losses from our frequency control and hybrid microcircuit
products during that year.
The 1996 effective tax rate of 37% approximated the 1995 tax rate
of 38%. The Company has net operating loss carryforwards of
approximately $21 million in certain non-U.S. subsidiaries, and has
established a 100% valuation reserve on these amounts based upon
historical pretax losses.
With respect to the recently issued FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and FASB Statement No. 123,
"Accounting for Stock-Based Compensation," the Company has realized
no 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 H - Contingencies.
<TABLE>
FIVE-YEAR SUMMARY
(In thousands of dollars except per share data)
<CAPTION>
% of % of % of % of % of
1996 Sales 1995 Sales 1994 Sales 1993 Sales 1992 Sales
Summary of Operations
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $321,297 100.0 $300,157 100.0 $268,707 100.0 $236,979 100.0 $227,391 100.0
Cost of goods sold 233,801 72.8 225,353 75.1 205,640 76.5 183,927 77.6 180,198 79.2
Selling, general and admin-
istrative expenses 43,333 13.5 39,312 13.1 36,175 13.5 36,323 15.3 37,855 16.6
Research and development
expenses 10,743 3.3 8,004 2.7 6,208 2.3 5,708 2.4 6,092 2.7
(Gain) on sale of property
and other related provisions (852) (0.3)
Operating earnings 33,420 10.4 27,488 9.1 20,684 7.7 11,021 4.7 4,098 1.8
Other income (expenses)--net 182 0.1 196 0.1 803 0.3 (761) (0.4) (277) (0.1)
Earnings before income taxes
and cumulative effect of
changes in accounting
principles 33,602 10.5 27,684 9.2 21,487 8.0 10,260 4.3 3,821 1.7
Income taxes 12,432 3.9 10,520 3.5 7,520 2.8 3,690 1.6 1,920 0.9
Net earnings--before
accounting changes 21,170 6.6 17,164 5.7 13,967 5.2 6,570 2.7 1,901 0.8
Cumulative effect on prior
years of accounting
changes (a) (4,614) (1.9)
Net earnings 21,170 6.6 17,164 5.7 13,967 5.2 1,956 0.8 1,901 0.8
Retained earnings--beginning
of year 126,546 112,506 100,868 100,973 102,482
Dividends declared (3,604) (3,124) (2,329) (2,061) (3,410)
Retained earnings--end of
year $144,112 $126,546 $112,506 $100,868 $100,973
Average common and common
equivalent shares
outstanding 5,259,284 5,200,818 5,170,406 5,152,556 5,141,936
Net earnings per share:
Before accounting changes $4.03 $3.30 $2.70 $1.27 $0.37
Cumulative effect on prior
years of accounting
changes (a) (0.89)
Net earnings $4.03 $3.30 $2.70 $0.38 $0.37
Cash dividends per share $0.69 $0.60 $0.45 $0.40 $0.6625
Capital expenditures 17,210 11,181 13,401 11,696 8,831
Depreciation and amortization 12,491 11,683 11,236 12,143 11,665
Financial Position at Year-End
Current assets $138,201 $126,113 $110,667 $97,266 $87,376
Current liabilities 51,391 50,962 44,792 49,888 37,262
Current ratio 2.7 to 1 2.5 to 1 2.5 to 1 1.9 to 1 2.3 to 1
Working capital $86,810 $75,151 $65,875 $47,378 $50,114
Inventories 38,761 38,885 41,456 36,059 37,222
Property, plant and equipment--
net 56,103 50,696 50,777 47,842 48,529
Total assets 249,372 227,127 206,826 185,064 170,773
Short-term notes payable 6,685 7,436 12,822 5,827
Long-term obligations 11,220 13,714 15,595 4,995 10,826
Shareholders' equity 166,232 146,253 131,855 119,203 119,372
Common shares outstanding 5,224,956 5,217,329 5,178,604 5,153,424 5,150,824
Equity (book value) per share $31.82 $28.03 $25.46 $23.13 $23.18
Other Data
Stock price range (dollars
per share to the
nearest 1/8) $47.00-$36.00 $37.75-$27.38 $31.00-$19.50 $22.38-$17.00 $24.50-$17.13
Average number of employees 3,815 4,007 4,056 3,975 4,335
Number of shareholders at
year-end 986 1,062 1,136 1,198 1,278
(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 25, 1997
To CTS Shareholders:
The Annual Meeting of Shareholders of CTS Corporation will be
held at 9:00 a.m. Eastern Standard Time, Friday, April 25, 1997, 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 transact other business properly presented at
the meeting.
Only shareholders of record at the close of business on
March 7, 1997 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, 1996.
By Order of the Board of Directors,
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 17, 1997
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 25, 1997. 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 17, 1997.
The Corporation had outstanding 5,226,496 shares of Common
Stock as of the close of business on March 7, 1997, 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.
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 7, 1997. 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 7, 1997 (1) of Class
Dynamics Corporation of America 2,303,100 (2) 44.07
475 Steamboat Road
Greenwich, CT 06830
The Gabelli Group, Inc. 1,212,100 (3) 23.19
GAMCO Investors, Inc.,
and Gabelli Funds, Inc.
655 Third Avenue
New York, NY 10017
Gerald H. Frieling, Jr. 200,150 (4) 3.83
Lawrence J. Ciancia 199,650 (4) 3.82
Patrick J. Dorme 199,150 (4, 10) 3.81
Andrew Lozyniak 199,150 (4, 10) 3.81
Joseph P. Walker 26,712 (5) *
Philip T. Christ 19,285 (6) *
Stanley J. Aris 11,114 (7) *
Donald R. Schroeder 10,341 (8) *
James N. Hufford 4,515 (9) *
13 directors and officers 295,316 (4, 11) 5.65
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 215,500 shares held by Gabelli Funds, Inc., and 996,600
shares held by GAMCO Investors, Inc., which were reported on a
joint Schedule 13D filed March 6, 1996, the most recent filing by
such Reporting Persons. 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 173,000 of the reported shares, and
except that Gabelli Funds, Inc. has sole dispositive and voting
power with respect to the 215,500 reported shares held by the
Funds, so long as the aggregate voting interest of all joint filers
does not exceed 25% of the issuer's total voting interest and, in
that event, the respective Proxy Voting Committee of each fund
(other than The Gabelli Growth Fund) will vote the shares held by
that Fund; except that, 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 13 directors and
officers as a group are the same shares, which shares are held by
The Northern Trust Company 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 Compensation
Committee are Lawrence J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr., and Andrew Lozyniak, who were appointed by the Board
of Directors of CTS Corporation.
(5) Includes 4,012 shares attributed to Joseph P. Walker's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, 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. Also includes 2,500 shares subject to
options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(6) Includes 1,685 shares attributed to Philip T. Christ's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, 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 6,600 shares subject to
options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(7) Includes 314 shares attributed to Stanley J. Aris' account in the
CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, 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 5,800 shares subject to
options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(8) Includes 6,341 shares attributed to Donald R. Schroeder's account
in the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Schroeder's account may not
reflect shares that have accrued to his account since the filing of
the Plan's last annual report. Also includes 2,000 shares subject
to options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(9) Includes 1,015 shares attributed to James N. Hufford's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Hufford's account may not
reflect shares that have accrued to his account since the filing of
the Plan's last annual report. Also includes 2,100 shares subject
to options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter. Also includes 400 shares held in
a trust for his spouse, of which he disclaims beneficial ownership.
(10) Messrs. Dorme and Lozyniak are directors of Dynamics Corporation
of America.
(11) Includes 29,400 shares subject to options exercisable on March 7,
1997, 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
Vice 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 66, served
as Chairman of the Board and Chief Executive
Officer of Tokheim Corporation, and in his present
capacity at 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 65,
has served in his present capacities at Dynamics
Corporation of America. Mr. Lozyniak serves as a
director of Dynamics Corporation of America and
Physicians Health Services, Inc.
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 58, has served
in his present capacities at CTS. Mr. Walker is a
director of NBD Bank, N.A.
LAWRENCE J. CIANCIA 1990
Vice President, Growth and Development, of Uponor
U.S., Inc. (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 54, has served as President, Chief
Executive Officer and Chief Operating Officer of
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 61, 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.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 1996, 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 1996, the Board of Directors held six meetings. The
standing committees of the Board of Directors include an Audit
Committee, an Executive Committee and a Compensation Committee.
The Audit Committee, consisting of Lawrence J. Ciancia,
Patrick J. Dorme, Gerald H. Frieling, Jr. and Andrew Lozyniak, held
two meetings in 1996. 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 five meetings in
1996. 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 1996. 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 1996 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 1996.
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 1996
exceeded $100,000. Information which is not required to be
disclosed in the table is identified by the letters "N/R."
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Restricted Securities
Name and Stock Underlying All Other
Principal Salary Bonus(1) Other(2) Award(s)(3) Options Compensation(4)
Position Year ($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph P. Walker (5, 6) 1996 342,167 205,300 N/R 0 0 6,007
Chairman of the 1995 327,411 196,400 N/R 0 10,000 11,270
Board, President and 1994 311,878 147,200 N/R 231,250 0 8,496
Chief Executive Officer
Philip T. Christ (6) 1996 203,903 122,400 N/R 0 0 11,363
Group Vice 1995 178,775 107,300 N/R 231,000 8,000 7,677
President 1994 168,301 90,200 N/R 0 5,000 7,326
Stanley J. Aris (6) 1996 174,309 104,600 N/R 0 0 3,375
Vice President 1995 168,078 100,800 N/R 37,375 8,500 5,994
Finance and Chief 1994 160,105 75,600 N/R 57,813 3,000 4,991
Financial Officer
Donald R. Schroeder (6) 1996 126,692 76,000 N/R 0 0 4,464
Vice President, Sales 1995 119,481 71,700 N/R 0 5,500 39,428
and Marketing 1994 N/R N/R N/R N/R N/R N/R
James N. Hufford (6) 1996 122,464 73,500 N/R 0 0 3,978
Vice President 1995 115,126 69,100 N/R 37,375 5,750 4,520
Research Development 1994 N/R N/R N/R N/R N/R N/R
and Engineering
(1) Includes bonuses paid pursuant to the CTS Corporation Management
Incentive Plan, as described in the Report of the Compensation
Committee below.
(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 1996, Joseph P. Walker held 6,000
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, 1996 was $256,500. At the time that such restrictions
lapse, a cash bonus is paid in an amount equal to the market value
of the shares on the date the restriction lapses. For Joseph P.
Walker, the cash payments made pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan for the three identified years
were: 1996 - $75,000; 1995 - $62,000; and 1994 - $49,250.
At the end of fiscal year 1996, Philip T. Christ held 6,000
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, 1996 was $256,500. 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: 1996 -
$69,375; 1995 - $24,200; and 1994 - $19,150.
At the end of fiscal year 1996, Stanley J. Aris held 2,300
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, 1996 was $98,325. 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: 1996 -
$26,925; 1995 - $15,500; and 1994 - $0.
At the end of fiscal year 1996, Donald R. Schroeder held 600
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on
December 31, 1996 was $25,650. For Donald R. Schroeder, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1996 -
$8,175; 1995 - $7,425 and 1994 - N/R.
At the end of fiscal year 1996, James N. Hufford held 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, 1996 was $34,200. For James N. Hufford, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1996 -
$8,175; 1995 - $0 and 1994 - N/R.
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, 1996 -
$3,375; 1995 - $3,465; and 1994 - $3,465; for Philip T. Christ,
1996 - $3,375; 1995 - $3,465; and 1994 - $3,465; for Stanley J.
Aris, 1996 - $3,375; 1995 - $3,465; and 1994 - $3,465; for
Donald R. Schroeder, 1996 - $3,375; 1995 - $2,592; and 1994 - N/R;
and for James N. Hufford, 1996 - $3,375; 1995 - $3,135; and 1994 -
N/R; 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, 1996 - $0; 1995 - $5,310; and 1994 - $5,031; for Philip T.
Christ, 1996 - $7,988; 1995 - $4,212; and 1994 - $3,861; for
Stanley J. Aris, 1996 - $0; 1995 - $2,529; and 1994 - $1,526; for
Donald R. Schroeder, 1996 - $1,089; 1995 - $929; and 1994 - N/R;
and for James N. Hufford, 1996 - $603; 1995 - $1,386; and 1994 -
N/R.
For Joseph P. Walker, also includes the imputed income value of the
term life insurance portion of the coverage under a "split dollar"
life insurance policy as follows: for 1996 - $2,632; for 1995 -
$2,495; and for 1994 - $0. For Donald R. Schroeder, also includes
for 1995 employee relocation expenses paid by the Corporation.
(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
No options for CTS Corporation Common Stock were awarded to
the named Executive Officers in 1996.
</TABLE>
<TABLE>
OPTION EXERCISES IN 1996
AND FISCAL YEAR END 1996 OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Shares Year-End Year-End
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Joseph P. Walker -0- -0- 2,500/7,500 $13,438/$40,313
Philip T. Christ -0- -0- 6,100/8,900 $92,988/$87,263
Stanley J. Aris -0- -0- 5,300/8,200 $76,063/$70,875
Donald R. Schroeder -0- -0- 2,000/4,500 $18,325/$29,238
James N. Hufford -0- -0- 2,100/4,650 $18,863/$30,044
</TABLE>
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 responsibilities
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 Towers Perrin
to assess the current salaries and job classifications of the
Executive Officers compared with market data for similar positions
at similar companies and to provide periodic updates upon request.
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 Corporation'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 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. For 1996, financial performance was measured on the
basis of achieving target levels of return on assets (ROA). When
Plan financial objectives are met at the 100% level, each of the
named Executive Officers is eligible for a bonus in an amount equal
to 40% of his/her base salary for the subject year. Maximum
incentive payments under this Plan range from 10% to 60% of the
annual salary of the Plan participants.
For 1996, the Corporation achieved 150% of its ROA target
under the 1996 CTS Corporation Management Incentive Plan.
Accordingly, the named Executive Officers received formula bonuses
under the Plan equal to 60% of their base salaries.
For 1995, the Corporation achieved 150% of its ROA target
under the 1995 CTS Corporation Management Incentive Plan.
Accordingly, the named Executive Officers received formula bonuses
under the Plan equal to 60% of their base salaries.
This Plan also authorizes the Compensation Committee to grant
discretionary bonuses when the Committee deems it appropriate to do
so. No significant discretionary bonuses have been paid to the
named Executive Officers during any of the three years for which
compensation is disclosed.
CTS Corporation 1996 Stock Option Plan
The Compensation Committee administers the CTS Corporation
1996 Stock Option Plan and predecessor stock option plans 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 1996 under these
Plans.
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.
No awards under the Plan were made to the named Executive
Officers in 1996. The number of shares previously awarded to the
named Executive Officers, their market value, vesting schedules,
and bonuses paid relative thereto, are set forth in the Summary
Compensation Table above and the footnotes thereto.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as
amended, limits to $1,000,000 per person the amount that the
Corporation may deduct for compensation paid to any of its most
highly compensated officers in any year after 1993. The levels of
compensation paid to the Corporation's Executive Officers do not
exceed this limit. The Compensation Committee currently intends
for all compensation paid to its Executive Officers to be tax
deductible to the Company pursuant to Section 162(m).
Respectfully Submitted,
CTS CORPORATION COMPENSATION COMMITTEE
Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr. and Andrew Lozyniak
STOCK PERFORMANCE CHART
The following graph compares the cumulative total 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 Corporation
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, 1996, is as follows: Joseph P. Walker, 8.78 years,
Philip T. Christ, 7.56 years, Stanley J. Aris, 4.78 years,
Donald R. Schroeder, 24.44 years and James N. Hufford, 31.2 years.
Covered compensation for the named Executive Officers is essentially
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 1997 is $120,000. No more than $160,000 (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.
In order to maintain the level of total retirement benefits
which, but for the Internal Revenue Code limitation on compensation
which may be taken into account, would otherwise be payable under
this plan, two actions were taken in 1996. A supplemental benefit
was added to this plan, and a Nonqualified Excess Benefit
Retirement Plan was adopted. The named Executive Officers and other
officers and key managers whose regular plan benefits are
negatively impacted by the Internal Revenue Code compensation
limitation, will be beneficiaries of these actions, under which any
benefits otherwise lost will be restored.
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 $17,100 in 1996
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 1998 proxy solicitation
material and proxy, shareholder proposals must be received by the
Corporation at its Corporate Offices no later than November 21,
1997.
1996 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 1996 Annual Report on S.E.C. Form 10-K, including the
financial statements and financial statement schedules.
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 44,957
<SECURITIES> 0
<RECEIVABLES> 44,606
<ALLOWANCES> 622
<INVENTORY> 38,761
<CURRENT-ASSETS> 138,201
<PP&E> 189,389
<DEPRECIATION> 133,286
<TOTAL-ASSETS> 249,372
<CURRENT-LIABILITIES> 51,391
<BONDS> 0
0
0
<COMMON> 33,540
<OTHER-SE> 132,692
<TOTAL-LIABILITY-AND-EQUITY> 249,372
<SALES> 321,297
<TOTAL-REVENUES> 321,297
<CGS> 233,801
<TOTAL-COSTS> 287,877
<OTHER-EXPENSES> (1,631)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,449
<INCOME-PRETAX> 33,602
<INCOME-TAX> 12,432
<INCOME-CONTINUING> 21,170
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