UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
For Quarter Ended Commission File Number
September 27, 1998 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification no.)
of incorporation or
organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(219)293-7511 Indicate by
check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No_______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 6, 1998: 13,599,863
Page 1 of 16
<PAGE>
CTS CORPORATION FORM 10-Q
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months and Nine
Months ended September 27,1998, and September 28,1997 3
Condensed Consolidated Balance Sheets -
As of September 27, 1998, and December 31, 1997 4
Condensed Consolidated Statements of Cash
Flows - For the Nine Months Ended September 27,
1998, and September 28, 1997 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-15
Part Ii -- Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
--------------------------------
SIGNATURES 16
Page 2 of 16
<PAGE>
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
Net sales $106,585 $89,980 $357,150 $288,731
Costs and expenses:
Cost of goods sold 77,076 64,818 259,523 209,441
Selling, general and
administrative expenses 13,688 10,404 46,201 34,270
Research and development
expenses 3,032 3,134 10,207 9,183
------- ------- ------- -------
Operating earnings 12,789 11,624 41,219 35,837
------- ------- ------- -------
Other expenses (income):
Interest expense 1,130 976 3,420 1,649
Other (162) (1,565) (1,867) (2,488)
------- ------- ------ ------
Total other expenses (income) 968 (589) 1,553 (839)
------- -------- ----- ------
Earnings before income
taxes 11,821 12,213 39,666 36,676
Income taxes 3,623 4,530 13,090 13,581
------- ------- ------ -------
Net earnings $ 8,198 $ 7,683 $26,576 $ 23,095
======= ======= ======= ========
Net earnings per share:
Basic $ 0.60 $ 0.49 $ 1.88 $ 1.48
======= ======= ======= ========
Diluted $ 0.58 $ 0.48 $ 1.80 $ 1.45
======= ======= ======= ========
Cash dividends declared
per share $ 0.06 $ 0.06 $ 0.18 $ 0.18
Average common shares
outstanding:
Basic 13,669 15,738 14,158 15,700
Diluted 14,202 15,926 14,779 15,865
See notes to condensed consolidated financial statements.
Page 3 of 16
<PAGE>
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 27, December 31,
1998 1997*
------------ -----------
ASSETS (Unaudited)
Current Assets:
Cash $ 18,033 $ 39,847
Accounts receivable, less allowances
(1998-$1,159; 1997-$1,074) 64,512 68,679
Inventories--Note B 46,947 56,007
Other current assets 6,021 5,327
Deferred income taxes 15,873 15,873
----- --------
Total current assets 151,386 185,733
Property, Plant and Equipment, less accumulated
depreciation (1998--$135,672; 1997--$130,907) 84,165 76,027
Other Assets
Prepaid pension 67,099 61,738
Other 3,572 6,083
-------- --------
Total other assets 70,671 67,821
-------- --------
$306,222 $329,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term obligations $ 6,740 $ 5,465
Accounts payable 20,424 28,200
Accrued liabilities 63,550 58,687
-------- --------
Total current liabilities 90,714 92,352
Long-term Obligations 77,045 63,474
Deferred Income Taxes 19,070 21,950
Postretirement Benefits 4,292 4,309
Shareholders' Equity:
Preferred stock - authorized 25,000,000
shares without par value; none issued
Common stock-authorized 75,000,000 shares
without par value; issued 24,182,451 shares 190,107 186,794
Additional contributed capital 10,775 15,822
Retained earnings 187,213 163,169
Cumulative translation adjustment 1,286 694
------- --------
389,381 366,479
Less cost of common stock held in treasury:
1998-- 10,553,040 shares; 1997-- 8,873,056
shares 274,280 218,983
------- --------
Total shareholders' equity 115,101 147,496
-------- --------
$306,222 $329,581
======== ========
*The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 16
<PAGE>
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
Nine Months Ended
Sept.27, Sept.28,
1998 1997
Cash flows from operating activities:
Net earnings $26,576 $23,095
Depreciation and amortization 13,620 11,224
Decrease (increase) in:
Accounts receivable 90 (9,350)
Inventories 2,269 8,860
Other current assets (878) (2,149)
Prepaid pension asset (5,361) (5,157)
Other 900 (1,148)
Increase in:
Accounts payable and accrued liabilities (5,593) 16,198
------- -------
Total adjustments 5,047 18,478
------ -------
Net cash provided by operating activities 31,623 41,573
Cash flows from investing activities:
Proceeds from sale of property and
other assets 24,061 1,843
Capital expenditures (17,215) (16,115)
Investment in Dynamics Corporation of
America (DCA) (68,364)
Acquisition related costs (6,387)
-------- -------
Net cash provided by (used in)
investing activities 459 (82,636)
Cash flows from financing activities:
Net proceeds from revolving credit 10,250
Credit agreement arrangement fee (937)
Term loan borrowings 50,000
Payments of long-term obligations (1,706) (214)
Dividend payments (2,604) (2,822)
Purchases of treasury stock (55,503)
Other (5,165) 531
------- -------
Net cash (used in) provided by financing
activities (54,728) 46,558
Effect of exchange rate changes on cash 832 (874)
------- ---------
Net (decrease) increase in cash (21,814) 4,621
Cash at beginning of year 39,847 44,957
------- -------
Cash at end of period $18,033 $49,578
======= =======
Supplemental cash flow information
Cash paid during the period for:
Interest $ 2,861 $ 1,302
Income Taxes--Net $17,560 $ 6,804
See notes to condensed consolidated financial statements.
Page 5 of 16
<PAGE>
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands of dollars except per share data)
September 27, 1998
Note A - Basis of Presentation
The accompanying condensed consolidated interim financial statements have been
prepared by CTS Corporation ("CTS" or "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The consolidated
interim financial statements should be read in conjunction with the financial
statements, notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The accompanying unaudited consolidated interim financial statements reflect, in
the opinion of management, all adjustments (consisting of normal recurring
items) necessary for a fair presentation, in all material respects, of the
financial position and results of operations for the periods presented. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent 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.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire year.
Note B - Inventories
The components of inventory consist of the following:
September 27, December 31,
1998 1997
Finished goods $ 7,704 $ 8,061
Work-in-process 22,477 26,036
Raw material 16,766 21,910
------ -------
$46,947 $56,007
======= =======
Page 6 of 16
<PAGE>
Note C - Litigation and Contingencies
Contested claims involving various matters, including environmental claims
brought by government agencies, are being litigated by CTS, both in legal and
administrative forums. In the opinion of management, based upon currently
available information, adequate provision for potential costs has been made, or
the costs which could ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial position of
the Company or the results of operations.
Note D - Integration of DCA
The Company is continuing the process of evaluating the alternatives for the
business units acquired from DCA, which is expected to be completed by the end
of 1998. During the second quarter of 1998, the Company substantially completed
the sale of the Waring Products Division and closed the DCA corporate
headquarters in Greenwich, Connecticut. The Company does not expect that the
finalization of this process will have any significant effect on the
consolidated financial position or results of operations of the Company.
Note E - Earnings Per Share (EPS)
FASB Statement No. 128, "Earnings per Share," requires companies to provide a
reconciliation of the numerator and denominator of the basic and diluted EPS
computations. The calculation below provides net earnings, average common shares
outstanding and the resultant earnings per share for both basic and diluted EPS
for the third quarter and first nine months of 1998 and 1997.
The other dilutive securities of approximately 164,000 at September 27, 1998,
consisted of shares of CTS common stock to be issued to DCA shareholders who
have not yet tendered their DCA shares.
Page 7 of 16
<PAGE>
Net Net
Earnings Shares Earnings
(Numerator) (Denominator) Per Share
Third Quarter 1998:
Basic $ 8,198 13,669 $0.60
- ----------------------------- ----------------------------------------------
Effect of Dilutive
Securities:
Stock options 369
Other 164
- ---------------------------- -----------------------------------------------
Diluted $ 8,198 14,202 $0.58
- ----------------------------------------------------------------------------
Third Quarter 1997:
Basic $ 7,683 15,738 $0.49
- ----------------------------------------------------------------------------
Effect of Dilutive
Securities:
Stock options 188
Other 0
- ----------------------------------------------------------------------------
Diluted $ 7,683 15,926 $0.48
- ----------------------------------------------------------------------------
First Nine Months of 1998:
Basic $26,576 14,158 $1.88
- ----------------------------------------------------------------------------
Effect of Dilutive
Securities:
Stock options 452
Other 169
- --------------------------- ------------------------------------------------
Diluted $26,576 14,779 $1.80
- ----------------------------------------------------------------------------
First Nine Months of 1997:
Basic $23,095 15,700 $1.48
- ----------------------------------------------------------------------------
Effect of Dilutive
Securities:
Stock Options 165
Other 0
- ----------------------------------------------------------------------------
Diluted $23,095 15,865 $1.45
- ----------------------------------------------------------------------------
Note F - Comprehensive Earnings
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This Statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. Other comprehensive
earnings include
Page 8 of 16
<PAGE>
foreign currency translation adjustments. The Company's comprehensive earnings
for the third quarter and first nine months of 1998 and the comparable period
last year were as follows:
Three Months Ended
Sept. 27, Sept. 28,
1998 1997
(In thousands of dollars)
Third Quarter
Net earnings $8,198 $7,683
Other comprehensive earnings (loss)-
translation adjustments 437 (816)
----- ------
Comprehensive earnings $8,635 $6,867
======= =======
Nine Months Ended
Sept. 27, Sept. 28,
1998 1997
First Nine Months
Net earnings $26,576 $23,095
Other comprehensive earnings(loss)-
translation adjustments 592 (1,377)
------ ------
Comprehensive earnings $27,168 $21,718
======= =======
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of September 27,
1998, to December 31, 1997
The following table highlights significant changes in balance sheet items and
ratios and other information related to liquidity and capital resources:
(Dollars in thousands)
Sept. 27, Dec. 31, Increase
1998 1997 (Decrease)
Cash $18,033 $ 39,847 (21,814)
Accounts receivable, net 64,512 68,679 (4,167)
Inventories, net 46,947 56,007 (9,060)
Current assets 151,386 185,733 (34,347)
Accounts payable 20,424 28,200 (7,776)
Other current liabilities 63,550 58,687 4,863
Current liabilities 90,714 92,352 (1,638)
Working capital 60,672 93,381 (32,709)
Current ratio 1.67 2.01 (.34)
Interest bearing debt 69,750 61,206 8,544
Net tangible worth 114,063 146,320 (32,257)
Ratio of interest bearing debt
to net tangible worth .61 .42 .19
Page 9 of 16
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
From December 31, 1997, to September 27, 1998, cash decreased by $21.8 million
primarily due to common stock repurchases of $55.5 million, partially offset by
cash proceeds from asset sales of $24.1 million and net proceeds from revolving
credit of $10.3 million. The Company's stock repurchases include the purchase of
0.7 million of CTS common shares from WHX Corporation on March 5, 1998, and 1.0
million shares in the open market and other transactions. On June 26, 1998, the
Company announced the authorization by the Board of Directors to purchase an
additional 500,000 shares of its stock from time to time in open market or
privately negotiated transactions. The cash proceeds from asset sales represent
the sale of the Waring Products division of DCA to Conair Corporation, the sale
of the Company's Bentonville, Arkansas facility and the sale of other assets.
Working capital decreased $32.7 million due to the cash decrease of $21.8
million, as explained above, decreases in inventory of $9.1 million primarily
relating to the sale of Waring and increases in other current liabilities of
$4.9 million relating primarily to the remaining severance expenses associated
with the retirement/termination of DCA executives and the termination of other
employees, partially offset by a decrease in accounts payable of $7.8 million.
The current ratio decreased slightly due to the relative decrease in current
assets, primarily cash, due to the level of common stock repurchases.
The ratio of interest bearing debt to net tangible worth increased due to an
$8.5 million net increase in debt and a decrease of $32.3 million in net
tangible worth, relating primarily to the stock repurchase activity.
Capital expenditures were $17.2 million during the first nine months, compared
with $16.1 million for the same period a year earlier. These capital
expenditures were primarily for increased manufacturing capacity, manufacturing
improvement programs and new products.
The Company has entered into an agreement to acquire the Component Products
Division (CPD) of Motorola's Automotive, Component, Computer and Energy Sector
(ACCES). The businesses included in the transaction are Motorola's Ceramics,
Quartz, Oscillator, Piezoelectric Technology and Surface Acoustic Wave
operations. While the final terms of the transaction have not been set, it is
contemplated that the Company will acquire CPD for approximately 1.2 times
estimated annual sales. A significant portion of the purchase price would be in
the form of deferred payments which are contingent on CPD's future operating
results. The Company expects to finance a substantial portion of the purchase
price through bank borrowings or the issuance of debt securities. The
transaction is subject to the execution of definitive documentation, receipt of
the appropriate corporate approvals and other conditions. Accordingly, there can
be no assurance that the transaction will be completed or, if completed, the
timing thereof.
Page 10 of 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of Third
Quarter 1998 to Third Quarter 1997
The following table highlights changes in significant components of the
consolidated statements of earnings for the three-month periods ended September
27, 1998, and September 28, 1997:
(Dollars in thousands)
Sept. 27, Sept. 28, Increase
1998 1997 (Decrease)
Net sales $106,585 $ 89,980 $16,605
Gross earnings 29,509 25,162 4,347
Gross earnings as a percent
of sales 27.69% 27.96% (0.27%)
Selling, general and
administrative expenses 13,688 10,404 3,284
Selling, general and
administrative expenses as
a percent of sales 12.84% 11.56% 1.28%
Research and development
expenses 3,032 3,134 (102)
Operating earnings 12,789 11,624 1,165
Operating earnings as a
percent of sales 12.00% 12.92% (0.92%)
Interest expense 1,130 976 154
Earnings before income taxes 11,821 12,213 (392)
Income taxes 3,623 4,530 (907)
Net Earnings 8,198 7,683 515
Income tax rate 30.65% 37.00% (6.35%)
Net sales increased by $16.6 million, or 18.5%, from the third quarter of 1997.
Sales increases occurred principally as a result of the inclusion of Dynamics
Corporation of America (DCA) operating units, partially offset by the decline in
sales of products to the disk drive industry, the 1997 sale of our domestic
military and aerospace connector business, reduced shipments arising from the
General Motors strike and lower demand in Europe for our interconnect products.
As a percent of total sales, sales of electronic components, electronic
component assemblies and other products in the third quarter of 1998 were 52.0%,
26.0% and 22.0%, respectively. As a percentage of total sales, the third quarter
of 1997 sales of electronic components, electronic component assemblies and
other products were 59.6%, 40.0% and 0.4%, respectively. The increase in other
products relates to the inclusion of DCA operations in 1998. Sales of electronic
component assemblies decreased in 1998 due primarily to the 1997 sale of our
domestic military and aerospace connector business, the decline in the disk
drive industry, and the lower European demand for our interconnect products.
Gross earnings, as a percentage of sales, slightly decreased primarily due to
the inclusion of the lower margin DCA businesses, primarily offset by
improvements in CTS core electronic component and assembly business margins from
28.0% to 31.8%, due to productivity improvements and expense control programs.
Page 11 of 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Selling, general and administrative expenses increased as a result of the
inclusion of acquired DCA businesses.
Research and development expenses remained relatively flat compared to the same
period in the prior year.
The effective tax rate decreased approximately 6% points primarily due to higher
earnings in the lower-tax non-U.S. jurisdictions.
Material Changes in Results of Operations: Comparison of First Nine Months of
1998 to First Nine Months of 1997.
The following table highlights changes in significant components of the
consolidated statements of earnings for the nine-month periods ending September
27, 1998, and September 28, 1997:
(Dollars in thousands)
Sept. 27, Sept. 28, Increase
1998 1997 (Decrease)
--------- --------- ---------
Net sales $357,150 $ 288,731 $68,419
Gross earnings 97,627 79,290 18,337
Gross earnings as a percent
of sales 27.34% 27.46% (0.12%)
Selling, general and
administrative expenses 46,201 34,270 11,931
Selling, general and
administrative expenses as
a percent of sales 12.94% 11.87% 1.07%
Research and development
expenses 10,207 9,183 1,024
Operating earnings 41,219 35,837 5,382
Operating earnings as a
percent of sales 11.54% 12.41% (0.87%)
Interest expense 3,420 1,649 1,771
Earnings before income taxes 39,666 36,676 2,990
Income taxes 13,090 13,581 (491)
Net earnings 26,576 23,095 3,481
Income tax rate 33.00% 37.00% (4.00%)
Net sales increased by $68.4 million, or 23.7% from the first nine months of
1997. Sales increases occurred principally as a result of the inclusion of the
acquired DCA businesses, partially offset by the decline in the sales of
products to the disk drive industry, the 1997 sale of our domestic military and
aerospace connector business and reduced shipments arising from the General
Motors strike. As a percent of total sales, sales of electronic components,
electronic component assemblies and other products for the first nine months of
Page 12 of 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
1998 were 51.4%, 25.9% and 22.7%, respectively. As a percentage of total sales,
the first nine months of 1997 sales of electronic components, electronic
component assemblies and other products were 58.7%, 40.9% and 0.4%,
respectively. The increase in other products relates to the inclusion of DCA
operations in 1998. Sales of electronic component assemblies decreased in 1998
due primarily to the 1997 sale of our domestic military and aerospace connector
business and the decline in the disk drive industry.
Gross earnings, as a percentage of sales, slightly decreased primarily due to
the inclusion of lower margin DCA businesses, primarily offset by improvements
in CTS core business margins from 27.5% to 31.5%, due to productivity
improvements and expense control programs.
Selling, general and administrative expenses in dollars increased as a result of
the inclusion of acquired businesses. CTS businesses decreased in dollars due to
continued cost control.
Research and development expenses increased 11.2% as the Company continued
investment efforts in new product development and improvements.
The effective tax rate decreased by 4% points primarily due to higher earnings
in the lower-tax non-U.S. jurisdictions.
Year 2000 Computer Systems Compliance
As many computer systems and other equipment with embedded chips or processors
(collectively, "Systems") use only two digits to represent the year, they may be
unable to accurately process certain data before, during or after the year 2000.
If the Company's computer programs with date-sensitive functions are not Year
2000 compliant, they may recognize a date using "00" as the Year 1900 rather
than the Year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company recognizes the need to ensure its operations will not be adversely
affected by Year 2000 software failures and has established a project team to
address the Year 2000 issue. Many of the Company's Systems are Year 2000
compliant. However, the Company has a program in place designed to bring the
remaining Systems into Year 2000 compliance in time to minimize any significant
detrimental effects on operations. Our goal is to have our remediated and
replaced systems operational by the first quarter of 1999 to allow time for
testing and verification. In addition, executive management regularly monitors
the status of the Company's Year 2000 remediation plans.
Page 13 of 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The first phase of the Year 2000 compliance program is to identify the internal
Systems of the Company that are susceptible to system failures or processing
errors as a result of the Year 2000 issue. This effort is substantially complete
with the Company having identified the Systems that may require remediation or
replacement and established priorities for repair or replacement. Those Systems
considered most critical to continuing operations are being given the highest
priority.
The second phase of the Year 2000 compliance program involves the actual
remediation and replacement of Systems. The Company is using both internal and
external resources to complete this phase. Systems ranked highest in priority
have either been remediated or replaced, or are scheduled for remediation or
replacement. Systems previously earmarked for retirement and replacement without
regard to the Year 2000 issue have been evaluated for remediation or early
replacement with Year 2000 compliant systems or programs. The Company's
objective is to complete substantially all remediation and replacement of
internal Systems by March 1999, and to complete final testing and certification
for Year 2000 readiness by September 1999.
The Company also faces risk to the extent that suppliers of products, services
and systems purchased by the Company and others with whom the Company transacts
business on a worldwide basis do not comply with Year 2000 requirements. As part
of the Year 2000 compliance program, significant service providers, vendors,
suppliers, customers and governmental entities that are believed to be critical
to business operations after January 1, 2000, have been identified and steps are
being undertaken to reasonably determine their stage of Year 2000 readiness.
Costs to be incurred in the remainder of 1998 and 1999 to resolve Year 2000
problems are estimated at approximately $2 million. These estimated costs do not
include normal ongoing costs for computer hardware and software that would be
replaced in the next year even without the presence of the Year 2000 issue. The
Company does not expect the costs relating to Year 2000 remediation to have a
material effect on its results of operations or financial condition.
Based on the progress the Company has made in addressing its Year 2000 issues
and the Company's timeline to complete its compliance program, the Company does
not foresee significant risks associated with its Year 2000 compliance at this
time. As the Company's plan is to address its significant Year 2000 issues prior
to being affected by them, it has not developed a comprehensive contingency
plan. However, if the Company identifies significant risks related to its Year
2000 compliance or its progress deviates from the anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time.
Page 14 of 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. However, there can be no
assurance that the Company will timely identify and remediate all significant
Year 2000 problems, that remedial efforts will not involve significant time and
expense, or that such problems will not have a material adverse effect on the
Company's business, results of operations or financial position.
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
CTS is involved in litigation and in other administrative proceedings with
government agencies regarding the protection of the environment, and other
matters, the results of which are not yet determinable. In the opinion of
management, based upon currently available information, adequate provision for
anticipated costs has been made, or the ultimate costs resulting from such
litigation or administrative proceedings will not materially affect the
consolidated financial position of the Company or the results of operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
Announcement of the adoption of a shareholder Rights Plan and certain bylaw
amendments; filed September 2, 1998.
Announcement of a proposed agreement by which CTS will acquire the Component
Products Division of Motorola's Automotive, Component, Computer and Energy
Sector; filed September 15, 1998.
Page 15 of 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
Jeannine M. Davis Timothy J. Cunningham
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: November 10, 1998
Page 16 of 16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-28-1998
<PERIOD-END> SEP-27-1998
<CASH> 18,033
<SECURITIES> 0
<RECEIVABLES> 65,671
<ALLOWANCES> 1,159
<INVENTORY> 46,947
<CURRENT-ASSETS> 151,386
<PP&E> 219,837
<DEPRECIATION> 135,672
<TOTAL-ASSETS> 306,222
<CURRENT-LIABILITIES> 90,714
<BONDS> 0
0
0
<COMMON> 190,107
<OTHER-SE> (75,006)
<TOTAL-LIABILITY-AND-EQUITY> 306,222
<SALES> 106,585
<TOTAL-REVENUES> 106,585
<CGS> 77,076
<TOTAL-COSTS> 93,796
<OTHER-EXPENSES> (162)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,130
<INCOME-PRETAX> 11,821
<INCOME-TAX> 3,623
<INCOME-CONTINUING> 8,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,198
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.58
</TABLE>
