AMENDMENT TO INITIAL FILING OF CTS CORPORATION'S 1998 1ST QUARTER 10-Q
THIS CORRECTS COST OF SALES NUMBER IN FINANCIAL DATA SCHEDULE.
REMOVED THE WORD "BASICALLY" FROM THE FIRST LINE IN PARAGRAPH FOUR ON
PAGE 11 OF 12.
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 March 29, 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
March 29, 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 May 11, 1998: 14,011,466
Page 1 of 12
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months
Ended March 29, 1998, and March 30, 1997 3
Condensed Consolidated Balance Sheets -
As of March 29, 1998, and December 31, 1997 4
Condensed Consolidated Statements of Cash
Flows - For the Three Months Ended March 29,
1998, and March 30, 1997 5
Notes to Condensed Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 12
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS-UNAUDITED
(In thousands of dollars, except per share amounts)
Three Months Ended
March 29, March 30,
1998 1997
Net sales $126,052 $91,269
Costs and expenses:
Cost of goods sold 93,996 65,978
Selling, general and administrative expenses 15,451 11,824
Research and development expenses 3,458 2,974
Operating earnings 13,147 10,493
Other expenses (income):
Interest expense 1,098 263
Other (1,354) (808)
Total other expenses (income) (256) (545)
Earnings before income taxes 13,403 11,038
Income taxes 4,691 4,084
Net earnings $8,712 $ 6,954
Net earnings per share - Note E
Basic $ 0.59 $ 0.45
Diluted $ 0.56 $ 0.44
Cash dividends declared per share $ 0.06 $ 0.06
Average common shares outstanding:
Basic 14,866,979 15,675,239
Diluted 15,567,727 15,799,369
See notes to condensed consolidated financial statements.
Page 3 of 12
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 29, December 31,
1998 1997*
ASSETS (Unaudited)
Current Assets
Cash $9,340 $ 39,847
Accounts receivable, less allowances
(1998--$1,176; 1997--$1,074) 77,251 68,679
Inventories--Note B 62,077 56,007
Other current assets 6,265 5,327
Deferred income taxes 15,873 15,873
Total current assets 170,806 185,733
Property, Plant and Equipment, less accumulated
depreciation (1998--$130,213; 1997--$130,907) 75,732 76,027
Other Assets
Prepaid pension 63,471 61,738
Other 4,837 6,083
Total other assets 68,308 67,821
$314,846 $329,581
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $5,983 $5,465
Accounts payable 29,576 28,200
Accrued liabilities 60,481 58,687
Total current liabilities 96,040 92,352
Long-term Obligations 68,254 63,474
Deferred Income Taxes 21,950 21,950
Postretirement Benefits 4,304 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 24,170,949 shares 189,742 186,794
Additional contributed capital 14,141 15,822
Retained earnings 171,020 163,169
Cumulative translation adjustment 1,097 694
376,000 366,479
Less cost of common stock held in treasury:
1998--9,867,817 shares; 1997--8,873,056
shares 251,702 218,983
Total shareholders' equity 124,298 147,496
$314,846 $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 12
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
Three Months Ended
March 29, March 30,
1998 1997
Cash flows from operating activities:
Net earnings $ 8,712 $ 6,954
Depreciation and amortization 4,477 3,768
(Increase) decrease in:
Accounts receivable (8,572) (10,670)
Inventories (6,070) 1,564
Other current assets (938) (1,713)
Prepaid pension asset (1,733) (1,674)
(Gain) loss on sale of fixed assets (1,254) 3
Other 925 40
Increase in:
Accounts payable & accrued liabilities 1,863 9,794
Total adjustments (11,302) 1,112
Net cash (used in) provided by operating
activities (2,590) 8,066
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 2,227 6
Capital expenditures (4,864) 4,833)
Net cash used in investing activities (2,637) (4,827)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 8,000
Dividend payments (911) (940)
Purchases of treasury stock (32,926)
Other 392 (150)
Net cash used in financing activities (25,445) (1,090)
Effect of exchange rate changes on cash 165 (550)
Net (decrease) increase in cash (30,507) 1,599
Cash at beginning of year 39,847 44,957
Cash at end of period $9,340 $46,556
Supplemental cash flow information
Cash paid during the period for:
Interest $ 1,044 $ 278
Income Taxes--Net $ 3,769 $ 852
See notes to condensed consolidated financial statements.
Page 5 of 12
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 29, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is
unaudited; however, in the opinion of management, the interim data
includes all adjustments considered necessary for a fair
presentation of the results for the interim period. Operating
results for the three-month period ended March 29, 1998, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1997 Annual Report on Form 10-K.
NOTE B--INVENTORIES
The components of inventory consist of the following:
(In thousands)
March 29, December 31,
1998 1997
Finished goods $ 8,995 $ 8,061
Work-in-proces 30,117 26,036
Raw material 22,965 21,910
$62,077 $56,007
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 - SUBSEQUENT EVENTS
During the second quarter of 1998, the Company announced actions
as part of its ongoing integration plans for the newly acquired DCA
business units including the closure of the DCA Greenwich, Connecticut
corporate office, retirement/termination of certain officers and
employees, including repurchase of 226,300 shares of CTS common stock,
and the sale of the Waring Products Division of DCA to Conair Corporation.
The Company expects to continue its integration efforts throughout
fiscal 1998 and does not expect the finalization of the integration will
have any significant effect on the consolidated financial position or
results of operations of the Company.
Page 6 of 12
Note E - Earnings Per Share
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 the diluted EPS for the first
quarter of 1998 and 1997. The other dilutive securities of 175,500
at March 29, 1998, consisted of shares of CTS common stock to be
issued to DCA shareholders who have not yet tendered their DCA
shares.
Earnings Shares Per Share
(Numerator) (Denominator) Amount
First Quarter 1998:
Basic EPS $8,712 14,866,979 $0.59
Effect of Dilutive
Securities:
Stock options 525,248
Other 175,500
Diluted EPS $8,712 15,567,727 $0.56
First Quarter 1997:
Basic EPS $6,954 15,675,239 $0.45
Effect of Dilutive
Securities:
Stock options 123,530
Other 600
Diluted EPS $6,954 15,799,369 $0.44
Page 7 of 12
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
foreign currency translation adjustments. The Company's comprehensive
earnings for the first quarter of 1998 and the comparable period last
year were as follows:
Three Months Ended
1998 1997
(In thousands of dollars)
Net earnings $8,712 $6,954
Other comprehensive earnings (loss)-
translation adjustments 403 (1,024)
Comprehensive earnings $9,115 $5,930
Page 8 of 12
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of March 29, 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)
March 29, December 31, Increase
1998 1997 (Decrease)
Cash $9,340 $ 39,847 $ (30,507)
Accounts receivable, net 77,251 68,679 8,572
Inventories, net 62,077 56,007 6,070
Current assets 170,806 185,733 (14,927)
Accounts payable 29,576 28,200 1,376
Current liabilities 96,040 92,352 3,688
Working capital 74,766 93,381 (18,615)
Current ratio 1.78 2.01 (.23)
Interest bearing debt 69,210 61,206 8,004
Net tangible worth 123,165 146,320 (23,155)
Ratio of interest bearing debt
to net tangible worth .56 .42 .14
From December 31, 1997, to March 29, 1998, cash decreased by
$30.5 million and working capital of CTS Corporation and its
subsidiaries ("CTS" or "Company") decreased $18.6 million. These
decreases primarily reflect the implementation of the Company's
Stock Repurchase Plan, which included the purchase of 0.7 million
of CTS common shares from WHX Corporation on March 5, 1998, and
0.3 million shares in the open market and other transactions.
The impact of these stock purchases on working capital was partially
offset by Accounts Receivable and Inventory increases due to the
overall increase in business activity. 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 $8.0 million increase in revolving debt and a
decrease of $23.2 million in net tangible worth, relating
primarily to the Stock Repurchase activity.
Capital expenditures were $4.9 million during the first quarter,
compared with $4.8 million for the same period a year earlier.
These capital expenditures were primarily for increased
manufacturing capacity, manufacturing improvement programs and
new products.
Page 9 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of First
Quarter 1998 to First Quarter 1997
The following table highlights changes in significant components
of the consolidated statements of earnings for the three-month
periods ending March 29, 1998, and March 30, 1997:
(Dollars in thousands)
March 29, March 30, Increase
1998 1997 (Decrease)
Net sales $126,052 $91,269 $34,783
Gross earnings 32,056 25,291 6,765
Gross earnings as a percent
of sales 25.43% 27.71% (2.28%)
Selling, general and
administrative expenses 15,451 11,824 3,627
Selling, general and
administrative expenses as
a percent of sales 12.26% 12.96% (0.70%)
Research and development
expenses 3,458 2,974 484
Operating earnings 13,147 10,493 2,654
Operating earnings as a
percent of sales 10.43% 11.50% (1.07%)
Interest expense 1,098 263 835
Earnings before income taxes 13,403 11,038 2,365
Income taxes 4,691 4,084 607
Income tax rate 35.00% 37.00% (2.00%)
Net sales increased by $34.8 million, or 38.1% from the first
quarter of 1997. Sales increases occurred principally as a
result of the inclusion of Dynamics Corporation of America (DCA)
and strength in our core businesses, partially offset by the 1997 sale
of our domestic, military and aerospace connector business and the
decline in the disk drive industry. As a percent of total sales, sales
of electronic components, electronic component assemblies and other
products in the first quarter of 1998 were 50%, 25% and 25%,
respectively. As a percentage of total sales, the first quarter of
1997 sales of electronic components, electronic component assemblies
and other products were 61%, 39% and 0%, 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 percent of sales decreased primarily due to
the inclusion of lower margin DCA businesses. Margins of CTS
core business increased as a percent of sales from 27.7% to
29.5%.
Page 10 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of First
Quarter 1998 to First Quarter 1997 (Continued)
Selling, general and administrative expenses in dollars increased
as a result of the inclusion of acquired businesses, however
decreased as a percentage of sales due to continued expense
controls.
Research and development expenses increased 16.3% as the Company
continued investment efforts in new product development and
improvements.
The increase in operating earnings, in terms of dollars, is
principally due to the incremental margin impact on higher sales
volume and continued control of manufacturing and operating
expenses.
During the first quarter, the Company completed the consolidation,
closure and sale of its Bentonville facility. This
resulted in a pretax gain on fixed assets of $1.2 million partially
offset by estimated consolidation expenses.
The effective tax rate decreased by 2% points primarily due to
higher earnings in the lower-tax jurisdictions.
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
b. Forms 8-K
None
Page 11 of 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
/s/ Jeannine M. Davis /s/ Stanley J. Aris
Jeannine M. Davis Stanley J. Aris
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: May 12, 1998
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 9,340
<SECURITIES> 0
<RECEIVABLES> 77,251
<ALLOWANCES> 1,176
<INVENTORY> 62,077
<CURRENT-ASSETS> 170,806
<PP&E> 205,945
<DEPRECIATION> 130,213
<TOTAL-ASSETS> 314,846
<CURRENT-LIABILITIES> 96,040
<BONDS> 0
0
0
<COMMON> 189,742
<OTHER-SE> (65,444)
<TOTAL-LIABILITY-AND-EQUITY> 314,846
<SALES> 126,052
<TOTAL-REVENUES> 126,052
<CGS> 93,996
<TOTAL-COSTS> 112,905
<OTHER-EXPENSES> (1,354)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,098
<INCOME-PRETAX> 13,403
<INCOME-TAX> 4,691
<INCOME-CONTINUING> 8,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,712
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.56
</TABLE>