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 30, 1997
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 30, 1997 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 April 18, 1997: 5,228,396
Page 1 of 10
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 30, 1997, and March 31, 1996 3
Condensed Consolidated Balance Sheets -
As of March 30, 1997, and December 31, 1996 4
Condensed Consolidated Statements of Cash
Flows - For the Three Months Ended March 30,
1997, and March 31, 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Page 2 of 10
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 30, March 31,
1997 1996
Net sales $91,269 $80,186
Costs and expenses:
Cost of goods sold 65,978 60,387
Selling, general and administrative expenses 11,824 10,952
Research and development expenses 2,974 2,260
Operating earnings 10,493 6,587
Other expenses (income):
Interest expense 263 436
Other (808) (855)
Total other expenses (income) (545) (419)
Earnings before income taxes 11,038 7,006
Income taxes 4,084 2,592
Net earnings $ 6,954 $ 4,414
Net earnings per share $ 1.32 $ .83
Cash dividends declared per share $ .18 $ .15
Average common and common equivalent
shares outstanding 5,267,396 5,294,933
See notes to condensed consolidated financial statements.
Page 3 of 10
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 30, December 31,
1997 1996*
ASSETS (Unaudited)
Current Assets
Cash $ 46,556 $ 44,957
Accounts receivable, less allowances
(1997--$669; 1996--$622) 54,654 43,984
Inventories--Note C 37,197 38,761
Other current assets 5,500 3,787
Deferred income taxes 6,712 6,712
Total current assets 150,619 138,201
Property, Plant and Equipment, less accumulated
depreciation (1997--$132,386; 1996--$133,286) 56,919 56,103
Other Assets
Goodwill, less accumulated amortization
(1997--$8,531; 1996-$8,361) 3,861 4,039
Prepaid pension 51,826 50,152
Other 757 877
Total other assets 56,444 55,068
$263,982 $249,372
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $2,416 $2,427
Accounts payable 22,965 17,146
Accrued liabilities 35,793 31,818
Total current liabilities 61,174 51,391
Long-term Obligations 11,210 11,220
Deferred Income Taxes 16,146 16,146
Postretirement Benefits 4,315 4,383
Shareholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,401 33,540
Retained earnings 150,125 144,112
Cumulative translation adjustment 349 1,373
183,875 179,025
Less cost of common stock held in treasury:
1997--579,635 shares; 1996--582,075 shares 12,738 12,793
Total shareholders' equity 171,137 166,232
$263,982 $249,372
*The balance sheet at December 31, 1996, has been derived from the
audited financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 10
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
Three Months Ended
March 30, March 31,
1997 1996
Cash flows from operating activities:
Net earnings $ 6,954 $ 4,414
Depreciation and amortization 3,768 3,250
(Increase) decrease in:
Accounts receivable (10,670) (2,153)
Inventories 1,564 784
Other current assets (1,713) (1,114)
Prepaid pension asset (1,674) (1,309)
Other 43 (105)
Increase in:
Accounts payable & accrued liabilities 9,794 4,624
Total adjustments 1,112 3,977
Net cash provided by operating activities 8,066 8,391
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 6 128
Capital expenditures (4,833) (4,247)
Net cash used in investing activities (4,827) (4,119)
Cash flows from financing activities:
Payments of long-term obligations (1)
Increase in notes payable 1,365
Dividend payments (940) (783)
Other (150) 113
Net cash (used in) provided by financing
activities (1,090) 694
Effect of exchange rate changes on cash (550) 66
Net increase in cash 1,599 5,032
Cash at beginning of year 44,957 37,271
Cash at end of period $46,556 $42,303
Supplemental cash flow information
Cash paid during the period for:
Interest $ 278 $ 429
Income Taxes--Net $ 852 $ 1,179
See notes to condensed consolidated financial statements.
Page 5 of 10
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 30, 1997
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 30, 1997, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1996 Annual Report on Form 10-K.
NOTE B--RECLASSIFICATIONS
Certain reclassifications have been made to prior periods to
conform to the classifications adopted in 1997.
NOTE C--INVENTORIES
The components of inventory consist of the following:
(In thousands)
March 30, December 31,
1997 1996
Finished goods $ 6,838 $ 8,504
Work-in-process 16,374 17,138
Raw material 13,985 13,119
$37,197 $38,761
NOTE D--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.
Page 6 of 10
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 30,
1997, to December 31, 1996
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
March 30, December 31, Increase
1997 1996 (Decrease)
Cash $ 46,556 $ 44,957 $1,599
Accounts receivable, net 54,654 43,984 10,670
Inventories, net 37,197 38,761 (1,564)
Current assets 150,619 138,201 12,418
Accounts payable 22,965 17,146 5,819
Current liabilities 61,174 51,391 9,783
Working capital 89,445 86,810 2,635
Current ratio 2.46 2.69 (.23)
Interest bearing debt 13,408 13,428 (20)
Net tangible worth 167,276 162,193 5,083
Ratio of interest bearing debt
to net tangible worth .08 .08 --
From December 31, 1996, to March 30, 1997, working capital of CTS
Corporation and its subsidiaries ("CTS" or "Company") increased
$2.6 million. The improved working capital position primarily
reflects a general increase in business activity which resulted in
higher cash and accounts receivable balances. These effects were
offset by related, but lower, increases in accounts payable and
accrued liabilities. The current ratio decreased due to the
relative increase in current liabilities, primarily accounts
payable.
Capital expenditures were $4.8 million during the first quarter,
compared with $4.2 million for the same period a year earlier.
These capital expenditures were primarily for increased
manufacturing capacity, new products and manufacturing improvement
programs.
Page 7 of 10
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 1997 to First Quarter 1996
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending March 30, 1997, and March 31, 1996:
(Dollars in thousands)
March 30, March 31, Increase
1997 1996 (Decrease)
Net sales $91,269 $80,186 $11,083
Gross earnings 25,291 19,799 5,492
Gross earnings as a percent
of sales 27.71% 24.69% 3.02%
Selling, general and
administrative expenses 11,824 10,952 872
Selling, general and
administrative expenses as
a percent of sales 12.96% 13.66% (0.70)%
Research and development
expenses 2,974 2,260 714
Operating earnings 10,493 6,587 3,906
Operating earnings as a
percent of sales 11.50% 8.21% 3.29%
Interest expense 263 436 (173)
Earnings before income taxes 11,038 7,006 4,032
Income taxes 4,084 2,592 1,492
Income tax rate 37.00% 37.00%
Net sales increased by $11.1 million, or 13.8% from the first
quarter of 1996. Sales increases occurred principally as a result
of increased customer demand for interconnect, automotive sensor,
resistor networks and microelectronics products in the North
American and European markets.
Gross earnings improved primarily due to the sales and production
volume increases, as well as continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses in dollars increased
slightly as a result of the increased business levels, but
decreased as a percentage of sales due to continued expense
controls.
Research and development expenses increased 31.6% as the Company
continued investment efforts in new product development and
improvements.
Page 8 of 10
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 1997 to First Quarter 1996 (Continued)
The increase in operating earnings is principally due to the higher
sales volume, higher absorption of manufacturing expenses and continued
control of operating expenses.
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
(99) Additional exhibit
Severance Agreement, dated April 11, 1997, between CTS
Corporation and Joseph P. Walker, Philip T. Christ, Stanley
J. Aris, Jeannine M. Davis, James L. Cummins, James N.
Hufford, Donald R. Schroeder, George T. Newhart, Gary N.
Hoipkemier, Ian M. Archer, James K. C. Chen, R. Clayton
Crum, George A. Harding, Timothy L. Hartigan, William J.
Kaska and John D. Watson.
b. Forms 8-K
None
Page 9 of 10
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: April 22, 1997
Page 10 of 10