UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FormFORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTIONQuarterly Report pursuant to Section 13 ORor 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Forof the quarterly period ended March 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OFSecurities Exchange Act of 1934
for the transition period from _____________ to _________________
For QuarterQuarterly Period Ended Commission File Number
March 30,June 29, 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, INIndiana 46514
(Address(219)293-7511
Indiana 1-4639 35-0225010
(State of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)293-7511
Indicate by check mark whether the registrant(Commission File No.) (IRS Employer
Incorporation) Identification No.)
The Company (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 registrantCompany was required to file such
reports),reports, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No_______
Indicate theThe 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 10Company's Common Stock outstanding at
August 8, 1997, was 5,248,063.
CTS CORPORATION AND SUBSIDIARIESFORM 10-Q
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months Ended March 30,and Six
Months ended June 29, 1997, and March 31,June 30, 1996 3
Condensed Consolidated Balance Sheets -
As of March 30,June 29, 1997, and December 31, 1996 4
Condensed Consolidated Statements of Cash
Flows - For the ThreeSix Months Ended March 30,June 29,
1997, and March 31,June 30, 1996 5
Notes to Condensed Consolidated Financial
Statements 66-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-88-13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 94. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 914-16
SIGNATURES 1017
Page 2 of 1017
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 MarchSix Months Ended
June 29, July 30, March 31,June 29, June 30,
1997 1996 1997 1996
Net sales $91,269 $80,186$107,482 $83,820 $198,751 $164,006
Costs and expenses:
Cost of goods sold 65,978 60,38778,645 61,946 144,623 122,333
Selling, general and
administrative expenses 11,824 10,95212,042 11,028 23,866 21,980
Research and development
expenses 2,974 2,2603,075 2,628 6,049 4,888
Operating earnings 10,493 6,58713,720 8,218 24,213 14,805
Other expenses (income):
Interest expense 263 436410 351 673 787
Other (808) (855)(115) (610) (923) (1,465)
Total other expensesexpense (income) (545) (419)295 (259) (250) (678)
Earnings before income
taxes 11,038 7,00613,425 8,477 24,463 15,483
Income taxes 4,084 2,5924,967 3,137 9,051 5,729
Net earnings $ 6,9548,458 $ 4,4145,340 $ 15,412 $ 9,754
Net earnings per share $ 1.321.60 $ .831.03 $ 2.92 $ 1.86
Cash dividends declared
per share $ .18 $ .15.18 $ .36 $ .33
Average common and common
equivalent shares
outstanding 5,267,396 5,294,9335,290,345 5,257,468 5,282,201 5,254,122
See notes to condensed consolidated financial statements.
Page 3 of 1017
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 30,June 29, December 31,
1997 1996*
ASSETS (Unaudited)
Current Assets
Cash $ 46,556$30,656 $ 44,957
Accounts receivable, less allowances
(1997--$669;692; 1996--$622) 54,65467,555 43,984
Inventories--Note C 37,197B 33,687 38,761
Other current assets 5,5004,863 3,787
Deferred income taxes 6,712 6,712
Total current assets 150,619143,473 138,201
Property, Plant and Equipment, less accumulated
depreciation (1997--$132,386;135,223; 1996--$133,286) 56,91959,028 56,103
Other Assets
Investment in DCA--Note C 68,509
Goodwill, less accumulated amortization
(1997--$8,531; 1996-8,700; 1996--$8,361) 3,8613,717 4,039
Prepaid pension 51,82653,570 50,152
Other 7571,555 877
Total other assets 56,444127,351 55,068
$263,982$329,852 $249,372
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $2,416 $2,4273,923 2,427
Accounts payable 22,96526,351 17,146
Accrued liabilities 35,79340,287 31,818
Total current liabilities 61,17470,561 51,391
Long-term Obligations 11,210Obligations--Note D 59,506 11,220
Deferred Income Taxes 16,146 16,146
Postretirement Benefits 4,3154,313 4,383
Shareholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,40133,564 33,540
Retained earnings 150,125157,642 144,112
Cumulative translation adjustment 349812 1,373
183,875192,018 179,025
Less cost of common stock held in treasury:
1997--579,6351997--576,843 shares; 1996--582,075 shares 12,73812,692 12,793
Total shareholders' equity 171,137179,326 166,232
$263,982$329,852 $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 1017
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
ThreeSix Months Ended
MarchJune 29, June 30, March 31,
1997 1996
Cash flows from operating activities:
Net earnings $15,412 $ 6,954 $ 4,4149,754
Depreciation and amortization 3,768 3,2507,635 6,492
(Increase) decrease in:
Accounts receivable (10,670) (2,153)(23,571) (7,734)
Inventories 1,564 7845,074 1,252
Other current assets (1,713) (1,114)(1,076) (1,175)
Prepaid pension asset (1,674) (1,309)(3,418) (2,643)
Other 43 (105)349 (21)
Increase in:
Accounts payable &and accrued liabilities 9,794 4,62417,674 6,639
Total adjustments 1,112 3,9772,667 2,810
Net cash provided by operating activities 8,066 8,39118,079 12,564
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 6 128134 213
Capital expenditures (4,833) (4,247)(10,553) (9,298)
Investment in DCA--Note C (68,509)
Net cash used in investing activities (4,827) (4,119)(78,928) (9,085)
Cash flows from financing activities:
Term loan borrowings--Note D 50,000
Credit agreement arrangement fee (937)
Payments of long-term obligations (1)
Increase(214) (197)
Decrease in notes payable 1,365(6,657)
Dividend payments (940) (783)(1,881) (1,565)
Other (150) 113(31) 246
Net cash provided by (used in) provided by financing
activities (1,090) 69446,937 (8,173)
Effect of exchange rate changes on cash (550) 66(389) 170
Net increasedecrease in cash 1,599 5,032(14,301) (4,524)
Cash at beginning of year 44,957 37,271
Cash at end of period $46,556 $42,303$30,656 $32,747
Supplemental cash flow information
Cash paid during the period for:
Interest $ 278558 $ 429799
Income Taxes--Net $ 8524,201 $ 1,1792,664
See notes to condensed consolidated financial statements.
Page 5 of 1017
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 30,(Unaudited, in thousands of dollars except per share data)
June 29, 1997
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 data is
unaudited; however,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, 1996.
The accompanying unaudited consolidated interim financial
statements reflect, in the opinion of management, the interim data
includes all adjustments
considered(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 period. Operating
results for the three-month period ended March 30, 1997,periods 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.entire year.
NOTE B--RECLASSIFICATIONS
Certain reclassifications have been made to prior periods to
conform to the classifications adopted in 1997.
NOTE C--INVENTORIESB--INVENTORIES
The components of inventory consist of the following:
(In thousands)
March 30,June 29, December 31,
1997 1996
Finished goods $ 6,8386,836 $ 8,504
Work-in-process 16,37414,108 17,138
Raw material 13,98512,743 13,119
$37,197$33,687 $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 1017
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C-- PROPOSED MERGER
The Company, on May 9, 1997, entered into an Agreement and Plan of
Merger with Dynamics Corporation of America ("DCA") providing for
the acquisition of DCA by the Company pursuant to a merger of DCA
and a subsidiary of the Company (the "Merger") in accordance with
the Merger agreement. In the Merger, each DCA common share not
owned by CTS will, at the election of the shareholders, be
converted into either $58.00 in cash (the "Cash Election") or 0.88
CTS common shares. The Cash Election is limited to 49.9% of DCA's
common shares less the DCA common shares owned by CTS prior to the
Merger. This Merger is subject to the approval of the shareholders
of DCA and of the Company, and other customary conditions.
The Company, on June 13, 1997, pursuant to a tender offer,
purchased 30.3% of the outstanding DCA common shares for $65,439.
Subsequently, the Company purchased additional shares of DCA common
stock for $3,070.
The Company expects to complete the Merger during the third quarter
of 1997. The investment in DCA is being stated at cost until
completion of the Merger. Following the effective time of the
Merger, the total purchase price (including acquisition costs) will
be determined and CTS will be required to allocate the purchase
price to the fair value of DCA's assets, including 2,303,100 CTS
common shares presently owned by DCA, and liabilities. Such
allocation will be based on various factors, including appraisals
of the operating assets and liabilities of DCA, the identification
and valuation of intangible assets (which CTS presently believes
are not material) and the finally determined purchase price for
purposes of accounting for the Merger. Depending upon the
circumstances, CTS may be required to charge the difference between
the purchase price and the value of the CTS common shares
reacquired as a result of the Merger to net earnings currently to
reflect the amount of such difference, net of changes in the other
components of the purchase price allocation described above. Any
such charge will, however, be a non-cash item which CTS does not
believe will have any material adverse effect on its prospective
financial position or results of operations.
On May 9, 1997, 450,000 shares of stock options were granted to
certain key Company officers at $62.50 per share, subject to
shareholder approval and the consummation of the Merger.
Based on recent CTS stock prices, these options will immediately
vest upon shareholder approval and consummation of the Merger
resulting in a one-time, non-cash charge against net earnings.
Assuming a price of $85.00 per share, at the consummation of the
Merger, the charge against net earnings will be $6,075 (net of
income tax benefit of $4,050).
NOTE D-- LONG-TERM OBLIGATIONS
The Company, on June 16, 1997, entered into a Credit Agreement with
a group of banks which provides financing of up to $125,000. This
six-year, unsecured credit facility consists of a $50,000 term loan
commitment and a $75,000 revolving credit facility. On June 16,
1997, the Company borrowed $50,000 under the term loan commitment
to purchase DCA common stock (See Note C--Proposed Merger).
Page 7 of 17
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The borrowing rate through March 31, 1998, is LIBOR plus 0.50% with
adjustments thereafter. At June 29, 1997, the rate on the term
loan was 6.03%. The Company paid an arrangement fee of $937 for
this credit facility. There is a commitment fee on the unused
portion of the revolving credit facility of 0.175% per annum. The
term loan matures on a quarterly basis. These maturities, on an
annual basis, are $3,000 in 1998, $5,000 in 1999, $10,000 in 2000,
2001, and 2002, respectively, and $12,000 in 2003.
The Credit Agreement contains customary limitations and restrictive
financial covenants. The covenants include financial maintenance
tests consisting of a leverage ratio, a minimum tangible net worth
test and a fixed charge coverage ratio which is the most
restrictive of these covenants. The term loan has prepayment
provisions if certain events occur.
The Company terminated the previously existing $45,000 unsecured
revolving credit agreement.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of March 30,June 29,
1997, to December 31, 1996
CTS Corporation ("CTS" or the "Company"), on May 9, 1997, entered
into an Agreement and Plan of Merger with Dynamics Corporation of
America ("DCA") providing for the acquisition of DCA by the Company
pursuant to a merger of DCA and a subsidiary of the Company (the
"Merger") in accordance with the Merger agreement. In the Merger,
each DCA common share not owned by CTS will, at the election of the
shareholders, be converted into either $58.00 in cash (the Cash
Election") or 0.88 CTS common shares. The Cash Election is limited
to 49.9% of DCA's common shares less the DCA common shares owned by
CTS prior to the Merger. This Merger is subject to the approval of
the shareholders of DCA and of the Company, and other customary
conditions.
The Company, on June 13, 1997, pursuant to a tender offer,
purchased 30.3% of the outstanding DCA common shares for $65,439.
Subsequently, the Company purchased additional shares of DCA common
stock for $3,070.
DCA owns 44.0% of the outstanding CTS common stock. DCA operates
in six business units manufacturing electronic components, mobile
vans and transportable shelters for specialized electronic and
medical diagnostic equipment, portable electric housewares and
Page 8 of 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Financial Condition: Comparison of June 29,
1997, to December 31, 1996 (Continued)
commercial appliances, air distribution equipment, specialized air-
conditioning equipment and generator sets. Following the merger,
it is anticipated that DCA's frequency control and heat dissipating
businesses will be integrated into complementary CTS operations.
The Company intends to seek to improve the results of operations of
DCA's other business units. It also intends to evaluate and review
DCA's operations and the potential opportunities for synergies with
the Company's operations, and to consider what, if any, changes
would be desirable in light of the results of such evaluations and
reviews. After such review, it is possible that the Company will
seek to dispose of certain businesses or assets of DCA.
Following the effective time of the Merger, the total purchase
price (including acquisition costs) will be determined and CTS will
be required to allocate the purchase price to the fair value of
DCA's assets, including 2,303,100 CTS common shares presently owned
by DCA, and liabilities. Such allocation will be based on various
factors, including appraisals of the operating assets and
liabilities of DCA, the identification and valuation of intangible
assets (which CTS presently believes are not material) and the
finally determined purchase price for purposes of accounting for
the Merger. Depending upon the circumstances, CTS may be required
to charge the difference between the purchase price and the value
of the CTS common shares reacquired as a result of the Merger to
net earnings currently to reflect the amount of such difference,
net of changes in the other components of the purchase price
allocation described above. Any such charge will, however, be a
non-cash item which CTS does not believe will have any material
adverse effect on its prospective financial position or results of
operations.
On May 9, 1997, 450,000 shares of stock options were granted to
certain key Company officers at $62.50 per share, subject to
shareholder approval and the consummation of the Merger.
Based on recent CTS stock prices, these options will immediately
vest upon shareholder approval and consummation of the Merger
resulting in a one-time, non-cash charge against net earnings.
Assuming a price of $85.00 per share, at the consummation of the
Merger, the charge against net earnings will be $6,075 (net of
income tax benefit of $4,050).
To finance this acquisition, the Company entered into a credit
agreement with a group of banks which provides financing of up to
$125,000. The Company, on June 16, 1997, borrowed $50,000 on a
six-year term loan. This credit facility is available for general
business purposes.
Page 9 of 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Financial Condition: Comparison of June 29,
1997, to December 31, 1996 (Continued)
The following table highlights significant changes in balance sheet
captionsitems and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
March 30,June 29, December 31, Increase
1997 1996 (Decrease)
Cash $ 46,556$30,656 $ 44,957 $1,599(14,301)
Accounts receivable, net 54,65467,555 43,984 10,67023,571
Inventories, net 37,19733,687 38,761 (1,564)(5,074)
Current assets 150,619143,473 138,201 12,4185,272
Accounts payable 22,96526,351 17,146 5,8199,205
Current liabilities 61,17470,561 51,391 9,78319,170
Working capital 89,44572,912 86,810 2,635(13,898)
Current ratio 2.462.03 2.69 (.23)
Interest bearing debt 13,408 13,428 (20)
Net tangible(.66)
Long-term obligations 63,429 13,647 49,782
Tangible net worth 167,276175,609 162,193 5,08313,416
Ratio of interest bearing debtlong-term obligations
to tangible net tangible worth .36 .08 .08 --
From December 31, 1996,.28
Working capital and the current ratio decreased primarily due to March 30, 1997,a
$14.3 million decrease in cash, as the Company utilized some of its
excess cash combined with its $50,000 term loan to purchase DCA
common stock. Within the 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 andaccounts, accounts
receivable balances. These effects wereincreased $23.6 million resulting from increased sales.
This was partially offset by related, but lower,a decrease in inventories of $5.1
million and increases in accounts payable of $9.2 million and
accrued liabilities. The current ratio decreasedliabilities of $8.5 million. These changes are primarily
due to the relative increase in current liabilities, primarily accounts
payable.sales and production levels. Current
maturities of long-term obligations increased $1.5 million,
representing the two initial installment payments on the $50.0
million term loan.
Capital expenditures were $4.8$10.6 million during the first quarter,six months
of 1997, compared with $4.2$9.3 million for the same period a year
earlier. These capital expenditures were primarily for increased
manufacturing capacity, new products and manufacturing improvement
programs.
Page 710 of 1017
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Financial Condition: Comparison of June 29,
1997, to December 31, 1996 (Continued)
The Merger, when combined with a stock split in the form of a 1:1
stock dividend expected to be effected in connection therewith, is
expected substantially to increase the liquidity in the market for
CTS shares and to decrease the concentration of ownership of CTS
shares.
The Company believes that cash on hand, cash from operations and
other capital resources available to the Company, including
borrowings under the Credit Agreement, will be sufficient to fund
the Company's capital requirements. The Company may, depending
upon conditions in the capital markets and other factors, consider
other capital transactions further to increase the Company's
financial flexibility, to reduce its overall cost of capital or for
other purposes.
Debt increased due to the $50.0 million term loan borrowing.
Material Changes in Results of Operations: Comparison of Second
Quarter 1997 to Second Quarter 1996
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending June 29, 1997, and June 30, 1996:
(Dollars in thousands)
June 29, June 30, Increase
1997 1996 (Decrease)
Net sales $107,482 $83,820 $23,662
Gross earnings 28,837 21,874 6,963
Gross earnings as a percent
of sales 26.83% 26.10% .73%
Selling, general and
administrative expenses 12,042 11,028 1,014
Selling, general and
administrative expenses as
a percent of sales 11.20% 13.16% (1.96%)
Research and development
expenses 3,075 2,628 447
Operating earnings 13,720 8,218 5,502
Operating earnings as a
percent of sales 12.76% 9.80% 2.96%
Interest expense 410 351 59
Earnings before income taxes 13,425 8,477 4,948
Income taxes 4,967 3,137 1,830
Net earnings 8,458 5,340 3,118
Income tax rate 37.00% 37.00% --
Page 11 of 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of Second
Quarter 1997 to Second Quarter 1996 (Continued)
Net sales increased by $23.7 million, or 28.2% compared to the
second quarter of 1996. The improvement in sales reflects
increasing demand for electronic components, particularly the
automotive, microelectronics and commercial interconnect products
serving the automotive, computer equipment and communications
equipment markets in North America and Europe.
Gross earnings improved primarily due to the sales and production
volume increases, as well as to continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses increased $1.0
million, but decreased as a percentage of sales. The increased
expenses are primarily due to increased variable expenses
associated with the higher level of sales.
Research and development expenses increased by $0.4 million,
primarily due to the continuation of new product development
programs, particularly for automotive products.
Material Changes in Results of Operations: Comparison of First
Half of 1997 to First Half of 1996
The following table highlights changes in significant components of
the consolidated statements of earnings for the six-month periods
ending June 29, 1997, and June 30, 1996:
(Dollars in thousands)
June 29, June 30, Increase
1997 1996 (Decrease)
Net sales $198,751 $164,006 $34,745
Gross earnings 54,128 41,673 12,455
Gross earnings as a percent
of sales 27.23% 25.41% 1.82%
Selling, general and
administrative expenses 23,866 21,980 1,886
Selling, general and
administrative expenses as
a percent of sales 12.01% 13.40% (1.39%)
Research and development
expenses 6,049 4,888 1,161
Operating earnings 24,213 14,805 9,408
Operating earnings as a
percent of sales 12.18% 9.03% 3.15%
Interest expense 673 787 (114)
Earnings before income taxes 24,463 15,483 8,980
Income taxes 9,051 5,729 3,322
Net earnings 15,412 9,754 5,658
Income tax rate 37.00% 37.00% --
Page 12 of 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of First
QuarterHalf of 1997 to First QuarterHalf of 1996 The following table highlights changes in significant components(Continued)
For the first half of 1997, net sales increased $34.7 million, a
21.2% increase compared to the first half of 1996. Consistent with
the second quarter of 1997, improvement was realized as a result of
the consolidated statements of earningscontinuing higher demand for automotive, microelectronic and
commercial interconnect products serving the three-month periods
ending March 30, 1997,automotive, computer
equipment and March 31, 1996:
(Dollars in thousands)
March 30, March 31, Increase
1997 1996 (Decrease)
Net sales $91,269 $80,186 $11,083communications equipment markets.
Gross earnings 25,291 19,799 5,492
Gross earningshave improved over the first half of 1996, primarily
as a percentresult of the higher sales 27.71% 24.69% 3.02%volume. Sales and production
volume increases have favorably affected operating efficiencies.
Selling, general and administrative expenses 11,824 10,952 872
Selling, general and
administrative expenseshave increased $1.9
million, but decreased as a percent of sales 12.96% 13.66% (0.70)%sales. The increased
expenses are primarily due to higher variable expenses associated
with the higher level of sales.
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 saleshave increased by $11.1$1.2 million,
or 13.8% from23.8%, during the first quarterhalf 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 improved1997, 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.programs, particularly for automotive products.
Page 813 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.17
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of CTS is involved in litigationCorporation was convened
on April 25, 1997, and in other administrative
proceedings with government agencies regarding the protectionconcluded on June 24, 1997.
Each 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 positionfive director-nominees identified below was re-elected
to a one-year term as director of the Company orCorporation with the
resultsfollowing votes reported of operations.the 3,794,041 eligible to vote and
represented at the meeting:
Votes
Votes Cast
Director-Nominee Cast For Against Abstentions
Lawrence J. Ciancia 3,769,678 5,178 19,185
Patrick J. Dorme 3,766,822 8,034 19,185
Gerald H. Frieling, Jr. 3,767,938 6,918 19,185
Andrew Lozyniak 3,766,696 8,160 19,185
Joseph P. Walker 3,769,529 5,327 19,185
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(99) Additional exhibit(3)(a) Articles of Incorporation, as amended April 16, 1973,
(incorporated by reference to Exhibit (3)(a) to the Company's
Annual Report on Form 10-K for 1987.)
(3)(b) Bylaws, effective December 31, 1992, (incorporated by
reference to Exhibit (3)(b) to the Company's
Annual Report on Form 10-K/A for 1992, filed April 8,
1997).
(10)(a) Employment Agreement, dated as of May 9, 1997, between
the Company and Joseph P. Walker (incorporated by
reference to Exhibit (c)(2) to the Schedule 14D-1
filed by the Company on May 16, 1997).
(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 (incorporated by reference to Exhibit (10)(b) to
the Company's Annual Report on Form 10-K for 1991).
Page 14 of 17
Part II -- OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K (Continued)
a. Exhibits (Continued)
(10)(c) CTS Corporation 1982 Stock Option Plan, as amended
February 24, 1989, (incorporated by reference to Exhibit
(10)(d) to the Company's Annual Report on Form 10-K
for 1989).
(10)(d) CTS Corporation 1986 Stock Option Plan, approved by
the shareholders on May 30, 1986, as amended and
restated on May 9, 1997, filed herewith.
(10)(e) CTS Corporation 1988 Restricted Stock and Cash Bonus
Plan approved by the shareholders on April 28, 1989,
as amended and restated on May 9, 1997, filed
herewith.
(10)(f) CTS Corporation 1996 Stock Option Plan, approved by
the shareholders on April 26, 1996, as amended and
restated on May 9, 1997, filed herewith.
(10)(g) Prototype indemnification agreement, with Stanley J.
Aris, James L. Cummins, James N. Hufford and Donald R.
Schroeder (incorporated by reference to Exhibit (10)(g)
to the Company's Annual Report on Form 10-K for 1995).
(10)(h) Amended and Restated Agreement and Plan of Merger,
dated as of May 9, 1997, and amended and restated on
July 17, 1997, among the Company, CTS First
Acquisition Corp., a wholly owned subsidiary of the
Company ("Sub"), and DCA (incorporated by reference
to Exhibit (c)(6) to Amendment No. 3 to the Schedule 13D
filed by the Company in respect of DCA on July 18,
1997, (the "Schedule 13-D").
(10)(i) Shareholders Agreement, dated as of July 17, 1997,
among the Company, Sub, WHX Corporation ("WHX") and SB
Acquisition Corp., a subsidiary of WHX (incorporated
by reference to Exhibit (c)(7) to the Schedule 13-D).
(10)(j) Employment Agreement, dated as of May 9, 1997, between
the Company and Andrew Lozyniak (incorporated by
reference to Exhibit 10.5 of DCA's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, (the
"DCA 10-Q").
(10)(k) Employment Agreement, dated as of May 9, 1997, between
the Company and Patrick J. Dorme (incorporated by
reference to the DCA 10-Q).
Page 15 of 17
Part II -- OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K (Continued)
a. Exhibits (Continued)
(10)(l) Employment Agreement, dated as of May 9, 1996, between
the Company and Henry V. Kensing (incorporated by
reference to the DCA 10-Q).
(10)(m) The Form of Severance Agreement, dated April 11, 1997,
between CTS
Corporationthe Company 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.
Kaskacertain officers of the
Company (incorporated by reference to Exhibit (a)(99)
of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1997) and John D. Watson.amendment thereto,
dated May 9, 1997, filed herewith.
(21) Subsidiaries as of June 29, 1997, filed herewith.
(27) Financial Data Schedule (filed only electronically
with the SEC).
b. Reports on Forms 8-K
NonePress release of May 12, 1997, announcing CTS and Dynamics
Corporation of America agreement to merge; filed May 12, 1997.
Public notice that Annual Meeting of Shareholders of April 25,
1997, was adjourned until June 16, 1997; filed April 25, 1997.
Page 916 of 1017
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,August 12, 1997
Page 1017 of 1017