EX-99.1 2 exhibit99_1.htm EXHIBIT 99.1 10-24-12 exhibit99_1.htm
newsrelease    
CTS CORPORATION  Elkhart, Indiana 46514                    
574-523-3800                
October 23, 2012        
FOR RELEASE:  Immediately
 
CTS ANNOUNCES THIRD QUARTER 2012 FINANCIAL RESULTS

Reports Strong Operating Cash Flow
 

 
Elkhart, IN. . .CTS Corporation (NYSE: CTS) today announced third quarter 2012 revenues of $137.4 million, a decrease of 6% from the same period last year. Third quarter 2012 net earnings were $5.9 million, or $0.17 per diluted share, same as the third quarter last year. Included in the third quarter 2012 earnings were $0.02 per share of restructuring and $0.01 per share of other charges. Excluding these charges, third quarter 2012 adjusted earnings per share were $0.20, 18% higher than the same period last year and 11% higher than the previous quarter.

The Components and Sensors segment experienced strong year-over-year sales growth with a 9.4% increase from new product launch activities for new customers and the successful integration of an acquisition made earlier this year. Electronic component sales improved $4.6 million, or 17%, primarily from improved piezoceramic product demand for HDD and incremental sales from the acquisition. Automotive sensor and actuator sales improved $1.9 million, or 5%, primarily from the launch of the new grill shutter actuator and a double-digit increase in pedal module sales.

CTS’ year-over-year sales decrease was driven by the lower margin EMS segment, which decreased $15.2 million, or 20%, year-over-year. The decrease resulted from the weak global economy as certain customers delayed orders, particularly in the defense and aerospace and communications markets, the lingering impact of the Thailand flood and the Company’s strategy to exit certain unprofitable accounts. EMS’ Thailand facility, which was impacted by the October 2011 flood, became fully operational during the third quarter 2012.

Third quarter cash flow from operations improved to $13.0 million compared to $4.5 million in the same period last year primarily driven by lower working capital requirements. Year-to-date cash flow from operations almost doubled to $25.0 million, compared to $13.4 million in the same period last year. Year-to-date capital expenditures were $9.8 million, slightly lower than last year.
 

 
Restructuring Actions

The Company is taking proactive actions to strategically respond to the weak economic environment by further reducing its cost structure. During the fourth quarter, the Company is announcing plans to close its EMS operation in Tianjin, China. CTS’ electronic components operation will remain in this facility and expects growth with increasing piezo component production to support HDD applications. This action, combined with earlier restructuring actions taken in 2012, will reduce headcount by approximately 10%, and the Company’s global footprint by approximately 17%. Total fourth quarter restructuring charges are expected to be approximately $3 million.

 
 
Singapore Operational Efficiencies and Sale Leaseback Gain

As a result of manufacturing efficiency improvement initiatives, the Company has been able to reduce its manufacturing floorspace requirement at its Singapore facility. Accordingly, CTS entered into an agreement to sell and lease back approximately one-third of its Singapore facility.  The transaction is expected to close in the fourth quarter 2012 with net proceeds of approximately $17.5 million and an anticipated pretax gain of approximately $7.5 million.

 
 
Other Items

Third quarter pension expense, which is non-cash, and Takata litigation expenses were approximately $0.4 million, or $0.01 per share, higher in 2012 compared to the prior year. Year-to-date, these expenses were approximately $2.9 million, or $0.06 per share, higher than the prior year.
 
During the third quarter, the Company authorized buying back of up to one million shares of stock, as the prior authorization of one million shares was completed. During the third quarter, the Company repurchased approximately 91,200 shares of common stock in open market transactions.

Commenting on third quarter 2012 results, Vinod M. Khilnani, CTS Chairman and Chief Executive Officer, stated, “In response to the challenging and uncertain global economy, the Company has undertaken a number of strategic actions to further reduce our cost structure while driving our key growth programs. We believe that decisive actions during challenging economic times will allow CTS to emerge stronger when the markets rebound. New product launch activity in our Components and Sensors segment remains robust and we continue to win new business. We are generating strong free cash flow and our balance sheet remains strong.”

Based on the third quarter results, and the current outlook which considers the continued weak global economy and the negative impact of the Japan/China territory dispute, management is lowering its full-year 2012 sales guidance from a range of a 4% to 7% increase over 2011, to essentially flat, with the Components and Sensors segment growing 10% to 13% and EMS declining 9% to 12%.  Accordingly, management is changing its 2012 adjusted earnings per share guidance to $0.70 to $0.75, from a range of $0.75 to $0.80 per share, which excludes the expected $7.5 million gain from the Singapore facility sale leaseback in the fourth quarter.

 
 
 

SEGMENT INFORMATION

($ in thousands)
  
 Components and Sensors
  
 EMS
  
 Total
  
Third Quarter of 2012
              
Net sales to external customers
  
 $
75,565
  
 $
61,792
  
 $
137,357
  
Segment operating earnings before corporate and shared services charges
  
 $
9,492
  
 $
4,202
  
 $
13,694
  
 
Corporate and shared services charges
    
(4,185
)
 
(1,827
)
 
(6,012
)
Segment operating earnings
  
 $
5,307
  
 $
2,375
  
 $
7,682
  
Expenses not allocated to business segments:
                    
 - Restructuring and related charges
              
 
(878
)
Total operating earnings
              
 $
6,804
  
                     
Second Quarter of 2012
                    
Net sales to external customers
  
$
76,823
  
$
77,471
  
$
154,294
  
Segment operating earnings before corporate and shared services charges
  
$
8,398
  
$
6,086
  
$
14,484
  
 
Corporate and shared services charges
    
(3,034
)
  
(1,906
)
  
(4,940
)
Segment operating earnings
  
$ 
5,364
  
$
4,180
  
$
9,544
  
Expenses not allocated to business segments:
                    
 - Restructuring and related charges
                
(3,831
)
Total operating earnings
              
$
5,713
  
                     
Third Quarter of 2011
                    
Net sales to external customers
  
 $
69,089
  
 $
76,981
  
$
146,070
  
Segment operating earnings before corporate and shared services charges
  
 $
7,738
  
 $
5,870
  
$
13,608
  
 
Corporate and shared services charges
    
(3,557
)
  
(2,297
)
  
(5,854
)
Segment operating earnings(1)
  
 $
4,181
  
 $
3,573
  
$
7,754
  
                     

(1)  
EMS segment’s operating earnings of $3,573 includes $2,687 of insurance recovery for property damage related to the fire at CTS Scotland’s manufacturing facility.


 
 
 

Components & Sensors: Components and Sensors third quarter 2012 sales increased $6.5 million, or 9%, from the third quarter of 2011. Sales of electronic components increased $4.6 million, or 17%, from improved piezoceramic product demand, primarily new HDD sales, and incremental sales from an acquisition. Automotive sensor and actuator sales increased $1.9 million, or 5%, driven primarily from the launch of the new grill shutter actuator and increased sales of pedal modules.  Segment operating earnings before corporate and shared services charges increased $1.8 million from the same period last year primarily from higher sales and timing of customer reimbursements, partially offset by higher non-cash pension expenses.

Components and Sensors third quarter 2012 sales decreased $1.3 million from the second quarter of 2012.  Within Automotive sensor and actuator products, lower sensor sales were partially offset by sales of the new grill shutter actuator product which was launched last quarter. Sales of electronic component products improved $2.2 million from the second quarter primarily on improved piezoceramic sales for HDD. Despite the lower sales, segment operating earnings before corporate and shared services charges improved $1.1 million from the second quarter of 2012 primarily from lower operating expenses including pension and timing of customer reimbursements.
 

 
EMS: EMS third quarter 2012 sales decreased $15.2 million, or 20%, from the third quarter of 2011, resulting from the weak global economy as certain customers delayed orders, particularly in the defense and aerospace and communications markets, the lingering impact of the Thailand flood and the Company’s strategy to exit certain unprofitable accounts. Segment operating earnings before corporate and shared services charges decreased $1.7 million, primarily from lower sales.

EMS third quarter 2012 sales decreased $15.7 million, or 20%, from the second quarter of 2012. Sales demand reflected the weak global economy and decreased across all markets served. The third quarter segment operating earnings before corporate and shared services charges decreased $1.9 million from the second quarter, primarily from lower sales.
 
 

 
Conference Call
As previously announced, the Company has scheduled a conference call on Wednesday, October 24, 2012 at 11:00 a.m. EDT.  Those interested in participating may dial 800-230-1093 (612-288-0337, if calling from outside the U.S.). No access code is needed. There will be a replay of the conference call available from 1:30 p.m. EDT on Wednesday, October 24, 2012 through 11:59 p.m. EDT on Wednesday, October 31, 2012. The telephone number for the replay is 800-475-6701 (320-365-3844, if calling from outside the U.S.). The access code is 266791.  Also, please note that a live audio webcast of the conference call will be available and can be accessed directly from the Web sites of CTS Corporation www.ctscorp.com, StreetEvents www.streetevents.com, Netscape netscape.aol.com, Compuserve www.compuserve.com and others.
 

About CTS
CTS is a leading designer and manufacturer of electronic components and sensors and a provider of electronics manufacturing services (EMS) to OEMs in the automotive, communications, medical, defense and aerospace, industrial and computer markets. CTS manufactures products in North America, Europe and Asia. CTS' stock is traded on the NYSE under the ticker symbol "CTS.”  To find out more, visit the CTS Web site at www.ctscorp.com.
 

 
Safe Harbor Statement
This press release contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events and any other statements that are not based solely on historical fact. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from those presented in the forward-looking statements, including, without limitation: changes in the economy generally and in respect to the businesses in which CTS operates; unanticipated issues in integrating acquisitions; rapid technological change; general market conditions in the automotive, communications and computer industries, as well as conditions in the industrial, defense and aerospace and medical markets; reliance on key customers; unanticipated natural or other events such as the Japan earthquake and floods in Thailand; the ability to protect our intellectual property; pricing pressures and demand for our products; and risks associated with our international operations, including trade and tariff barriers, exchange rates and political and geographical risks.  For more detailed information on the risks and uncertainties associated with CTS’ business, see the reports CTS files with the Securities and Exchange Commission available at http://www.ctscorp.com/investor_relations/investor.htm.  CTS undertakes no obligation to publicly update its forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.


Contact:        Thomas A. Kroll, Vice President and Chief Financial Officer
Mitchell J. Walorski, Director of Investor Relations
CTS Corporation, 905 West Boulevard North, Elkhart, IN 46514
Telephone 574-523-3800  FAX 574-293-6146
 

 
 
 

                         
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands, except per share amounts)
                         
           
Three Months Ended
  
Nine Months Ended
           
September 30
October 2
  
September 30
October 2
           
2012
  
2011
  
2012
  
2011
                         
 
Net sales
    
 $        137,357
  
 $        146,070
  
 $        438,620
  
 $        444,507
                         
 
Costs and expenses:
                
   
Cost of goods sold
  
           110,763
  
           118,610
  
           364,039
  
           360,496
   
Insurance recovery for business interruption
              (4,192)
  
              (1,113)
  
            (15,242)
  
              (1,892)
   
Selling, general and administrative expenses
             19,387
  
             18,343
  
             58,169
  
             55,074
   
Research and development expenses
               4,350
  
               5,163
  
             15,590
  
             14,782
   
Insurance recovery for property damage
                        -
  
              (2,687)
  
              (1,769)
  
              (2,687)
   
Restructuring charge
                   245
  
                        -
  
               3,384
  
                   694
                         
 
Operating earnings
  
6,804
  
7,754
  
14,449
  
18,040
                         
 
Other (expense) / income:
              
   
Interest expense, net
                 (159)
  
                 (190)
  
                 (528)
  
                 (721)
   
Other income / (expense)
                   763
  
                   (65)
  
                   297
  
               1,808
     
Total other income / (expense)
604
  
(255)
  
(231)
  
1,087
                         
     
Earnings before income taxes
7,408
  
7,499
  
14,218
  
19,127
                         
 
Income tax expense
  
               1,491
  
               1,636
  
               2,717
  
               4,016
                         
                         
 
Net earnings
    
 $            5,917
  
 $            5,863
  
 $          11,501
  
 $          15,111
                         
 
Net earnings per share:
              
 
   Basic
    
 $              0.17
  
 $              0.17
  
 $              0.34
  
 $              0.44
                         
 
   Diluted
    
 $              0.17
  
 $              0.17
  
 $              0.33
  
 $              0.43
                         
 
Cash dividends declared per share
 $            0.035
  
 $              0.03
  
 $            0.105
  
 $              0.09
                         
 
Average common shares outstanding:
              
 
   Basic
    
33,923
  
34,375
  
34,017
  
34,347
                         
 
   Diluted
    
34,471
  
34,994
  
34,588
  
35,026
 
 

 
 
 
 
 
 

 
CTS CORPORATION AND SUBSIDIARIES
OTHER SUPPLEMENTAL INFORMATION
                 
                 
                 
Earnings per Share
                
                 
The following table reconciles GAAP diluted earnings per share to adjusted earnings per share for the Company:
                 
   
Three Months Ended
  
Nine Months Ended
   
September 30
October 2
September 30
October 2
   
2012
  
2011
  
2012
  
2011
                 
GAAP diluted earnings per share
  
 $             0.17
  
 $        0.17
  
 $           0.33
  
 $        0.43
Tax affected charges to reported diluted
              
  loss per share:
                
     Restructuring and related charges
  
                0.02
  
                -
  
              0.10
  
           0.01
     Additional legal costs
  
                    -
  
                -
  
                  -
  
           0.01
   Takata and CEO search costs
  
                0.01
  
                -
  
              0.02
  
                -
Adjusted earnings per share
  
 $             0.20
  
 $        0.17
  
 $           0.45
  
 $        0.45
                 
                 
Additional Information
                
                 
The following table includes other financial information not presented in the preceding financial statements.
                 
   
Three Months Ended
  
Nine Months Ended
$ In thousands
  
September 30
October 2
  
September 30
October 2
Expense
  
2012
  
2011
  
2012
  
2011
Depreciation and Amortization
  
 $            4,937
  
 $        4,410
  
 $        14,583
  
 $      13,176
Equity Based Compensation
  
               1,010
  
           1,002
  
             3,181
  
           3,363
                 
                 
Non-GAAP financial measures are discussed below.
            

 
 
 
OTHER SUPPLEMENTAL INFORMATION
(continued)

Non-GAAP Financial Measures

Adjusted earnings per share is a non-GAAP financial measure.  The most directly comparable GAAP financial measure is diluted earnings per share.

CTS adjusts for this item because they are discrete events which have a significant impact on comparable GAAP financial measures and could distort an evaluation of our normal operating performance.
CTS uses an adjusted earnings per share measure to evaluate overall performance, establish plans and perform strategic analysis.  Using this measure avoids distortion in the evaluation of operating results by eliminating the impact of events which are not related to normal operating performance.  Because this measure is based on the exclusion or inclusion of specific items, they may not be comparable to measures used by other companies which have similar titles.  CTS' management compensates for this limitation when performing peer comparisons by evaluating both GAAP and non-GAAP financial measures reported by peer companies.  CTS believes that this measure is useful to its management, investors and stakeholders in that it:

- provides a truer measure of CTS' operating performance,
- reflects the results used by management in making decisions about the business, and
- helps review and project CTS' performance over time.

We recommend that investors consider both actual and adjusted measures in evaluating the performance of CTS with peer companies.


Segment Operating Earnings
Segment operating earnings is a non-GAAP financial measure outside the context of the Accounting Standards Codification ("ASC") 280 required reconciliation in the notes to the Company's financial statements.  The most comparable GAAP term is operating earnings.  Segment operating earnings exclude the effects of restructuring and restructuring-related charges when they are incurred by the Company.  Segment operating earnings exclude interest expense, and other non-operating income and income taxes according to how a particular segment is measured.  CTS' management provides the segment operating earnings measure to provide consistency between segment information in its earnings release and the business segment discussion in the notes to its financial statements.
 
 
 
 
 
 
 

 
                 
CTS Corporation and Subsidiaries
Condensed Consolidated Balance Sheets - Unaudited
  
(In thousands of dollars)
                 
         
September 30
  
December 31,
  
         
2012
  
2011
  
                 
Cash and cash equivalents
  
 $        88,620
  
 $             76,412
  
Accounts receivable, net
  
           81,014
  
               88,345
  
Inventories
  
           75,007
  
               92,540
  
Other current assets
  
           24,512
  
               26,089
  
 
Total current assets
  
         269,153
  
              283,386
  
                 
Property, plant & equipment, net
  
           89,721
  
               84,860
  
Other assets
  
         122,502
  
              112,569
  
                 
     
Total Assets
  
 $      481,376
  
 $           480,815
  
                 
                 
                 
Notes payable and current portion
          
  of long-term debt
  
 $               -
  
 $                   -
  
Accounts payable
  
           59,207
  
               80,468
  
Other accrued liabilities
  
           36,866
  
               43,769
  
 
Total current liabilities
  
           96,073
  
              124,237
  
                 
Long-term debt
  
           94,500
  
               74,400
  
Other obligations
  
           18,450
  
               18,881
  
                 
Shareholders' equity
  
         272,353
  
              263,297
  
                 
     
Total Liabilities and
          
     
 Shareholders' Equity
  
 $      481,376
  
 $           480,815