CTS Announces Fourth Quarter And Full-Year 2011 Financial Results

CTS Corporation (NYSE: CTS) today announced fourth quarter 2011 revenues of $144.0 million, a 1% decrease in the same period last year and from the third quarter 2011 revenues. Fourth quarter 2011 revenues were negatively impacted by approximately $11-$13 million from the flooding in Thailand. Fourth quarter 2011 net earnings were $5.9 million, or $0.17 per diluted share, compared to $4.8 million, or $0.14 per diluted share, in the same period last year. Included in the fourth quarter 2011 was a restructuring and related charge of $2.4 million, or $0.05 per share, compared to a restructuring and related charge of $1.7 million, or $0.03 per share, in the same period last year. Excluding these charges, adjusted earnings per share were $0.22 in the fourth quarter 2011, an increase of 29% over adjusted earnings per share of $0.17 in the same period last year.

Fourth quarter 2011 Components and Sensors segment sales grew 8% from the same period last year driven by a 17% increase in automotive sensor and actuator sales and partially offset by a 5% decrease in electronic component product sales. EMS fourth quarter sales decreased 8% year-over-year.

As previously disclosed, CTS’ EMS Scotland facility experienced a fire-related disruption during the second quarter of 2011 and its Thailand facility was affected by the floods in the fourth quarter. As anticipated, the fourth quarter of 2011 included two separate insurance recoveries. CTS recorded a $2.2 million business interruption insurance recovery shown in operating expense which offsets expenses recorded in cost of sales. In addition, the Company recorded fire-related insurance recovery for property damage of $3.4 million, or $0.07 per share.

2011 Full-Year Financial Results

Full-year 2011 revenue was $588.5 million, an increase of $35.9 million, or 6.5%, from 2010 full- year revenue. The Components and Sensors segment revenue decreased 1% year-over-year. Full-year 2011 EMS segment revenue increased 14% over 2010, primarily driven by industrial sales which grew 28% and defense and aerospace sales which increased by 20%.

Full-year 2011 diluted earnings per share were $0.60 including $0.07 per share for restructuring and certain legal expenses. Excluding these charges, full-year 2011 adjusted earnings per share were $0.67, compared to $0.66 in 2010. Despite the higher overall sales, earnings per share were only slightly higher primarily due to the natural disasters and increased research and development spending for new products.

Management estimates that the full-year lost earnings impact related to the natural disasters net of all insurance recoveries is approximately a $0.02 loss per share.

Other noteworthy events:
  • CTS announced a 17% dividend increase to its shareholders. On an annual basis the dividend will now be $0.14 per share compared to the previous rate of $0.12 per share.
  • The acquisition of Valpey-Fisher was completed this week. Valpey-Fisher is a U.S. based public company located near Boston, with annual sales of approximately $15 million. Valpey-Fisher is a designer and manufacturer of highly engineered electronic components. This acquisition will expand CTS’ technology and bring strong engineering capabilities and management leadership.
  • We repurchased approximately 403,000 shares for $3.6 million, at an average price of $8.86 in 2011, of which approximately 257,000 shares were repurchased in the fourth quarter of 2011. Approximately 574,000 shares remain in our one million share buyback authorization.
  • In the fourth quarter, CTS initiated a bank amendment which was completed in early January. This amendment increased the Company’s facility from $150 million to $200 million, while keeping it unsecured and at a more favorable pricing through 2017.

Full-year cash flow from operations was $22.2 million and capital expenditures were $15.6 million. The impact of the natural disasters and new program launch activity kept the inventories higher than our target and thus lowered cash flow in 2011. Management expects working capital and cash flow to improve in 2012.

Commenting on fourth quarter 2011 results, Vinod M. Khilnani, CTS Chairman and Chief Executive Officer, stated, “As we move past the impact of the flooding in Thailand and the Japan earthquake, we expect 2012 to benefit from key new program launches and deliver double-digit top and bottom line growth. We continue our commitment to a strong R&D program to further strengthen our highly engineered product portfolio. The recent dividend increase, stock buybacks and Valpey-Fisher acquisition reflect our confidence in the future to enhance shareholder value.”

While the overall macro economies globally are showing weakness, various new product launches are expected to drive growth. As a result, management anticipates full-year 2012 sales to increase in the range of 10% to 13% over 2011 and diluted earnings per share to be in the range of $0.75 to $0.80. Included in 2012 earnings is a net adverse impact of approximately $0.05 per share from a combination of higher expected effective tax rate, higher pension costs and an expected property damage insurance recovery.

SEGMENT INFORMATION(Dollars in millions)

Fourth Quarter

Fourth Quarter

Third Quarter



  Segment   Segment   Segment
Net Operating Net Operating Net Operating
Sales Earnings Sales Earnings Sales Earnings
Components and Sensors $ 70.7 $ 6.5 $ 65.4 $ 6.7 $ 69.1 $ 4.2
Electronics Manufacturing Services (EMS) *   73.3   3.1     79.6   1.0     77.0   3.6
Segment Operating Earnings 9.6 7.7 7.8
Expenses not allocated to business segments:
- Restructuring and related charges   (2.4 )   (1.7 )   -
Total $ 144.0 $ 7.2   $ 145.0 $ 6.0   $ 146.1 $ 7.8
* Fourth quarter 2011 includes $3.4 million and third quarter 2011 includes $2.7 million of insurance recoveries for fire-related property damage.

Components & Sensors: Components and Sensors fourth quarter 2011 sales increased $5.3 million, or 8%, from the fourth quarter of 2010. The increase resulted from 17% higher automotive product sales and new product launches, partially offset by 5% reduction in electronic component product sales. Segment operating earnings decreased $0.1 million from the same period last year primarily from higher commodity prices, increased research and development expense and impact from the Thailand floods.

Components and Sensors fourth quarter 2011 sales increased $1.6 million, or 2%, from the third quarter of 2011. Automotive sensor and actuator product sales grew $4.9 million, or 12%, from stronger demand and new product launches. Sales of electronic component products decreased $3.3 million, or 12%, broadly across product lines, although sales increased for the new piezo products for hard disk drive (“HDD”) applications. Segment operating earnings increased $2.4 million from the third quarter of 2011 primarily from higher sales and improved margins.

EMS: EMS fourth quarter 2011 sales decreased $6.3 million, or 8%, from the fourth quarter of 2010, due primarily to the impact from the Thailand floods. Sales decreased in communications, computer and medical markets, partially offset by increases in industrial and defense and aerospace markets. Segment operating earnings of $3.1 million increased $2.1 million from the fourth quarter 2010 primarily from the $3.4 million insurance recovery for fire-related property damage, partially offset by the impact of lower sales related to the disruptions of the Thailand floods.

EMS fourth quarter 2011 sales decreased $3.7 million, or 5%, from the third quarter of 2011 reflecting the impact of the flooding in Thailand. Segment operating earnings decreased $0.5 million primarily on lower sales and the disruptions from the Thailand floods, partially offset by a higher insurance recovery for fire-related property damage.

Conference Call

As previously announced, the Company has scheduled a conference call on Thursday, January 26, 2012 at 11:00 a.m. EST. Those interested in participating may dial 800-288-8967 (612-332-0228, 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. EST on Thursday, January 26, 2012 through 11:59 p.m. EST on Thursday, February 2, 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 231985. 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.
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
Dec 31 Dec 31 Dec 31 Dec 31
2011 2010 2011 2010
Net sales $ 143,999 $ 145,025 $ 588,506 $ 552,641
Costs and expenses:
Cost of goods sold 118,161 115,903 478,657 432,731
Insurance recovery for business interruption (2,190 ) - (4,082 ) -
Selling, general and administrative expenses 16,816 17,366 71,890 72,310
Research and development expenses 5,208 4,328 19,990 18,313
Insurance recovery for property damage (3,380 ) - (6,067 ) -
Restructuring and impairment charges   2,184     1,444     2,878     1,444  
Operating earnings 7,200 5,984 25,240 27,843
Other (expense) / income:
Interest expense (141 ) (211 ) (862 ) (689 )
Other   151     (45 )   1,959     872  
Total other expense   10     (256 )   1,097     183  
Earnings before income taxes 7,210 5,728 26,337 28,026
Income tax expense   1,354     928     5,370     5,988  
Net earnings $ 5,856   $ 4,800   $ 20,967   $ 22,038  
Net earnings per share:
Basic $ 0.17   $ 0.14   $ 0.61   $ 0.65  
Diluted $ 0.17   $ 0.14   $ 0.60   $ 0.63  
Cash dividends declared per share $ 0.035   $ 0.03   $ 0.125   $ 0.12  
Average common shares outstanding:
Basic 34,241 34,184 34,321 34,090
Diluted 34,945 34,952 35,006 34,849
CTS Corporation and Subsidiaries
Condensed Consolidated Balance Sheets - Unaudited
(In thousands of dollars)
December 31, December 31,
2011 2010
Cash and cash equivalents $ 76,412 $ 73,315
Accounts receivable, net 88,345 95,930
Inventories, net 92,540 76,885
Other current assets   26,089   20,525
Total current assets   283,386   266,655
Property, plant & equipment, net 84,860 78,213
Other assets 112,569 137,716
Total Assets $ 480,815 $ 482,584

Notes payable and current portion of long-term debt
$ - $ -
Accounts payable 80,468 75,384
Other accrued liabilities   43,769   44,716
Total current liabilities   124,237   120,100
Long-term debt 74,400 70,000
Other obligations 18,881 18,234
Shareholders' equity 263,297 274,250

Total Liabilities and Shareholders' Equity
$ 480,815 $ 482,584

Gross Margin

The following table reconciles GAAP gross margin to adjusted gross margin and gross margin as a percentage of sales to adjusted gross margin as a percentage of sales.
$ in thousands Three Months Ended Twelve Months Ended
Dec 31 Dec 31 Dec 31 Dec 31
2011 2010 2011 2010
GAAP gross margin $ 25,838 $ 29,122 $ 109,849 $ 119,910
GAAP gross margin as a percentage of sales 17.9% 20.1% 18.7% 21.7%
Restructuring related charge 260 253 260 253
Insurance recovery for business interruption 2,190 - 4,082 -
Adjusted gross margin $ 28,288 $ 29,375 $ 114,191 $ 120,163
Adjusted gross margin as a percentage of sales 19.6% 20.3% 19.4% 21.7%

Earnings per Share
The following table reconciles GAAP earnings per share to adjusted earnings per share for the Company:
Three Months Ended Twelve Months Ended
Dec 31 Dec 31 Dec 31 Dec 31
2011 2010 2011 2010
GAAP net earnings per share $ 0.17 $ 0.14 $ 0.60 $ 0.63
Tax affected charges to reported diluted loss per share:
Restructuring charge 0.05 0.03 0.06 0.03
Additional legal costs   -   -   0.01   -
Adjusted earnings per share $ 0.22 $ 0.17 $ 0.67 $ 0.66

Non-GAAP financial measures are discussed below.

Additional Information

Management estimates that the full-year net impact of the lost earnings related to the Japan earthquake and the Thailand floods, net of all insurance recoveries related to the Japan earthquake, the Thailand floods and the Scotland fire, is approximately a negative $0.02 per share.
The following table includes other financial information not presented in the preceding financial statements.
          Fourth           Full
$ In thousands Quarter Year

Other Expense Information
2011 2011
Depreciation and Amortization $ 4,372 $ 17,548
Equity Based Compensation 382 3,745

Non-GAAP Financial Measures

Adjusted gross margin and adjusted gross margin as a percentage of sales are non-GAAP financial measures. The most directly comparable GAAP financial measures are gross margin and gross margin as a percentage of sales. CTS calculates adjusted gross margin and adjusted gross margin as a percentage of sales by excluding the impact of restructuring related charges and including the impact of insurance recovery for business interruption.

Adjusted earnings per share is a non-GAAP financial measure. The most directly comparable GAAP financial measure is diluted earnings per share. CTS calculates adjusted earnings per share to exclude the per share impact of (a) restructuring and restructuring-related charges, and (2) additional legal costs.

CTS adjusts for these items 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 adjusted gross margin, adjusted gross margin as a percentage of sale and adjusted earnings per share measures to evaluate overall performance, establish plans and perform strategic analysis. Using these measures avoids distortion in the evaluation of operating results by eliminating the impact of events which are not related to normal operating performance. Because these measures are 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 these measures are useful to its management, investors and stakeholders in that they:

- provide a truer measure of CTS' operating performance,- reflect the results used by management in making decisions about the business, and- help 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 always 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.

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