CTS Announces Third Quarter 2013 Financial Results

CTS Corporation (NYSE: CTS) today announced third quarter 2013 revenues of $159.6 million, an increase of 5.3% from the prior quarter and an increase of 16.2% from the same period last year. Third quarter net earnings increased 18% to $6.8 million, or $0.20 per diluted share, compared to net earnings of $5.9 million, or $0.17 per diluted share, in the same period last year. The third quarter 2013 results include restructuring and other costs of $0.04 per share. Excluding these items, third quarter 2013 adjusted earnings were $0.24 per share compared to adjusted earnings of $0.20 per share in the same period last year and $0.20 per share in the second quarter 2013.

The Company’s third quarter 2013 Components and Sensors segment sales grew $28.1 million, or 37%, from prior year, of which $11.8 million came from the D&R Technology acquisition. Compared to the second quarter 2013, the Components and Sensors segment sales decreased $1.7 million or 1.7%. EMS segment sales decreased $5.9 million in the third quarter of 2013 from the same period last year and increased $9.8 million from the second quarter 2013. As previously announced, the Company sold its EMS business on October 2, 2013.

Third quarter 2013 cash flow from operations improved to $15.3 million compared to $13.7 million in the second quarter 2013 and $13.0 million in third quarter 2012.

CTS’ new order pipeline remains strong with business wins of $105 million in the third quarter.

Commenting on third quarter results, Kieran O’Sullivan, CTS’ Chief Executive Officer, said, “We are pleased with our 18% earnings improvement both sequentially against the second quarter of 2013 and year-over-year. Our revenue focus remains on product development and strengthening our sales and marketing capabilities globally. We will continue to focus on efforts to improve our cost structure by simplifying our footprint and corporate structure. All of these efforts are intended to position our core businesses for profitable growth. Additionally, the EMS divestiture provides financial flexibility to drive organic and inorganic growth to enhance shareholder value.”

O’Sullivan continued, “Full-year 2013 sales are expected to be in the range of $555 million to $560 million reflecting the October 2, 2013 EMS divestiture. We are maintaining the 2013 adjusted earnings per share guidance in the range of $0.78 to $0.83 per share.”

SEGMENT INFORMATION ($ in thousands)
     

Components and Sensors

EMS

Total

Third Quarter of 2013

Net sales to external customers

$103,632

$55,931

$159,563

Segment operating earnings before corporate and shared services charges

$15,108

$2,356

$17,464
Corporate and shared services charges (4,932) (1,373) (6,305)
Segment operating earnings $10,176 $983 $11,159
Expenses not allocated to business segments:
- Restructuring and related charges

 

(1,066)
Total operating earnings

 

$10,093

Second Quarter of 2013

Net sales to external customers

$105,381

$46,180

$151,561

Segment operating earnings/(loss) before corporate and shared services charges

$17,098

$(102)

$16,996
Corporate and share services charges (5,731) (1,444) (7,175)
Segment operating earnings/(loss) $11,367 $(1,546) $9,821
Expenses not allocated to business segments:
- Restructuring and related charges

 

(8,095)
Total operating earnings

 

$1,726

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)
Segment operating earnings

 

$6,804
 

Conference Call

As previously announced, the Company has scheduled a conference call on Tuesday, October 29, 2013 at 11:00 a.m. EDT. Those interested in participating may dial 800-553-0358 (612-332-0718, 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 Tuesday, October 29, 2013 through 11:59 p.m. EDT on Tuesday, November 5, 2013. The telephone number for the replay is 800-475-6701 (320-365-3844, if calling from outside the U.S.). The access code is 306043. 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.

About CTS

CTS is a leading designer and manufacturer of electronic components and sensors and a provider of services 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.”

Safe Harbor

This document 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. Forward-looking statements are based on management's expectations, certain assumptions and currently available information. 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 certain 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. Examples of factors that may affect future operating results and financial condition include, but are not limited to: changes in the economy generally and in respect to the businesses in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition our businesses; 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 disasters or other events; 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 geopolitical risks. Many of these, and other, risks and uncertainties are discussed in further detail in Item 1.A of the Annual Report on Form 10-K. We undertake no obligation to publicly update our forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS / (LOSS) - UNAUDITED
(In thousands, except per share amounts)
             
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2013 2012 2013 2012
 
Net sales $ 159,563 $ 137,357 $ 460,636 $ 438,620
 
Costs and expenses:
Cost of goods sold 122,034 110,763 356,438 364,039
Insurance recovery for business interruption - (4,192 ) - (15,242 )
Selling, general and administrative expenses 20,765 19,387 62,921 58,169
Research and development expenses 5,718 4,350 17,741 15,590
Insurance recovery for property damage - - - (1,769 )
Restructuring charge   953     245     8,755     3,384  
 
Operating earnings 10,093 6,804 14,781 14,449
 
Other expense:
Interest expense, net (407 ) (159 ) (1,542 ) (528 )
Other income   706     763     694     297  
Total other income / (expense)   299     604     (848 )   (231 )
 
Earnings before income taxes 10,392 7,408 13,933 14,218
 
Income tax expense   3,573     1,491     14,881     2,717  
 
 
Net earnings / (loss) $ 6,819   $ 5,917   $ (948 ) $ 11,501  
 
Net earnings / (loss) per share:
Basic $ 0.20   $ 0.17   $ (0.03 ) $ 0.34  
 
Diluted $ 0.20   $ 0.17   $ (0.03 ) $ 0.33  
 
Cash dividends declared per share $ 0.035   $ 0.035   $ 0.105   $ 0.105  
 
Average common shares outstanding:
Basic 33,696 33,923 33,603 34,017
 
Diluted 34,331 34,471 33,603 34,588
 
CTS CORPORATION AND SUBSIDIARIES
OTHER SUPPLEMENTAL INFORMATION
 
 
 

Earnings / (Loss) per Share
 
The following table reconciles GAAP earnings per share to adjusted earnings per share for the Company:
 
  Three Months Ended   Nine Months Ended
September 29,   September 30, September 29,   September 30,
2013 2012 2013 2012
 
GAAP earnings / (loss) per share $ 0.20 $ 0.17 $ (0.03 ) $ 0.33
 
Tax affected charges to reported diluted earnings / (loss) per share:
Restructuring and related charges 0.02 0.02 0.20 0.10
Takata and CEO transition costs 0.01 0.01 0.04 0.02
Tax impact of cash repatriation - - 0.32 -
Tax asset write-off related to restructuring - - 0.03 -
Transaction Costs   0.01   -   0.01     -
Adjusted earnings per share $ 0.24 $ 0.20 $ 0.57   $ 0.45
 

Additional Information
 
The following table includes other financial information not presented in the preceding financial statements.
 
  Three Months Ended   Six Months Ended
$ In thousands September 29,   September 30, September 29,   September 30,

Expense
2013 2012 2013 2012
Depreciation and Amortization $ 5,321 $ 4,937 $ 16,677 $ 14,583
Equity Based Compensation $ 660 $ 1,010 $ 3,141 $ 3,181
 

OTHER SUPPLEMENTAL INFORMATION (continued)

Non-GAAP Financial Measures

Adjusted earnings/(loss) per share is a non-GAAP financial measure. The most directly comparable GAAP financial measure is diluted earnings/(loss) 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/(loss) 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/(Loss)

Segment operating earnings/(loss) 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/(loss). Segment operating earnings/(loss) exclude the effects of restructuring and restructuring-related charges when they are incurred by the Company. Segment operating earnings/(loss) 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/(loss) 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 29, December 31,
2013 2012
 
Cash and cash equivalents $ 96,730 $ 109,571
Accounts receivable, net 96,809 89,342
Inventories 84,605 81,752
Other current assets   29,663   28,633
Total current assets   307,807   309,298
 
Property, plant & equipment, net 89,480 93,725
Other assets 142,576 158,156
   
Total Assets $ 539,863 $ 561,179
 
 
 

Notes payable and current portion of long-term debt
$ - $ -
Accounts payable 71,512 67,973
Accrued liabilities   50,253   47,056
Total current liabilities   121,765   115,029
 
Long-term debt 128,600 153,500
Other obligations 19,867 24,892
 
Shareholders' equity 269,631 267,758
 
Total Liabilities and    
Shareholders' Equity $ 539,863 $ 561,179

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