CTS Announces Third Quarter 2009 Financial Results
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Reports Strong Cash Flow and Sequential Improvement in Sales and Earnings
ELKHART, Ind.--(BUSINESS WIRE)-- CTS Corporation (NYSE: CTS) today announced third quarter 2009 revenues of $126.6 million, 5% higher than second quarter 2009 revenues of $120.4 million. Third quarter 2009 net income of $4.5 million, or $0.13 per diluted share, compares favorably to the second quarter 2009 net loss of $7.0 million, or $0.21 per diluted share. The second quarter 2009 included an international cash repatriation related tax charge, primarily non-cash, of $9.1 million, or $0.27 per diluted share. Excluding this charge, second quarter adjusted net earnings were $2.1 million, or $0.06 per diluted share. Third quarter 2009 net earnings compare favorably to adjusted second quarter net earnings, primarily due to higher gross margins driven by improved cost structure, favorable segment mix and higher volumes.
Cash flow from operations was $18.4 million in the third quarter 2009, increasing $10.6 million over the same period last year. September year-to-date cash flow from operations was $34.1 million, significantly improved from the $20.1 million in the same period last year, primarily due to improved working capital management and lower capital expenditures. Total debt, as a percentage of total capitalization, was 17.0% at the end of the third quarter of 2009, compared to 22.5% at the end of the third quarter 2008.
Commenting on third quarter 2009 results, Vinod M. Khilnani, CTS Chairman and Chief Executive Officer, stated, "We are pleased to report sequential improvements in both revenues and earnings, again in the third quarter. In addition, our strategy for future growth through diversification continues to be successful, as evidenced by a growing pipeline of design wins and significant new business awards. We have now booked the strongest level of business awards on a year-to-date basis, approximating $220 million over a five to six year program life, primarily starting 2011-2012 timeframe."
Third quarter 2009 Components and Sensors segment revenues increased 13% from the second quarter 2009, driven by a 15% improvement in automotive product shipments, as global markets began to modestly recover and improved market share. Sales of electronic component products increased 8% from the second quarter 2009 from higher demand of piezoceramic and resistor products. Total EMS segment sales were flat from the second quarter 2009 as improved demand in medical, communications and defense and aerospace markets were offset by lower industrial sales and previously announced planned end-of-life sales reductions to Hewlett-Packard (HP).
Third quarter 2009 revenues declined 26% from the same period last year. Components and Sensors segment sales decreased 23% and EMS segment sales decreased 27% due to the impact of the global recession on all of the markets CTS serves. Gross margins improved year-over-year from cost management actions combined with favorable product mix, despite the drop in volumes. Third quarter 2009 diluted earnings per share of $0.13 compares to $0.21 in the same period last year, primarily reflecting lower revenues from the impact of the global recession, partially offset by cost management actions. Third quarter 2008 results included a net benefit of $0.05 per share from a tax credit offset by restructuring and related charges. Excluding these two items, third quarter 2008 adjusted diluted earnings were $0.16 per share.
CTS' new business wins continued at a strong pace during the third quarter 2009. Revenues from these wins are expected to exceed $60 million over their four to six year program lives, primarily beginning in 2012. Within the Components and Sensors segment, new business awards include a smart actuator for a turbocharger system on medium-duty diesel engines and new piezoceramic business for industrial applications. In the EMS segment, new business was won with Thales, one of the world's largest defense and aerospace companies.
Based on the year-to-date performance and expecting gradual improvements, primarily driven by automotive volumes, management anticipates full-year 2009 adjusted diluted earnings per share in the range of $0.27-$0.31. The consensus for the full-year 2009 adjusted diluted earnings per share is $0.22.
SEGMENT INFORMATION
(Dollars in millions)
Third Quarter Third Quarter Second Quarter
2009 2008 2009
Segment Segment Segment
Net Operating Net Operating Net Operating
Sales Earnings Sales Earnings Sales Earnings
Components and Sensors $55.8 $4.1 $72.5 $5.7 $49.6 $2.1
Electronics
Manufacturing Services 70.8 2.2 97.5 2.7 70.8 1.1
(EMS)
Segment Operating 6.3 8.4 3.2
Earnings
Expenses not allocated
to business segments:
- Restructuring and (3.5 )
related charges
Total $126.6 $6.3 $170.0 $4.9 $120.4 $3.2
Components & Sensors: Components and Sensors third quarter 2009 sales increased $6.2 million, or 13%, from the second quarter of 2009 reflecting improved global automotive sensor product demand. Electronic component product demand increased 8% primarily in piezoceramic and resistor products. Segment operating earnings increased $2.0 million from the second quarter, driven by improved gross margins and higher sales volume.
Components and Sensors third quarter 2009 sales decreased $16.7 million, or 23%, from the third quarter of 2008, reflecting the impact of the global recession. Electronic component product sales declined $9.0 million, or 31%, and automotive sensor and actuator products declined $7.7 million, or 18%. Segment operating earnings of $4.1 million were unfavorable to the third quarter of 2008 due to lower volumes, partially offset by reduced operating expenses.
EMS: EMS third quarter 2009 sales were unchanged from second quarter 2009 levels, reflecting both improved demand in medical, communications and defense and aerospace markets offset by lower demand in industrial and HP sales. Segment operating earnings of $2.2 million increased $1.1 million from the second quarter 2009, primarily due to improved gross margins driven by favorable product mix.
EMS third quarter 2009 sales decreased $26.7 million, or 27%, from the third quarter of 2008 reflecting lower sales in the computer, industrial and communications markets, partially offset by increased sales in the defense and aerospace markets. Segment operating earnings decreased $0.4 million from the third quarter of 2008 on lower volumes, partially offset by reduced operating expenses.
Conference Call
As previously announced, the Company has scheduled a conference call on Wednesday, October 28, 2009 at 11:00 a.m. EDT. Those interested in participating may dial 800-288-8961 (612-234-9960, 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 28, 2009, through 11:59 p.m. EST on Wednesday, November 4, 2009. The telephone number for the replay is 800-475-6701 (320-365-3844, if calling from outside the U.S.). The access code is 118484. There will also be a live audio webcast of the conference call which can be accessed directly from the Web sites of CTS Corporation (www.ctscorp.com), StreetEvents (www.StreetEvents.com), Netscape (www.netscape.com), Compuserve (www.compuserve.com) and others. AOL subscribers will have access through the Personal Finance section of AOL.
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, computer, communications, medical, defense and aerospace and industrial 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 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, including, without limitation: changes in the economy generally and in respect to the businesses in which CTS operates, including those resulting from the current global financial and credit crisis; pricing pressures and reduction in demand for CTS' products, especially if economic conditions do not recover or continue to worsen in CTS' served markets, including but not limited to: the automotive, computer equipment or communications markets; disruption, uncertainty or volatility in the credit markets that could adversely impact the availability of credit already arranged by CTS and the availability and cost of credit in the future; the financial condition of our customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability or ongoing viability; risks associated with CTS' international operations, including trade and tariff barriers; currency fluctuations and their effects on our results of operations and financial position; changes in performance of equity and debt markets that could affect the valuation of the assets in CTS' pension plans and the accounting for pension assets, liabilities and expenses; political and geopolitical risks; rapid technological change in the automotive, communications and computer industries; reliance on key customers; and CTS' ability to protect its intellectual property. For more detailed information on the risks and uncertainties associated with CTS' business, see the reports CTS files with the SEC, 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.
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept 27 Sept 28 Sept 27 Sept 28
2009 2008* 2009 2008*
Net sales $ 126,565 $ 170,034 $ 365,094 $ 528,880
Costs and
expenses:
Cost of goods 100,380 136,684 297,202 421,553
sold
Selling, general and 16,494 20,754 48,357 63,236
administrative expenses
Research and development 3,408 4,509 10,227 13,576
expenses
Restructuring and - 3,202 2,243 3,465
impairment charges
Goodwill - - 33,153 -
impairment
Operating earnings 6,283 4,885 (26,088 ) 27,050
/ (loss)
Other (expense) /
income:
Interest expense (239 ) (1,275 ) (1,497 ) (3,802 )
Other (390 ) (307 ) (736 ) 98
Total other expense (629 ) (1,582 ) (2,233 ) (3,704 )
Earnings / (loss) before 5,654 3,303 (28,321 ) 23,346
income taxes
Income tax expense / 1,173 (3,912 ) 9,872 266
(benefit)
Net earnings / $ 4,481 $ 7,215 $ (38,193 ) $ 23,080
(loss)
Net earnings / (loss) per
share:
Basic $ 0.13 $ 0.21 $ (1.13 ) $ 0.68
Diluted $ 0.13 $ 0.21 $ (1.13 ) $ 0.65
Cash dividends declared per $ 0.03 $ 0.03 $ 0.09 $ 0.09
share
Average common shares
outstanding:
Basic 33,873 33,708 33,799 33,735
Diluted 34,513 38,199 33,799 38,206
*The Statement of Earnings for the three and nine months ended September 28,
2008 was adjusted from the previously filed 2008 10-Q to comply with the
provisions of Accounting Standards Codification ("ASC") 470-20, "Debt with
Conversion and Other Options."
CTS Corporation and Subsidiaries
Condensed Consolidated Balance Sheets - Unaudited
(In thousands of dollars)
September 27, December 31,
2009 2008 *
Cash and cash equivalents $ 40,329 $ 44,628
Accounts receivable, net 75,942 94,175
Inventories, net 60,452 70,867
Other current assets 14,969 16,172
Total current assets 191,692 225,842
Property, plant & equipment, net 83,395 90,756
Other assets 131,593 171,844
Total Assets $ 406,680 $ 488,442
Notes payable and current portion
of long-term debt $ - $ -
Accounts payable 62,211 71,285
Other accrued liabilities 36,254 41,956
Total current liabilities 98,465 113,241
Long-term debt 49,500 79,988
Other obligations 16,820 17,740
Shareholders' equity 241,895 277,473
Total Liabilities and
Shareholders' Equity $ 406,680 $ 488,442
*The Balance Sheet at December 31, 2008 was adjusted from the previously
filed 10-K to comply with the provisions of ASC 470-20, "Debt with
Conversion and Other Options."
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - AS ADJUSTED (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept 27 Sept 28 Sept 27 Sept 28
2009 2008* 2009 2008*
GAAP Adjusted Adjusted Adjusted
Net sales $ 126,565 $ 170,034 $ 365,094 $ 528,880
Costs and expenses:
Cost of goods sold 100,380 136,407 297,202 421,002
Selling, general and 16,494 20,754 48,357 63,236
administrative expenses
Research and development 3,408 4,509 10,227 13,576
expenses
Adjusted operating earnings 6,283 8,364 9,308 31,066
Other (expense) / income:
Interest expense (239 ) (1,275 ) (1,497 ) (3,802 )
Other (390 ) (307 ) (736 ) 98
Total other expense (629 ) (1,582 ) (2,233 ) (3,704 )
Adjusted earnings before 5,654 6,782 7,075 27,362
income taxes
Adjusted income tax expense 1,173 1,228 1,673 5,600
Adjusted net $ 4,481 $ 5,554 $ 5,402 $ 21,762
earnings
Adjusted net earnings per
share:
Diluted $ 0.13 $ 0.16 $ 0.16 $ 0.61
Cash dividends declared per $ 0.03 $ 0.03 $ 0.09 $ 0.09
share
Average common shares
outstanding:
Diluted 34,513 38,199 33,799 38,206
*The Statement of Earnings for the three and nine months ended September 28,
2008 was adjusted from the previously filed 2008 10-Q to comply with the
provisions of Accounting Standards Codification 470-20, "Debt with Conversion
and Other Options."
See reconciliation and explanation of net earnings / (loss) to adjusted net
earnings attached.
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - AS ADJUSTED (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
September 27 June 28
2009 2009
GAAP Adjusted
Net sales $ 126,565 $ 120,398
Costs and expenses:
Cost of goods sold 100,380 98,520
Selling, general and administrative expenses 16,494 15,243
Research and development expenses 3,408 3,466
Adjusted operating earnings 6,283 3,169
Other (expense) / income:
Interest expense (239 ) (440 )
Other (390 ) (25 )
Total other expense (629 ) (465 )
Adjusted earnings before income taxes 5,654 2,704
Adjusted income tax expense 1,173 652
Adjusted net earnings $ 4,481 $ 2,052
Adjusted net earnings per share:
Diluted $ 0.13 $ 0.06
Cash dividends declared per share $ 0.03 $ 0.03
Average common shares outstanding:
Diluted 34,513 33,779
See reconciliation and explanation of net earnings to adjusted net
earnings attached.
CTS CORPORATION AND SUBSIDIARIES
OTHER SUPPLEMENTAL INFORMATION
Debt/Capitalization
The following table represents the calculation of total debt to
shareholder's equity:
(in thousands) September 27 September 28
2009 2008*
Notes payable $ - $ -
Current portion of long-term debt - -
Long-term debt 49,500 98,448
Total debt 49,500 98,448
Total shareholders' equity 241,895 339,027
Total capitalization $ 291,395 $ 437,475
Total debt to capitalization 17.0 % 22.5 %
* Adjustments have been made from previous filings to comply with the
provisions of ASC 470-20, "Debt with Conversion and Other Options."
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 charges for restructuring and
goodwill impairment 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
RECONCILIATION OF CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - UNAUDITED TO CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS - AS ADJUSTED (UNAUDITED)
(In thousands, except per share amounts)
Three Months Nine
Three Months Ended Ended Nine Months Ended Months
Ended
September September September September
27 27 27 27
2009 Adjustments Note 2009 2009 Adjustments Note 2009
(GAAP) Adjusted (GAAP) Adjusted
Net $ $ $ $
sales 126,565 126,565 365,094 365,094
Costs and
expenses:
Cost of 100,380 100,380 297,202 297,202
goods sold
Selling,
general and 16,494 16,494 48,357 48,357
administrative
expenses
Research and
development 3,408 3,408 10,227 10,227
expenses
Restructuring
and impairment - - 2,243 (2,243 ) A -
charges
Goodwill - - 33,153 (33,153 ) B -
Impairment
Operating
earnings / 6,283 - 6,283 (26,088 ) 35,396 9,308
(loss)
Other
expense:
Interest (239 ) (239 ) (1,497 ) (1,497 )
expense
Other (390 ) (390 ) (736 ) (736 )
Total
other (629 ) (629 ) (2,233 ) (2,233 )
expense
Earnings /
(loss)
before 5,654 - 5,654 (28,321 ) 35,396 7,075
income
taxes
Income tax
expense / 1,173 1,173 9,872 (8,199 ) C 1,673
(benefit)
Net (loss) / $ 4,481 $ - $ 4,481 $ ) $ $ 5,402
earnings (38,193 43,595
Net (loss) /
earnings per
share:
Basic $ 0.13 $ 0.13 $ (1.13 ) $ 1.29 $ 0.16
Diluted $ 0.13 $ 0.13 $ (1.13 ) $ 1.29 $ 0.16
Cash dividends
declared per $ 0.03 $ 0.03 $ 0.09 $ 0.09
share
Average common
shares
outstanding:
Basic 33,873 33,873 33,799 33,799
Diluted 34,513 34,513 33,799 33,799
Notes:
A. This adjustment pertains to restructuring charges that occurred in the first quarter of
2009 as a result of a company-wide restructuring plan.
B. This adjustment pertains to the impairment of the carrying value of goodwill.
C. The following table presents the tax components related to Notes A, B and C above:
Tax benefit related to first quarter $ 673
restructuring charges
Tax benefit related to first quarter 205
goodwill impairment charges
Tax expense related to one-time cash (9,077 )
repatriation event
$ )
(8,199
CTS CORPORATION AND SUBSIDIARIES
RECONCILIATION OF CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED TO CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS - AS ADJUSTED (UNAUDITED)
(In thousands, except per share amounts)
Three Months Nine
Three Months Ended Ended Nine Months Ended Months
Ended
September September September September
28 28 28 28
2008 Adjustments Note 2008 2008 Adjustments Note 2008
(GAAP) Adjusted (GAAP) Adjusted
Net $ $ $ $
sales 170,034 170,034 528,880 528,880
Costs and
expenses:
Cost of 136,684 (277 ) 136,407 421,553 (551 ) 421,002
goods sold
Selling,
general and 20,754 20,754 63,236 63,236
administrative
expenses
Research and
development 4,509 4,509 13,576 13,576
expenses
Restructuring
and impairment 3,202 (3,202 ) A - 3,465 (3,465 ) B -
charges
Operating 4,885 3,479 8,364 27,050 4,016 31,066
earnings
Other
(expense) /
income:
Interest (1,275 ) (1,275 ) (3,802 ) (3,802 )
expense
Other (307 ) (307 ) 98 98
Total
other (1,582 ) (1,582 ) (3,704 ) (3,704 )
expense
Earnings
before 3,303 3,479 6,782 23,346 27,362
income
taxes
Income tax
(benefit) / (3,912 ) 5,140 C 1,228 266 5,334 D 5,600
expense
Net $ 7,215 $ ) $ 5,554 $ $ ) $
earnings (1,661 23,080 (1,318 21,762
Net earnings
per share:
Basic $ 0.21 $ ) $ 0.16 $ 0.68 $ ) $ 0.64
(0.05 (0.04
Diluted $ 0.21 $ ) $ 0.16 $ 0.65 $ ) $ 0.61
(0.05 (0.04
Cash dividends
declared per $ 0.03 $ 0.03 $ 0.09 $ 0.09
share
Average common
shares
outstanding:
Basic 33,708 33,708 33,735 33,735
Diluted 38,199 38,199 38,206 38,206
Notes:
A. This adjustment pertains to restructuring charges that occurred in the third quarter of
2008 as a result of a company-wide restructuring plan.
This adjustment pertains to restructuring charges that occurred in the third quarter of
B. 2008 and carryovers from the fourth quarter of 2007 as a result of company-wide
restructuring plans.
C. This adjustment pertains to a net operating loss benefit realized due to the release of a
valuation allowance in a non-US jurisdiction.
D. The following table presents the tax components related to Notes A, B and C above:
Three Nine
months months
ended ended
Sept 28, Sept 28,
2008 2008
Tax benefit related to restructuring $ 1,252 $ 1,446
charges
Tax benefit related to release of 3,888 3,888
valuation allowance
$ 5,140 $ 5,334
CTS CORPORATION AND SUBSIDIARIES
RECONCILIATION OF CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) -
UNAUDITED TO CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - AS ADJUSTED
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Three Months Ended
June 28 June 28
2009 Adjustments Note 2009
(GAAP) Adjusted
Net sales $ 120,398 $ 120,398
Costs and expenses:
Cost of goods 98,520 98,520
sold
Selling, general and 15,243 15,243
administrative expenses
Research and development expenses 3,466 3,466
Operating earnings 3,169 - 3,169
Other (expense) / income:
Interest expense (440 ) (440 )
Other (25 ) (25 )
Total other expense (465 ) (465 )
Earnings before income 2,704 - 2,704
taxes
Income tax expense / (benefit) 9,729 (9,077 ) A 652
Net (loss) / $ (7,025 ) $ 9,077 $ 2,052
earnings
Net (loss) / earnings per
share:
Basic $ (0.21 ) $ 0.27 $ 0.06
Diluted $ (0.21 ) $ 0.27 $ 0.06
Cash dividends declared per $ 0.03 $ 0.03
share
Average common shares
outstanding:
Basic 33,779 33,779
Diluted 33,779 33,779
Notes:
A. This adjustment pertains to the tax expense related to a one-time cash
repatriation event.
Source: CTS Corporation
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