CTS Announces First Quarter 2009 Results

ELKHART, Ind.--CTS Corporation today announced first quarter 2009 revenues of $118.1 million, compared to $172.8 million in the same period last year, reflecting the impact of the global recession. The adjusted net loss in the first quarter 2009, which excludes charges for restructuring and non-cash goodwill impairment, was $1.1 million, or $0.03 per diluted share, which compared to net earnings of $6.3 million, or $0.18 per diluted share, in the same period last year. The GAAP net loss in the first quarter 2009, which includes $2.2 million of restructuring charges and $33.2 million of non-cash charges for goodwill impairment, was $35.6 million, or $1.06 per diluted share.

The previously announced restructuring actions taken in the first quarter are projected to save approximately $5 million annually with an expected payback of less than six months. The first quarter results benefited from the restructuring actions taken in the second half of last year through the first quarter of 2009. With global headcount reduced by approximately 20%, the Company’s cost structure has been permanently reduced by approximately $15 million. In addition, certain temporary actions were implemented during the first quarter of 2009, including a worldwide salary freeze, suspension of the Company’s 401(K) match, temporary reductions in salaries and implementation of furlough programs to align labor costs with lower production volumes. As a result, the adjusted $0.03 loss per diluted share compares favorably to expectations.

As a result of the broad-based global declines in the stock market, there was a significant decrease in the Company’s market capitalization during the first quarter 2009. Accordingly, the Company impaired its goodwill resulting in a non-cash charge of $33.2 million, or $0.98 per diluted share. This charge does not impact the Company’s current or future cash flows, liquidity or its debt covenants.

Despite the adverse global economic environment, CTS’ pace of new business wins was encouraging during the first quarter 2009. Revenues from these wins exceed $80 million over their program lives. Within the Components and Sensors segment, new business awards included pedal module business for sub-compact vehicles, smart actuators and sensors for diesel engine applications, turbocharger sensors for European markets, piezoceramics for medical ultrasound and mini-joysticks for wireless cell phone gaming. Within EMS, new business wins included encrypted electronics for security systems and complex controls for the A3 Bradley Vehicle.

Components and Sensors segment sales decreased 46% from the same period last year, impacted primarily by declines in North American light vehicle production of over 50% during the first quarter of 2009 compared to the same period last year. While sales of electronic component products have decreased year-over-year reflecting overall market softness, the Company’s diversification efforts have resulted in improved sales into Asia.

EMS sales decreased 20% from the same period last year, reflecting previously announced planned end-of-life sales reductions to Hewlett-Packard. However, sales into targeted markets have shown strength, as sales in defense and aerospace and medical markets improved double-digit year-over-year. In addition, the favorable sales mix combined with cost improvements resulted in improved profitability in this segment.

Cash flow used in operations was $4.0 million, $1.5 million favorable from the same period last year. Capital expenditures of $1.4 million were $2.1 million lower than the same period last year.

Commenting on first quarter results, Vinod M. Khilnani, CTS President and Chief Executive Officer, stated, “Although customer demand decreased significantly due to the global recession, new business wins and design activity remained strong. As a result of taking proactive actions that have significantly reduced the Company’s cost structure and cash flow needs, CTS is expecting to emerge from the recession as a leaner and more profitable company to better serve its customers and enhance shareholder value.”

With the uncertainty of market conditions and very limited visibility by customers in the current environment, no specific sales and earnings guidance is being provided at this time. However, management continues to take actions designed to keep CTS profitable on a full-year adjusted basis in 2009 and expects to generate positive free cash flow for the year.