CTS Reports Strong Results for the Third Quarter; Maintains Full-Year 2004 Earnings Guidance
ELKHART, Ind.--Oct. 1, 20048, 2004--CTS Corporation today announced third quarter 2004 revenues of $129.0 million, a 19% increase over the third quarter of 2003. Diluted earnings per share were $0.11. This compares to $0.17 per share in the same quarter last year. Third quarter 2003 earnings per share included a net benefit of $0.12 due to a favorable income tax adjustment of $0.22 per share, partially offset by an asset impairment charge of $0.10 per share.Revenues for the first nine months of 2004 were $388.8 million, 17% above the comparable period last year. Diluted earnings per share for the first nine months of 2004 were $0.37 compared to the $0.25 for the first nine months of 2003.
"We are pleased with the strong revenue growth and continued improvement in our operating performance in the third quarter," commented Donald Schwanz, CTS Chairman and Chief Executive Officer. "Sales of our automotive sensors and electronics manufacturing services were particularly strong, reflecting the success of our growth strategy," added Mr. Schwanz.
General Comments:
-- Year to date, the Company has generated free cash flow, defined as operating cash flow plus cash flow from investing activities, of $18.8 million. This compares to $13.8 million for the first nine months of 2003.
-- Total debt net of cash ended the quarter at $39.1 million, $11.5 million lower than year-end 2003. Total debt to capitalization ratio of 22.3% at the end of the third quarter was well within the Company's target range of 20% to 30%.
The Company expects full-year 2004 revenue growth of 13% to 15% over 2003 and earnings per share in the range of $0.50 to $0.54, including the gain on the sale of the excess Canadian land during the second quarter of 2004.
THIRD QUARTER RESULTS - SEGMENT INFORMATION
(Dollars in millions)
Third Quarter Third Quarter Second Quarter
2004 2003 2004
----------------- ----------------- -----------------
Net Segment Net Segment Net Segment
Sales Operating Sales Operating Sales Operating
Earnings Earnings Earnings
------- --------- ------- --------- ------- ---------
Components &
Sensors $63.2 $4.6 $61.5 $1.5 $68.2 $8.7
Electronics
Manufacturing
Services (EMS) 65.8 1.3 47.0 2.4 69.4 1.9
------- --------- ------- --------- ------- ---------
Total $129.0 $5.9 $108.5 $3.9 $137.6 $10.6
======= ========= ======= ========= ======= =========
Components & Sensors: Components and sensors sales increased by $1.8 million, or 3%, over the third quarter of 2003. Within this segment, sales of automotive sensor products grew by over 10%. Segment operating earnings increased primarily as a result of improved product mix, favorable currency exchange, and lower depreciation expense.
The third quarter components and sensors sales decreased from the second quarter of 2004 by $5.0 million, or 7%, reflecting normal seasonal factors. Segment operating earnings were lower than the second quarter of 2004 as a result of lower sales. The second quarter included a gain of $2.7 million from the sale of excess land in Canada.
EMS: EMS third quarter 2004 sales increased by $18.8 million, or 40%, from the third quarter of 2003, driven primarily by increased demand for computer data storage equipment. However, segment operating earnings were lower than the third quarter of 2003, primarily due to unfavorable currency exchange, Singapore factory cost allocations, product mix, and pricing.
The third quarter EMS revenues were $3.6 million, or 5% below the 2004 second quarter sales, primarily due to lower demand for infrastructure products. EMS segment operating earnings were lower than the second quarter of 2004 primarily due to lower sales.
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------- --------------------
Sept. 26, Sept. 28, Sept. 26, Sept. 28,
2004 2003 2004 2003
--------- --------- ---------- ---------
Net sales $129,049 $108,496 $388,820 $330,962
Costs and expenses:
Cost of goods sold 102,737 84,841 308,982 261,704
Selling, general and
administrative expenses 16,017 14,694 47,516 42,165
Research and development
expenses 4,693 5,052 14,250 16,083
Gain on sale of assets (252) - (3,319) -
Asset impairment charge - 4,563 - 4,563
--------- --------- ---------- ---------
Operating earnings (loss) 5,854 (654) 21,391 6,447
Other expenses (income):
Interest expense 1,118 2,139 4,241 6,010
Other (356) (373) (172) (548)
--------- --------- ---------- ---------
Total other expenses 762 1,766 4,069 5,462
--------- --------- ---------- ---------
Earnings (loss) before
income taxes 5,092 (2,420) 17,322 985
Income tax expense
(benefit) 1,171 (8,494)(1) 3,984 (7,643)(1)
--------- --------- ---------- ---------
Net earnings $3,921 $6,074 $13,338 $8,628
--------- --------- ---------- ---------
Net earnings per share:
Basic $0.11 $0.17 $0.37 $0.25
--------- --------- ---------- ---------
Diluted $0.11 $0.17 $0.37 $0.25
--------- --------- ---------- ---------
Cash dividends declared
per share $0.03 $0.03 $0.09 $0.09
Average common shares
outstanding:
Basic 35,896 34,799 35,946 34,351
Diluted 36,401 35,352 36,299 34,729
(1) Income tax benefit in 2003 includes $7.9 million relating to the
reversal of income tax reserves due to the expiration of certain
statutory limitations.
CTS Corporation and Subsidiaries
Condensed Consolidated Balance Sheets- Unaudited
(In thousands of dollars)
September December
26, 2004 31, 2003(a)
------------- ------------
(Unaudited)
Cash and equivalents $47,925 $25,346
Accounts receivable, net 78,850 72,290
Inventories, net 45,482 31,925
Other current assets 37,523 35,205
------------- ------------
Total current assets 209,780 164,766
------------- ------------
Property, plant & equipment, net 115,669 122,481
Other assets 184,994 195,003
------------- ------------
Total Assets $510,443 $482,250
============= ============
Accounts payable $59,454 $52,252
Other accrued liabilities 43,911 43,437
------------- ------------
Total current liabilities 103,365 95,689
------------- ------------
Long-term debt 87,000 75,880
Other obligations 16,459 16,490
Shareholders' equity 303,619 294,191
Total Liabilities and
------------- ------------
Shareholders' Equity $510,443 $482,250
============= ============
(a) The balance sheet at December 31, 2003 has been derived from the
audited financial statements at that date.
CTS CORPORATION AND SUBSIDIARIES
OTHER SUPPLEMENTAL INFORMATION
(In thousands of dollars)
The following table summarizes free cash flow for the Company:
Nine Months Ended
September 26, September 28,
2004 2003
------------------------------
Net cash provided by operations $9,663 $16,072
Net cash provided by (used in)
investing activities 9,165 (2,254)
------------------------------
Free cash flow $18,828 $13,818
==============================
Free cash flow is a non-GAAP financial measure which CTS defines as
net cash provided by operations plus net cash provided by (used in)
investing activities. The most directly comparable GAAP financial
measure is net cash provided by operations. Management believes that
free cash flow provides useful information to investors regarding the
Company's ability to generate cash from business operations that is
available for internal growth, service of debt principal, dividends,
share repurchase and acquisitions and other investments. Management
uses free cash flow as one measure to monitor and evaluate the
performance of the Company.