CTS Corporation Announces Record Results for the Third Quarter
25 October 2000
CTS Corporation Announces Record Results for the Third Quarter
Business EditorsELKHART, Ind.--Oct. 25, 2000--CTS Corporation announced record quarterly and year-to-date results for sales, net earnings and earnings per share.
Sales increased 23% for the third quarter to $222.1 million compared to the $180.2 million in the third quarter of last year, while net earnings increased 34% to $21.3 million from $15.9 million a year ago. On a fully diluted basis, earnings per share increased 36% to $0.76 per share from $0.56 last year. The third quarter of 2000 results included $0.05 per share from the sale of certain investments.
For the first nine months, revenues increased 32% while earnings per share on a fully diluted basis rose 87%. Year-to-date sales reached a record level of $633.1 million, compared to last year's $478.4 million, and net earnings at $61.0 million and earnings per share at $2.13 also established record highs, and compare favorably to the 1999 net earnings of $32.6 million and $1.14 earnings per share. The 1999 amount includes the one-time, noncash write-off of $8.6 million after-tax, for acquired in-process research and development in the first quarter of 1999.
"Sales and earnings per share increased 7.5% and 7.0%, respectively, in the third quarter compared to the immediately preceding quarter. The sequential quarterly growth occurred despite a reduction in sales to a major wireless customer during the quarter due to the customer's inventory realignment and the fact that $3.9 million in unabsorbed costs invoiced in the third quarter to the customer were not booked in the quarter. Given the strength of our underlying businesses and the substantial capital investments we have made over the past two years, we expect continued sustainable growth in our results of operations and are comfortable with the consensus estimates for earnings per share at $0.78 for the fourth quarter," said Joseph P. Walker, Chairman and Chief Executive Officer.
"Electronic components' backlog and customer demand forecasts have firmed during September and continue to build as we enter the fourth quarter. Our electronic assemblies business remains strong, and combined with a strengthening components revenue run rate, we are confident in our ability to achieve continued increases in revenue and earnings," added Mr. Walker.
Mr. Walker also commented, "The announcement that CTS has been selected as supplier on the Bluetooth wireless project is extremely positive. This emerging technology will enable wireless communication connectivity among a wide range of electronic devices. Also during the quarter, the Company began the development and limited production of Application Specific Resistor Networks (AS R-NETS(TM)) for disk drives, storage devices, workstations, servers and internet access systems. This new product requires 20% less space than competitive products, while extending frequency range and improving electronic performance, and serves both the high-growth computer and communications equipment industries."
FINANCIAL SUMMARY
(Dollars in millions, except per share amounts)
Third Quarter Year-to-Date
------------- ------------
2000 1999 % Increase 2000 1999(a) % Increase
---- ---- ---------- ---- ------- ----------
Net sales $222.1 $180.2 23% $633.1 $478.4 32%
Operating
earnings $ 31.3 $ 25.9 21% $ 93.2 $ 65.8 42%
Net earnings $ 21.3 $ 15.9 34% $ 61.0 $ 41.3 48%
Diluted earnings
per share $ 0.76 $ 0.56 36% $ 2.13 $ 1.44 48%
(a) Excludes the effect of a one-time, noncash charge from writing off
acquired in-process research and development in the first quarter
of 1999 ($12.9 million pre-tax, $8.6 million after-tax, or $0.30
per diluted share).
General Comments:
| -- | As a result of the installation of a conforming standard cost system, an inventory adjustment was recorded in the third quarter, increasing net earnings by $1.8 million. |
| -- | Due to lower than committed volumes from a major customer, the Company incurred a substantial under absorption of manufacturing and operating expenses within the components segment. A memorandum of understanding with the customer commits certain volumes and, accordingly, the Company billed the customer $3.9 million during the third quarter for the costs incurred. The customer has acknowledged the invoices, the payment of which is subject to verification and audit. While these costs were primarily incurred during the third quarter, no amounts were reflected in the quarter's results of operations. |
| -- | EBITDA was $43.0 million in the third quarter of 2000 (19.3% of sales) versus $33.8 million in the third quarter of 1999 (18.8% of sales). For the first nine months of 2000, EBITDA was $126.2 million (19.9% of sales), compared to $91.0 million (19.0% of sales) in the comparable period last year, excluding the effect of the acquired in-process research and development write-off. |
| -- | Interest bearing debt at October 1, 2000, was $177.3 million versus $167.0 million at December 31, 1999. This increase was driven by capital spending during the quarter of $35.7 million, which included $15.1 million for new products and technologies and capacity expansion, covering primarily our RF integrated modules (assemblies), crystals and oscillators and Application Specific Resistor Networks (components) product lines. Significant expenditures ($17.3 million) were devoted to land/building projects in Asia and the U.S. for these same products. |
THIRD QUARTER RESULTS - SEGMENT DISCUSSION
(Dollars in millions)
Third Quarter 2000 Third Quarter 1999
------------------ ------------------
Net Operating Net Operating
Sales Earnings Sales Earnings
------- --------- ------- ---------
Electronic Components $ 127.8 $ 22.2 $ 135.1 $ 20.2
Electronic Assemblies 94.3 9.1 45.1 5.7
------- ------- ------- -------
Total Reportable
Segments $ 222.1 $ 31.3 $ 180.2 $ 25.9
------- ------- ------- -------
------- ------- ------- -------
Electronic Components: During the third quarter, frequency control product sales continued to benefit from increasing demand, driven primarily by communications infrastructure requirements. Our resistor and electrocomponents business also improved significantly as strong demand continues for current surface mount devices and new product introductions. Also, shipments began during the third quarter on a new CDMA cellular phone program which had been delayed by a customer software issue.
Revenue drivers which adversely impacted the third quarter compared to the third quarter of 1999, in addition to the customer delayed CDMA program of $13.2 million, include the decline in the analog single mode cellular phones and inventory corrections (revenue decrease of $11.4 million), the elimination of sales from "end of life" products identified in the Company's acquisition of its wireless operations (revenue decrease of $5.1 million), and a decline in sales into the South Korean market resulting from the termination of government subsidies (revenue decrease of $3.5 million).
The components segment is currently going through a process of product revitalization, improving the technology and reducing the size of the components. The crystal oscillator (TCXO) components currently being sold are 9 x 11 mm in size. The next generation 5 x 7 mm will be introduced in the beginning of 2001. A new TCXO generation (3.2 x 5 mm) will be introduced in the second quarter of 2001. These products are targeted at the personal telecommunications market. A new Third Generation (3G) Duplexer will be introduced in the first half of 2001 and targeted to sell into the personal telecommunications, satellite and CATV markets.
Electronic Assemblies: The electronic assemblies segment experienced a third quarter 2000 sales increase of $49.2 million (109%) over 1999. Strong demand continued in the third quarter for electronic assemblies, and was driven both by interconnect boxbuild products and RF integrated modules.
Boxbuild assembly volume continues to ramp up in China, Europe and North America, with the newer operation in China now contributing to the record sales level. Our RF integrated module output has reached production volume levels. We continue to anticipate strong demand in our interconnect business and RF integrated module business for the balance of this year, and into 2001.
The Company's plans, estimates and beliefs concerning the future contained in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those reflected herein due to a variety of factors that could affect the Company's operating results, liquidity and financial condition. We have based these forward-looking statements on our current expectations and projections about future events. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could impact future results include the Company's ability to successfully integrate acquired operations; results of our investments in technology, including our ability to timely develop and achieve market acceptance of new products, and to protect our intellectual property; the Company's ability to attract and retain talented employees, including senior management; our ability to manage administrative, technical and operational issues presented by our expansion plans; the loss and inability to replace the revenues generated by one or more of our large OEM customers; the Company's sensitivity to general economic conditions and events that affect the automotive, computer equipment and communications industries; continuing growth of the wireless communications market and the Company's participation in that growth; the impact of changes in commodity, including precious metals, prices; the pace at which competitors enter the Company's markets and competitive responses of other companies, including the Company's customers, in such markets; product pricing pressures and demand for the Company's products, especially if economic conditions worsen in the automotive, computer equipment and/or communications markets; and risks associated with our international operations and expansion into developing and new markets, including trade and tariff barriers, exchange rates and political risks. Investors are directed to examine the Company's SEC filings, which more fully describe the risks and uncertainties associated with the Company's business.
CTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
-------------------- --------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999(b)
--------- --------- --------- ---------
Net sales $ 222,052 $ 180,203 $ 633,129 $ 478,367
Costs and expenses:
Cost of goods sold 159,294 125,236 443,030 333,527
Selling, general and
administrative
expenses 21,716 21,326 69,008 58,787
Research and development
expenses 8,237 6,566 24,059 17,804
Acquired in-process
research and
development -- -- -- 12,940
Amortization of
intangibles 1,513 1,147 3,803 2,448
--------- --------- --------- ---------
Operating earnings 31,292 25,928 93,229 52,861
Other expenses (income):
Interest expense 3,160 2,856 9,427 7,077
Other (1,473) 298 (1,688) (1,125)
--------- --------- --------- ---------
Total other
expenses (income) 1,687 3,154 7,739 5,952
--------- --------- --------- ---------
Earnings before
income taxes 29,605 22,774 85,490 46,909
Income tax expense 8,290 6,825 23,938 14,307
--------- --------- --------- ---------
Earnings from continuing
operations 21,315 15,949 61,552 32,602
Discontinued operations:
Net loss from
discontinued
operations -- -- (529) --
--------- --------- --------- ---------
Net earnings $ 21,315 $ 15,949 $ 61,023 $ 32,602
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (loss)
per share:
Basic:
Continuing
operations $ 0.77 $ 0.58 $ 2.22 $ 1.19
Discontinued
operations -- -- (0.02) --
--------- --------- --------- ---------
Net earnings $ 0.77 $ 0.58 $ 2.20 $ 1.19
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted:
Continuing
operations $ 0.76 $ 0.56 $ 2.15 $ 1.14
Discontinued
operations -- -- (0.02) --
--------- --------- --------- ---------
Net earnings $ 0.76 $ 0.56 $ 2.13 $ 1.14
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash dividends paid
per share $ 0.03 $ 0.03 $ 0.09 $ 0.09
Average common
shares outstanding:
Basic 27,748 27,555 27,764 27,491
Diluted 28,140 28,573 28,639 28,582
(b) 1999 earnings include the effect of a one-time, noncash write-off
for acquired in-process research and development related to the
acquisition of CTS Wireless in the first quarter of 1999
($12.9 million pre-tax, $8.6 million after-tax, or $0.30 per
diluted share).