CTS Announces Third Quarter 2009 Financial Results

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 (EMS)	70.8		2.2		97.5		2.7			70.8		1.1
Segment Operating Earnings			6.3				8.4					3.2
Expenses not allocated to business segments:
- Restructuring and related charges							(3.5	)
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 sold				100,380			136,684			297,202			421,553
		Selling, general and administrative expenses				16,494			20,754			48,357			63,236
		Research and development expenses				3,408			4,509			10,227			13,576
		Restructuring and impairment charges				-			3,202			2,243			3,465
		Goodwill impairment				-			-			33,153			-
	Operating earnings / (loss)					6,283			4,885			(26,088	)		27,050
	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 income taxes			5,654			3,303			(28,321	)		23,346
	Income tax expense / (benefit)					1,173			(3,912	)		9,872			266
	Net earnings / (loss)					$ 4,481			$ 7,215			$ (38,193	)		$ 23,080
	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 share					$ 0.03			$ 0.03			$ 0.09			$ 0.09
	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 administrative expenses				16,494			20,754			48,357			63,236
		Research and development expenses				3,408			4,509			10,227			13,576
	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 income taxes			5,654			6,782			7,075			27,362
	Adjusted income tax expense					1,173			1,228			1,673			5,600
	Adjusted net earnings					$ 4,481			$ 5,554			$ 5,402			$ 21,762
	Adjusted net earnings per share:
	Diluted					$ 0.13			$ 0.16			$ 0.16			$ 0.61
	Cash dividends declared per share					$ 0.03			$ 0.03			$ 0.09			$ 0.09
	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 Ended				Three Months Ended				Nine Months Ended						Nine Months Ended
						September 27					September 27			September 27						September 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 goods sold				100,380					100,380			297,202						297,202
		Selling, general and administrative expenses				16,494					16,494			48,357						48,357
		Research and development expenses				3,408					3,408			10,227						10,227
		Restructuring and impairment charges				-					-			2,243		(2,243	)		A	-
		Goodwill Impairment				-					-			33,153		(33,153	)		B	-
	Operating earnings / (loss)					6,283		-			6,283			(26,088	)	35,396				9,308
	Other expense:
		Interest expense				(239	)				(239	)		(1,497	)					(1,497	)
		Other				(390	)				(390	)		(736	)					(736	)
			Total other expense			(629	)				(629	)		(2,233	)					(2,233	)
			Earnings / (loss) before income taxes			5,654		-			5,654			(28,321	)	35,396				7,075
	Income tax expense / (benefit)					1,173					1,173			9,872		(8,199	)		C	1,673
	Net (loss) / earnings					$ 4,481		$ -			$ 4,481			$ (38,193	)	$ 43,595				$ 5,402
	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 share					$ 0.03					$ 0.03			$ 0.09						$ 0.09
	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 restructuring charges									$ 673
		Tax benefit related to first quarter goodwill impairment charges									205
		Tax expense related to one-time cash repatriation event									(9,077	)
											$ (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 Ended					Three Months Ended				Nine Months Ended						Nine Months Ended
						September 28						September 28			September 28						September 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 goods sold				136,684		(277	)			136,407			421,553		(551	)			421,002
		Selling, general and administrative expenses				20,754						20,754			63,236						63,236
		Research and development expenses				4,509						4,509			13,576						13,576
		Restructuring and impairment charges				3,202		(3,202	)		A	-			3,465		(3,465	)		B	-
	Operating earnings					4,885		3,479				8,364			27,050		4,016				31,066
	Other (expense) / income:
		Interest expense				(1,275	)					(1,275	)		(3,802	)					(3,802	)
		Other				(307	)					(307	)		98						98
			Total other expense			(1,582	)					(1,582	)		(3,704	)					(3,704	)
			Earnings before income taxes			3,303		3,479				6,782			23,346						27,362
	Income tax (benefit) / expense					(3,912	)	5,140			C	1,228			266		5,334			D	5,600
	Net earnings					$ 7,215		$ (1,661	)			$ 5,554			$ 23,080		$ (1,318	)			$ 21,762
	Net earnings per share:
	Basic					$ 0.21		$ (0.05	)			$ 0.16			$ 0.68		$ (0.04	)			$ 0.64
	Diluted					$ 0.21		$ (0.05	)			$ 0.16			$ 0.65		$ (0.04	)			$ 0.61
	Cash dividends declared per share					$ 0.03						$ 0.03			$ 0.09						$ 0.09
	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.
	B.	This adjustment pertains to restructuring charges that occurred in the third quarter of 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 months			Nine months
												ended			ended
												Sept 28, 2008			Sept 28, 2008
		Tax benefit related to restructuring charges										$ 1,252			$ 1,446
		Tax benefit related to release of valuation allowance										3,888			3,888
												$ 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 sold				98,520					98,520
		Selling, general and administrative expenses				15,243					15,243
		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 taxes			2,704		-			2,704
	Income tax expense / (benefit)					9,729		(9,077	)	A	652
	Net (loss) / earnings					$ (7,025	)	$ 9,077			$ 2,052
	Net (loss) / earnings per share:
	Basic					$ (0.21	)	$ 0.27			$ 0.06
	Diluted					$ (0.21	)	$ 0.27			$ 0.06
	Cash dividends declared per share					$ 0.03					$ 0.03
	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.