CTS ANNOUNCES THIRD QUARTER 2009 FINANCIAL RESULTS

Reports Strong Cash Flow and Sequential Improvement in Sales and Earnings
 

Elkhart, IN…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 2009				Third Quarter  2008				Second Quarter 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.