Annual Report (Form 10-K), fiscal year 1994

Item 1. Business
INTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS
The registrant, CTS Corporation (CTS or Company), is an Indiana corporation incorporated in 1929 as a successor to a company started in 1896. CTS' principal executive offices are located at 905 West Boulevard North, Elkhart, Indiana 46514, telephone number (219) 293-7511.
CTS designs, manufactures and sells electronic components. The engineering and manufacturing of CTS products is performed at 16 facilities worldwide. CTS products are sold through sales engineers, sales representatives, agents and distributors.
In March 1987, a settlement was announced between CTS and Dynamics Corporation of America (DCA), terminating the sale process of the Company and resolving all disputes between CTS and DCA. Subsequently, the United States Supreme Court held that the Control Share Acquisition Chapter of the Indiana Business Corporation Law was constitutional. As a result of the Court's decision, the issue of voting rights of 1,020,000 shares of CTS common stock acquired by DCA in 1986 was submitted to a vote of CTS stockholders at the 1987 annual meeting. The affirmative vote of the majority of all shares eligible to vote was necessary to grant voting rights. DCA was not eligible to vote on the issue. The stockholders voted not to grant voting rights to DCA on these shares. The Court's decision did not have an impact on the voting rights in additional shares of CTS common stock previously or subsequently acquired by DCA. In May 1988, the settlement agreement expired pursuant to its terms. At the end of 1994, DCA owned 2,222,100 shares (42.9%) of CTS common stock, including the 1,020,000 shares without voting rights.
In January 1990, the Company formally announced the closing of its Switch Division located in Paso Robles, California. The Paso Robles manufacturing operations were relocated to the Company's facilities in Taiwan and Bentonville, Arkansas. During 1992, the Company completed the sale of the Paso Robles manufacturing plant and most of the associated real estate for $1.9 million. A pretax-tax gain of $0.9 was realized from the sale. The manufacturing operations for certain variable resistor and selector switch products, which formerly were performed in Elkhart, Indiana, were also transferred to Bentonville in 1990, to take advantage of any efficiencies to be gained in consolidating such operations in Bentonville. The buildings located in Elkhart which housed the plastics molding, and element production, were vacated, with these manufacturing operations being consolidated into the main Elkhart plant.
CTS announced in July 1990 that its facility near Glasgow, Scotland, would be expanded in order to manufacture and sell additional electronic products in Europe. The total capital investment has been approximately $11 million as of December 31, 1994. Automotive throttle position sensors and precision and clock oscillators were added to the product lines already manufactured in Scotland. The decision to expand the Scottish facility was based on several factors, including the excellent business climate and skills base in Scotland and the anticipated full participation of the United Kingdom in the European Economic Community. The expansion of the Scotland facility represents a major effort by CTS to serve the large and rapidly growing European market on a direct basis.
In November 1991, construction was completed on a 53,000 square foot manufacturing facility in Bangkok, Thailand. During 1992, the Company idled operations at this facility. During 1994, a three- year lease was finalized with an international computer peripheral manufacturer for this property. The annual rental amount is approximately U.S. $345,000.
Also during 1991, the Company significantly reduced the operating activities at its Brownsville, Texas, facility and plans to sell this property. A portion of the Brownsville facility is currently under a leasing arrangement which expires in 1999, at an annual rental amount of approximately $60,000.
The manufacturing space owned by CTS in Hong Kong, which consisted of two floors in a multi-story building, was sold in March 1991. One floor was leased back by CTS for the continuation of its manufacturing operations in Hong Kong. During 1992, the Company terminated this lease and discontinued its manufacturing operations in Hong Kong.
During 1994, the Company purchased the assets of AT&T Microelectronics' light emitting diode based optic data link products business. The transaction also included sales contracts, backlog, intellectual property, trademarks, and the design and manufacturing technology. These products will be manufactured in the Microelectronics West Lafayette, Indiana, facility.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
All of the Company's products are considered one industry segment. Sales to unaffiliated customers, operating profit and identifiable assets, by geographic area, are contained in "Note I - Business Segment and Non-U.S. Operations," pages 21-23, of the CTS Corporation 1994 Annual Report, and is incorporated herein by reference.
PRINCIPAL BUSINESS AND PRODUCTS OF CTS
CTS is primarily in the business of developing, manufacturing and selling a broad line of electronic components principally serving the electronic needs of original equipment manufacturers (OEMs).
The Company sells classes of similar products consisting of the following:
Automotive control devices Loudspeakers Electronic connectors Programmable switches Frequency control devices Resistor networks Hybrid microcircuits Selector switches Industrial electronics Variable resistors
Most products within these product classes are manufactured by CTS from purchased raw materials or subassemblies. Some products sold by CTS are purchased and resold under the Company's name.
During the past three years, five classes of similar product lines accounted for 10% or more of consolidated revenue during one or more years, as follows:
Percent of Consolidated Revenue Class of Similar Products 1994 1993 1992
Automotive Control Devices 30 26 20 Electronic Connectors 17 14 17 Frequency Control Devices 15 15 17 Resistor Networks 11 14 16 Hybrid Microcircuits 10 14 11 Other 17 17 19
Total 100% 100% 100%
MARKETS
CTS estimates that its products have been sold in the following segments of the electronics OEM and distribution markets and in the following percentages during the preceding three fiscal years:
Percent of Consolidated Revenue Markets 1994 1993 1992
Automotive 38 32 25 Data Processing 17 22 20 Communications Equipment 17 17 18 Defense and Aerospace 11 12 17 Instruments and Controls 9 9 12 Distribution 5 4 5 Consumer Electronics 3 4 3
Total 100% 100% 100%
Products for the automotive market include throttle position sensors, switch assemblies for operator interface, exhaust gas recirculation subsystems, variable resistors and switches for automotive entertainment systems and other applications, and loudspeakers.
Products for the data processing market include resistor networks, frequency control devices, programmable switches and hybrid microcircuits. Products for this market are principally used in computers and computer peripheral equipment.
In the communications equipment market, CTS products include frequency control devices, hybrid microcircuits, switches and resistor networks. Products for this market are principally used in telephone equipment and in telephone switching systems.
CTS products for the defense and aerospace market, usually procured through government contractors or subcontractors, are electronic connectors, hybrid microcircuits, backpanels, frequency control devices and programmable key storage devices.
Products for the instruments and controls market include hybrid microcircuits, variable resistors and switches. Principal end uses are medical electronic devices and electronic testing, measuring and servicing instruments.
In the distribution market, CTS' primary products include program- mable switches, resistor networks and frequency control devices. In this market, standard CTS products are sold for a wide variety of applications.
Products for the consumer electronics market, primarily variable resistors and switches, are principally used in home entertainment equipment and appliances.
MARKETING AND DISTRIBUTION
Sales of CTS electronic components to original equipment manufacturers are principally by CTS sales engineers and manufacturers' representatives. CTS maintains sales offices in Elkhart, Indiana; Detroit, Michigan; and in the United Kingdom, Hong Kong, Taiwan and Japan. Various regions of the United States are serviced by sales engineers working out of their homes. The sale of electronic components is relatively integrated such that most of the product lines of CTS are sold through the same field sales force. Approximately 40% of net sales in 1994 were attributable to coverage by CTS sales engineers.
Generally, CTS sales engineers service the Company's largest customers with application specific products. CTS sales engineers work closely with major customers in determining customer require- ments and in designing CTS products to be provided to such customers.
CTS uses the services of independent sales representatives and distributors in the United States and other countries for customers not serviced by CTS sales engineers. Sales representatives receive commissions from CTS. During 1994, about 55% of net sales were at- tributable to coverage by sales representatives. Independent distributors purchase products from CTS for resale to customers. In 1994, independent distributors accounted for about 5% of net sales.
RAW MATERIALS
Generally, CTS' major raw materials are steel, copper, brass, certain precious metals, resistive and conductive inks, passive components and semiconductors, used in several CTS products; ceramic materials used particularly in resistor networks and hybrid microcircuits; synthetic quartz used in frequency control devices; and laminate material used in printed circuit boards. These raw materials are purchased from several vendors, and except for certain semiconductors, CTS does not believe that it is dependent on one or on a very few vendors. In 1994, all of these materials were available in adequate quantities to meet CTS' production demands.
The Company does not presently anticipate any raw material short- ages which would significantly affect production. However, the lead times between the placement of orders for certain raw mater- ials and actual delivery to CTS are quite variable, and the Company may from time to time be required to order raw materials in quantities and at prices less than optimal to compensate for the variability of lead times for delivery.
Precious metals prices have a significant effect on the manufactur- ing cost and selling prices of many CTS products, particularly some programmable switches, electronic connectors and resistor networks. CTS has continuing programs to reduce the precious metals content of several products, when consistent with customer specifications.
WORKING CAPITAL
CTS does not usually buy inventories or manufacture products without actual or reasonably anticipated customer orders, except for some standard, off-the-shelf distributor products. The Company is not generally required to carry significant amounts of inven- tories to meet rapid delivery requirements because most customer orders are for custom products. CTS has entered into "just-in- time" arrangements with certain major customers in order to meet customers' just-in-time delivery needs.
CTS carries raw materials, including certain semiconductors, and certain work-in-process and finished goods inventories which are unique to a particular customer or to a small number of customers, and in the event of reductions in or cancellations of orders, some inventories are not useable or cannot be returned to vendors for credit. CTS generally imposes charges for the reduction or cancellation of orders by customers, and these charges are usually sufficient to cover the financial exposure of CTS to inventories which are unique to a customer. CTS does not customarily grant special return privileges or payment privileges to customers, although CTS' distributor program permits certain returns. CTS' working capital requirements are generally cyclical but not seasonal.
Working capital requirements are generally dependent on the overall business level. During 1994, working capital increased significantly to $65.9 million, as receivables and inventories increased in response to the greater sales. Also, short-term debt was reduced, generally being replaced by long-term obligations at relatively more favorable borrowing rates. Cash represents a significant part of the Company's working capital. Cash of various non-U.S. subsidiaries was held in U.S.-denominated cash equivalents at December 31, 1994. The cash, other than approximately $4.6 million, is generally available to the parent Company.
PATENTS, TRADEMARKS AND LICENSES
CTS maintains a program of obtaining and protecting U.S. and non- U.S. patents and trademarks. CTS believes that the success of its business is not materially dependent on the existence or duration of any patent, group of patents or trademarks.
CTS licenses the manufacture of several electronic products to companies in the United States and non-U.S. countries. In 1994 license and royalty income was less than 1% of net sales. CTS believes that the success of its business is not materially dependent upon any licensing arrangement where CTS is either the licensor or licensee.
MAJOR CUSTOMERS
CTS' 15 largest customers represented about 62%, 62% and 58% of net sales in 1994, 1993 and 1992, respectively.
Of the net sales to unaffiliated customers, approximately $49.4 million, $40.1 million and $30.7 million were derived from sales to General Motors Corporation in 1994, 1993 and 1992, respectively. During 1993 and 1992, $24.0 million and $19.3 million were derived from sales to International Business Machines Corporation. However, during 1994 sales to this customer decreased to $4.4 million. CTS is dependent upon these and other customers for a significant percentage of its sales and profits, and the loss of one or more of these customers or reduction of orders by one or more of these customers could have a materially adverse effect upon the Company.
BACKLOG OF ORDERS
Backlog of orders does not necessarily provide an accurate indica- tion of present or future business levels for CTS. For many electronic products, the period between receipt of orders and delivery is relatively short. For large orders from major customers that may constitute backlog over an extended period of time, production scheduling and delivery are subject to change or cancellation by the customers on relatively short notice. At the end of 1994, the Company's backlog of orders was $82.7 million, compared with $70.5 million at the end of 1993. This increase was primarily attributable to increased demand from automotive and microelectronics customers.
The backlog of orders at the end of 1994 will generally be filled during the 1995 fiscal year.
GOVERNMENT CONTRACTS
CTS believes that about 11% of its net sales are associated with purchases by the U.S. Government or non-U.S. governments, principally for defense and aerospace applications. Because most CTS products procured through government contractors and subcontractors are for military end uses, the level of defense and aerospace market sales by CTS is dependent upon government budgeting and funding of programs utilizing electronic systems.
Almost all CTS sales involving government purchases are to primary government contractors or subcontractors. CTS is usually subject to contract provisions permitting termination of the contract, usually with penalties payable by the government; maintenance of specified accounting procedures; limitations on and renegotiations of profits; priority production scheduling; and possible penalties or fines against CTS for late delivery or substandard quality. Such contract provisions have not previously resulted in material uncertainties or disruptions for CTS.
COMPETITION
CTS competes with many domestic and non-U.S. manufacturers prin- cipally on the basis of product features, price, engineering, quality, reliability, delivery and service. Most product lines of CTS encounter significant competition. The number of significant competitors varies from product line to product line. No single competitor competes with CTS in every product line, but many com- petitors are larger and more diversified than CTS. Some com-
petitors are divisions or affiliates of customers. CTS is subject to competitive risks typical in the electronics industry such as shorter product life cycles and new products causing existing products to become obsolete.
Some customers have reduced or plan to reduce the number of suppliers while increasing the volume of purchases from independent suppliers. Most customers are demanding higher quality, reliability and delivery standards from CTS as well as competitors. These trends may create opportunities for CTS while also increasing the risk of loss of business to competitors.
The Company believes that it competes most successfully in custom products manufactured to meet specific applications of major original equipment manufacturers.
CTS believes that it has some advantages over certain competitors because of its ability to apply a broad range of technologies and materials capabilities to develop products for the special require- ments of customers. CTS also believes that it has an advantage over some competitors in its capability to sell a broad range of products manufactured to relatively consistent standards of quality and delivery. CTS believes that the relative breadth of its product lines and relative consistency in quality and delivery across product lines is an advantage to CTS in selling products to customers.
CTS believes that it is one of the largest manufacturers of automotive throttle position sensors.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Information about revenue from sales to unaffiliated customers, operating profit and identifiable assets, by geographic area, is contained in "Note I - Business Segment and Non-U.S. Operations," pages 21-23, of the CTS Corporation 1994 Annual Report, and is incorporated herein by reference.
In 1994, approximately 34% of net sales to unaffiliated customers, after eliminations, were attributable to non-U.S. operations. This represents an increase from 28% of net sales attributable to non- U.S. operations in 1993. About 32% of total CTS assets, after eliminations, are non-U.S. Except for cash and equivalents, a substantial portion of these assets cannot readily be liquidated. CTS believes that the business risks attendant to its present non- U.S. operations, though substantial, are normal risks for non-U.S. businesses, including expropriation, currency controls and changes in currency exchange rates and government regulations.
RESEARCH AND DEVELOPMENT ACTIVITIES
In 1994, 1993 and 1992, CTS spent $7.1, $5.7 and $6.1 million, respectively, for research and development. Most CTS research and development activities relate to new product and process develop- ments or the improvement of product materials. Many such research and development activities are for the benefit of one or a limited number of customers or potential customers.
During 1994, except for the purchase of the light emitting diode based optic data link products assets, the Company did not enter into any new, significant product lines, but continued to introduce additional versions of existing products in response to present and future customer requirements.
ENVIRONMENTAL PROTECTION LAWS
In complying with federal, state and local environmental protection laws, CTS has modified certain manufacturing processes and expects to continue to make additional modifications. Such modifications that have been performed have not materially affected the capital expenditures, earnings or competitive position of CTS.
Certain processes in the manufacture of the Company's current and past products create hazardous waste by-products as currently defined by federal and state laws and regulations. The Company has been notified by the U.S. Environmental Protection Agency, state environmental agencies and, in some cases, generator groups, that it is or may be a Potentially Responsible Party (PRP) regarding hazardous waste remediation at several non-CTS sites. The factual circumstances of each site are different; the Company has determined that its role as a PRP with respect to these sites, even in the aggregate, will not have a material adverse effect on the Company's business or financial condition, based on the following: 1) the Company's status as a de minimis party; 2) the large number of other PRPs identified; 3) the identification and participation of many larger PRPs who are financially viable; 4) defenses concerning the nature and limited quantities of materials sent by the Company to certain of the sites; and 5) the Company's experience to-date in relation to the determination of its allocable share. In addition to these non-CTS sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its manufacturing locations and for claims and proceedings against the Company with respect to other environmental matters. In the opinion of management, based upon presently available information, either adequate provision for probable costs has been made, or the ultimate costs resulting will not materially affect the consolidated financial position or results of operations of the Company.
There are claims against the Company with respect to environmental matters which the Company contests. In the opinion of management, based upon presently available information, either adequate provision for potential costs has been made, or the costs which ultimately might result will not materially affect the consolidated financial position or results of operations of the Company.
EMPLOYEES
CTS employed an average of 4,056 persons during 1994. About 45% of these persons were employed outside the United States at the end of 1994. Approximately 370 employees in the United States were covered by collective bargaining agreements as of December 31, 1994. One of the two collective bargaining agreements covering these employees will expire in 1995. The other agreement will expire in 1999.
Item 2.



Item 2. Properties
CTS operations or facilities are at the following locations. The owned properties are not subject to material liens or encumbrances.
Location
Elkhart, IN 521,813 Owned - Berne, IN 248,726 Owned - Singapore 158,926 Owned* - Kaohsiung, Taiwan 132,887 Owned* - Streetsville, Ontario, Canada 111,740 Owned - West Lafayette, IN 105,983 Owned - Sandwich, IL 94,173 Owned - Brownsville, TX 84,679 Owned - Bentonville, AR 72,000 Owned - Glasgow, Scotland 75,000 Owned - New Hope, MN 55,000 Leased December (Science Center Dr.) 1998 Bangkok, Thailand 53,000 Owned - Matamoros, Mexico 50,590 Owned* - Baldwin, WI 39,050 Owned - Cokato, MN 36,000 Owned - Burlington, WI 5,000 Leased March
TOTAL 1,844,567
* Buildings are located on land leased under renewable leases.
The Company is currently seeking to sell some, or all, of the Streetsville, Ontario, Canada, facility and related property, and the Brownsville, Texas, manufacturing building. A portion of the Brownsville facility is currently under a leasing arrangement which expires in 1999. The annual rental income is approximately $60,000. Also, a portion of the New Hope, Minnesota, facility is currently under a sublease arrangement, which expires in 1998. The annual rental income is approximately $88,400.
The Company constructed the Bangkok, Thailand, facility during 1991. This facility was idled during 1992 and was idle for all of 1993. During 1994, the Company entered a three-year lease on this property at an annual rental amount of approximately U.S. $345,000.
The Company regularly assesses the adequacy of its manufacturing facilities for manufacturing capacity, available labor and location to the markets and major customers for the Company's products. CTS also reviews the operating costs of its facilities and may from time to time relocate facilities or certain manufacturing activities in order to achieve operating cost reductions and improved asset utilization and cash flow.
Item 3.

Item 3. Legal Proceedings
Contested claims involving various matters, including environmental claims brought by government agencies, are being litigated by CTS, both in legal and administrative forums. In the opinion of management, based upon currently available information, adequate provision for potential costs has been made, or the costs which might ultimately result from such litigation or administrative proceedings will not materially affect the consolidated financial position of the Company or the results of operations.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1994, no issue was submitted to a vote of CTS stockholders.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The principal market for CTS common stock is the New York Stock Exchange. Information relative to the high and low trading prices for CTS Common Stock for each quarter of the past two years and the frequency and amount of dividends declared during the previous two years can be located in "Stockholder Information," page 10, of the CTS Corporation 1994 Annual Report, incorporated herein by reference. On March 10, 1995, there were approximately 1,120 holders of record of CTS common stock.
The Company intends to continue a policy of considering dividends on a quarterly basis. The declaration of a dividend and the amount of any such dividend are subject to earnings, anticipated working capital, capital expenditure and other investment requirements, the financial condition of CTS and such other factors as the Board of Directors deems relevant.
Item 6.

Item 6. Selected Financial Data
A summary of selected financial data for CTS, for each of the previous five fiscal years, is contained in the "Five-Year Summary," page 11, of the CTS Corporation 1994 Annual Report, incorporated herein by reference.
Certain divestitures and closures of businesses and certain accounting changes affect the comparability of information con- tained in the "Five-Year Summary."
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information about liquidity, capital resources and results of operations, for the three previous fiscal years, is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations (1992-1994)," pages 25-27, of the CTS Corporation 1994 Annual Report, incorporated herein by reference.
Item 8.


Item 8. Financial Statements and Supplementary Data
Consolidated financial statements, meeting the requirements of Regulation S-X, and the Report of Independent Accountants, are contained in pages 12-24 of the CTS Corporation 1994 Annual Report, incorporated herein by reference. Quarterly per share financial data is provided in "Stockholder Information," under the subheadings, "Quarterly Results of Operations" and "Per Share Data," on page 10 of the CTS Corporation 1994 Annual Report, and is incorporated herein by reference.
Item 9.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There were no disagreements.
PART III
Item 10.



Item 10. Directors and Executive Officers of the Registrant
Information responsive to Items 401(a) and 401(e) of Regulation S-K pertaining to directors of CTS is contained in the 1995 Proxy Statement under the caption "Election of Directors," page 6, filed with the Securities and Exchange Commission, and is incorporated herein by reference.
Information responsive to Item 405 of Regulation S-K pertaining to compliance with Section 16(a) of the Securities Exchange Act of 1934 is contained in the 1995 Proxy Statement under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934," page 7, filed with the Securities and Exchange Commission, and is incorporated herein by reference.
The individuals listed were elected as executive officers of CTS at the annual meeting of the Board of Directors on April 29, 1994, and are expected to serve as executive officers until the next annual meeting of the Board of Directors, scheduled on April 28, 1995, at which time the election of officers will be considered again by the Board of Directors.
Name Age Position and Offices
Joseph P. Walker 56 Director, Chairman, President and Chief Executive Officer Philip T. Christ 63 Group Vice President Stanley J. Aris 54 Vice President Finance and Chief Financial Officer Jeannine M. Davis 46 Vice President, Secretary and General Counsel James L. Cummins 39 Vice President Human Resources George T. Newhart 52 Corporate Controller Gary N. Hoipkemier 40 Treasurer James N. Hufford 55 Vice President Research, Development and Engineering Donald R. Schroeder 46 Vice President Sales and Marketing
Joseph P. Walker has served as Chairman of the Board, President and Chief Executive Officer of CTS since 1988. Mr. Walker is a Director of NBD Bank, N.A.
Philip T. Christ has served as Group Vice President since 1990. Mr. Christ served as a Senior Vice President at Simplex Time Recorder from 1976-1986.
Stanley J. Aris has served as Vice President, Finance and Chief Financial Officer since May 18, 1992. Prior to joining CTS, Mr. Aris worked for two years as a business consultant. From 1989 to 1990 Mr. Aris served as Vice President, Finance of Hypres Corporation.
Jeannine M. Davis has served as Vice President, General Counsel and Secretary since 1988. Between 1980 and 1988, she served as legal counsel, Assistant Secretary, Assistant General Counsel and General Counsel of the Corporation.
James L. Cummins was elected Vice President Human Resources on February 25, 1994. Prior to this appointment, he served as Director, Human Resources, CTS Corporation from 1991-1994. From 1990-1991, Mr. Cummins served as Human Resources Director, CTS Corporation Electromechanical Group and in 1991 was appointed Assistant Human Resources Director, CTS Corporation.
George T. Newhart has served as Corporate Controller since 1989. Prior to joining the Company in June 1989, he was Chief Financial and Administrative Officer of the Chelsea Electronic Distribution Group from 1987-1989.
Gary N. Hoipkemier has served as Treasurer since 1989. He served as Chief Financial Officer of Riblet Products Corporation from 1988-1989.
James N. Hufford was elected Vice President Research, Development and Engineering on February 17, 1995. During the four years prior to this appointment, Mr. Hufford served as Manager and then Director of Corporate Research, Development and Engineering for the Corporation. From 1981 through 1991, Mr. Hufford held key engineering positions at the Corporation's Elkhart manufacturing facility.
Donald R. Schroeder was elected Vice President Sales and Marketing on February 17, 1995. During the six years prior to this appointment, Mr. Schroeder served as Business Development Manager for innovative and new technology for the CTS Microelectronics business unit in West Lafayette, Indiana. Prior to 1989, Mr. Schroeder held several other management and marketing positions with various operating units of the Corporation.
Item 11.

Item 11. Executive Compensation
Information responsive to Item 402 of Regulation S-K pertaining to management remuneration is contained in the 1995 Proxy Statement in the captions "Executive Compensation," pages 8-9 and "Director Compensation," page 14, filed with the Securities and Exchange Commission, and is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Information responsive to Item 403 of Regulation S-K pertaining to security ownership of certain beneficial owners and management is contained in the 1995 Proxy Statement in the caption "Securities Beneficially Owned by Principal Stockholders and Management," pages 3-5 filed with the Securities and Exchange Commission, and is incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions
Dynamics Corporation of America (DCA) owned 2,222,100 (42.9%) of the Company's outstanding common stock as of December 31, 1994. CTS purchased products from DCA totalling about $233,000 in 1994, $145,000 in 1993 and $93,000 in 1992, principally consisting of certain component parts used by CTS in the manufacture of frequency control devices. CTS had minimal sales to DCA in 1994, and no sales in 1993 and 1992.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2)
The list of financial statements and financial statement schedules required by Item 14 (a)(1) and (2) is contained on page S-1 herein.
(a)(3) Exhibits
(3)(a) Articles of Incorporation, as amended April 16, 1973, previously filed as exhibit (3)(a) to the Company's Form 10-K for 1987, and incorporated herein by reference.
(3)(b) Bylaws, as amended and effective June 25, 1992, previously filed as exhibit (3)(b) to the Company's Form 10-K for 1992, and incorporated herein by reference.
(10)(a) Employment agreement dated June 24, 1994, between CTS and Joseph P. Walker, filed as exhibit (10)(a) to the Company's Form 10-K for 1994, and incorporated herein by reference.
(10)(b) Prototype indemnification agreement, with Lawrence J. Ciancia, Patrick J. Dorme, Gerald H. Frieling, Jr., Andrew Lozyniak, Joseph P. Walker, Philip T. Christ, Stanley J. Aris, Jeannine M. Davis, James L. Cummins, George T. Newhart and Gary N. Hoipkemier, previously filed as exhibit (10)(b) to the Company's Form 10-K for 1991, and incorporated herein by reference.
(10)(c) CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989, was previously filed as exhibit (10)(d) to the Company's Form 10-K for 1989, and is incorporated herein by reference.
(10)(d) CTS Corporation 1986 Stock Option Plan, approved by the stockholders at the reconvened annual meeting on May 30, 1986. The CTS Corporation 1986 Stock Option Plan is contained in Exhibit 4 to Registration Statement No. 33-27749, effective March 23, 1989, and is incorporated herein by reference.
(10)(e) CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, as adopted by the CTS Board of Directors on December 16, 1988, and approved by stockholders at the 1989 annual meeting of stock- holders on April 28, 1989. The CTS Corporation 1988 Restricted Stock and Cash Bonus Plan is contained in Appendix A, pages 11-15, of the 1989 Proxy Statement for the annual meeting of stockholders held April 28, 1989, under the caption "CTS Corporation 1988 Restricted Stock and Cash Bonus Plan," previously filed with the Securities and Exchange Commission, and is incorporated herein by reference.
(13) CTS Corporation 1994 Annual Report.
(21) Subsidiaries of CTS Corporation.
(23) Consent of Price Waterhouse to incorporation by reference of this Annual Report on Form 10-K for the fiscal year 1994 to Registration Statement 2- 84230 on Form S-8 and Registration Statement 33- 27749 on Form S-8.
Indemnification Undertaking
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-84230 (filed June 13, 1983) and 33-27749 (filed March 23, 1989):
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provision, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
ANNUAL REPORT ON FOR 10-K
ITEM 14(a) (1) AND (2) AND ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
CTS CORPORATION AND SUBSIDIARIES
ELKHART, INDIANA
FORM 10-K - ITEM 14(a) (1) AND (2)
CTS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of CTS Corporation and subsidiaries included in the annual report of the registrant to its shareholders for the year ended December 31, 1994, are incorpo- rated by reference in Item 8:
Consolidated balance sheets - December 31, 1994, and December 31, 1993
Consolidated statements of earnings - Years ended December 31, 1994, December 31, 1993, and December 31,
Consolidated statements of stockholders' equity - Years ended December 31, 1994, December 31, 1993, and Decem- ber 31, 1992
Consolidated statements of cash flows - Years ended December 31, 1994, December 31, 1993, and December 31,
Notes to consolidated financial statements
The following consolidated financial statement schedules of CTS Corporation and subsidiaries, are included in item 14(d):
Page
Schedule II - Valuation and qualifying accounts S-3
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are inapplicable, not required or the information is included in the consolidated financial state- ments or notes thereto.
S-1
EXHIBIT 22
CTS CORPORATION AND SUBSIDIARIES
CTS Corporation (Registrant), an Indiana corporation
Subsidiaries
CTS Corporation, a Delaware corporation
CTS Singapore, Pte. Ltd., a Republic of Singapore corporation
CTS of Panama, Inc., a Republic of Panama corporation
CTS Components Taiwan, Ltd.,1 a Taiwan, Republic of China
corporation
CTS de Mexico S.A.,1 a Republic of Mexico corporation
CTS Export Corporation, a Virgin Islands corporation
CTS of Canada, Ltd., a Province of Ontario (Canada) corporation
CTS Manufacturing (Thailand) Ltd.,1 a Thailand corporation
CTS Electronics Hong Kong Ltd.,1 a Republic of Hong Kong corpora-
tion
CTS Corporation U.K. Ltd., a United Kingdom corporation
CTS Printex, Inc., a California corporation
CTS Micro Peripherals, Inc., a California corporation
Micro Peripherals Singapore (Private) Limited, a Republic of Singapore corporation
Corporations whose names are indented are subsidiaries of the preceding non-indented corporations. Except as indicated, each of the above subsidiaries is 100% owned by its parent company. Operations of all subsidiaries and divisions are consolidated in the financial statements filed.
1 Less than 1% of the outstanding shares of stock is owned of record by nominee shareholders pursuant to national laws regarding resident or nominee ownership.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date March 17, 1995 By /S/ Stanley J. Aris Stanley J. Aris Vice President Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date March 17, 1995 By /S/ Lawrence J. Ciancia Lawrence J. Ciancia, Director
Date March 17, 1995 By /S/ Patrick J. Dorme Patrick J. Dorme, Director
Date March 17, 1995 By /S/ Gerald H. Frieling, Jr. Gerald H. Frieling, Jr., Director
Date March 17, 1995 By /S/ Andrew Lozyniak Andrew Lozyniak, Director
Date March 17, 1995 By /S/ Joseph P. Walker Joseph P. Walker, Director
Date March 17, 1995 By /S/ George T. Newhart George T. Newhart, Corporate Controller and principal accounting officer
Date March 17, 1995 By /S/ Jeannine M. Davis Jeannine M. Davis, Vice President, Secretary and General Counsel
CTS CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands of dollars)
(a) Recoveries. (b) Uncollectible accounts written off.
S-3 EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-84230 and No. 33- 27749) of CTS Corporation of our report dated February 2, 1995, appearing within the 1994 CTS Corporation Annual Report to Stockholders which is incorporated in the Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page S-2 of this Form 10-K.
PRICE WATERHOUSE LLP
South Bend, Indiana March 17, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of CTS Corporation
Our audits of the consolidated financial statements referred to in our report dated February 2, 1995, appearing within the CTS Corporation 1994 Annual Report to Stockholders, (which report and consolidated financial statements are incorporated by reference in the Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
South Bend, Indiana February 2, 1995