CTS Corporation

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CTS Corporation

905 West Boulevard North
Elkhart, Indiana 46514
U.S.A.
Telephone: (219) 293-7511
Fax: (219) 293-6146
Web site: http://www.ctscorp.com

Public Company
Incorporated: 1896 as Chicago Telephone Supply
Company
Employees: 9,000 +
Sales: $866.5 million (2000)
Stock Exchanges: New York
Ticker Symbol: CTS
NAIC: 334415 Electronic Resistor Manufacturing; 334417 Electronic Connector Manufacturing; 334419 Other Electronic Component Manufacturing

Established in 1896 to make telephones and switchboards, CTS Corporation has become a leading manufacturer of passive electronic components and electronic assemblies. The company has fine-tuned its direction to meet demand in the communications equipment, computer equipment, and automotive markets, among others. In the 1920s and 1930s it was the growing demand for radios that inspired CTS to supply radio parts and its engineers to develop a new resistor that lowered the cost of radios. During World War II the company developed a special precision potentiometer for radar units that gave the Allies their first capability to perform night bombing missions, thereby shortening the war. When the demand for television sets exploded in the late 1940s, CTS supplied the needed resistors. When the U.S. government mandated emissions control standards for automobiles in the 1970s, CTS developed throttle position sensors and other sensor products for automobiles. More recently, CTS has redefined itself by acquiring the wireless components business of Motorola Inc. in 1999, and has become a leading supplier of electronic components for wireless handsets and other wireless devices.

Early History: 1896–1920

The company now known as CTS Corporation was founded in Chicago in 1896 by A.J. Briggs and his son, George, as Chicago Telephone Supply Company. It was established to make magneto-driven telephones and switchboards, which were sold either to telephone companies or to end consumers. The company quickly built a reputation for quality and product reliability by issuing certificates guaranteeing trouble-free service for the telephone equipment it manufactured.

Needing larger facilities for its work force of 250 employees, the company moved 100 miles east to Elkhart, Indiana, in 1902. That city gave CTS a new building on a railroad spur in exchange for promised jobs and wages. For the next 18 years CTS would manufacture some 175,000 telephones and hundreds of switchboards.

Serving Commercial and Military Markets: 1920–80

In the 1920s CTS redirected its efforts from telephones to radios. The radio communications market was emerging in the early 1920s, and by 1922 half of CTS’s sales came from radio parts, including jacks, plugs, headphones, antenna switches, and rheostats for home radio receivers. During the 1930s CTS evolved from a manufacturer of finished products to a manufacturer of components. During the Great Depression CTS developed a more cost effective, stable carbon composition resistor that helped lower the cost of radios. CTS’s custom variable resistor controls became the cornerstone of its business for the next 50 years. By 1941 CTS was the largest producer of variable resistor products in the world. During World War II the company supplied the U.S. Army with remote field sets. It also developed the RLB, a precision potentiometer for radar units that enabled night bombing. Peacetime RLB applications included air traffic safety, weather forecasting, and medical diagnosis.

CTS continued to develop the technology and products required by the radio market and the emerging television market in the 1940s and 1950s. Between 1946 and 1950 the number of television sets manufactured in the United States went from 6,000 to 7.5 million. Each set required from six to ten variable resistor components, and CTS supplied many of them.

The company also provided technology and products for commercial and military applications. In 1958 CTS engineers developed Cermet, a more stable resistance element that met the demand of miniaturized applications for military use. In 1960 the company officially changed its name to CTS Corporation, formally adopting the name by which is was generally known by the public. In 1962 CTS began trading its stock on the New York Stock Exchange. The next year CTS entered the data processing market by adapting Cermet technology to produce thick film fixed resistor networks, which became common components of computers during the 1960s. CTS met the demand for miniaturization of consumer electronic products by manufacturing hybrid mircocircuits. In 1968 CTS established a manufacturing operation in Taiwan to serve the offshore production facilities of North American-based OEMs. This helped the company further expand its product applications in international markets.

The company’s broad technology base opened new markets, which in turn required CTS to develop complementary technologies involving new materials and manufacturing processes. In addition to military and automotive applications in the 1960s and 1970s, CTS was also supplying components for the consumer electronics market. At the beginning of the 1970s CTS recorded dramatic sales increases to the home entertainment market, due in part to the explosive demand for color television sets. As the decade progressed, however, imported TV sets began gaining market share at the expense of domestically produced sets. Overwhelming competition from Japanese manufacturers eventually forced CTS to abandon the consumer electronics market by the end of the 1970s.

When the U.S. government mandated automobile emissions control requirements in the early 1970s, CTS developed throttle position sensors. CTS began developing and redirecting its production focus to provide components and assemblies for custom under-the-hood and chassis sensor applications. In 1979 CTS opened a manufacturing facility in Singapore, primarily to remain competitive in supplying components for car radios.

Expansion Brings Challenges: 1980s

CTS remained a well-established supplier of components for data processing, instruments and controls, and communications markets. The early 1980s saw a two-year economic recession that hit U.S. high-tech manufacturing companies especially hard. In June 1983 CTS acquired California-based Micro Peripherals, Inc., a leading manufacturer of floppy disk drives for computers. By 1984 CTS had sustained significant losses in its floppy disk drive business and decided to divest Micro Peripherals. In January 1985, 15 months after acquiring Micro Peripherals, CTS found a buyer for the subsidiary in Vista Technologies, Inc., a marketing start-up based in West wood, California.

A shareholder suit brought against CTS in early 1986 by Dynamics Corporation of America (DCA) noted that CTS’s acquisition of Micro Peripherals had resulted in pretax operating losses. The suit also noted that the company’s entry into the printed circuit board (PCB) business in late 1981 and early 1982 also resulted in quarterly losses. In its suit, DCA held CTS’s chairman, president, and CEO Robert D. Hostetler responsible for the “ill-conceived” acquisitions.

At the time DCA, which already had a substantial equity stake in CTS, was making a hostile tender offer for one million CTS shares at $43 per share for the purpose of taking control of the company. If successful, DCA would own 27.5 percent of CTS. Although DCA’s tender offer was successful, an Indiana law governing hostile takeovers allowed CTS to refuse voting rights to stock acquired in a hostile takeover. In a lawsuit that went all the way to the U.S. Supreme Court, CTS’s position was upheld, and DCA failed to gain voting rights for the one million shares it had acquired as a result of its hostile tender offer.

CTS initially responded to DCA’s tender offer by looking for a “white knight,” a company that would make a friendly takeover of the company. When that failed, CTS stock fell back into the $30 range. Then, in December 1986, AVX Corp. offered the equivalent of $35 a share. When DCA countered with a $37.50 offer, AVX withdrew. However, the sale of CTS stalled when DCA decided that $37.50 a share was too high a price. In March 1987, CTS and DCA reached an agreement to end their differences, with the result that DCA would have a significantly expanded role in decision-making at CTS. CTS’s board of directors was restructured, with DCA gaining three of the board’s seven seats. As part of the agreement Hostetler resigned as president and CEO, after having been replaced as chairman by George F. Sommer, who assumed the additional duties of president and CEO.

Later in 1987 CTS closed its PCB business, which was responsible for most of its operating losses. While the telecommunications market was flat, where AT&T and Northern Telecom were major customers, the company was enjoying strong sales for its data processing and automotive components. By 1989 CTS returned to profitability, reporting revenue of $262 million and net income of $14.3 million.

Refocusing in the 1990s

By the 1990s CTS was focused on providing passive electronic components to original equipment manufacturers (OEMs) in the automotive, data processing, and communications industries. It also continued to offer products in the instrument and control, defense, and consumer markets, including products on the Advanced Tactical Fighter and space applications with the Jet Propulsion Laboratory.

Company Perspectives:

CTS Corporation designs, manufactures and sells a broad line of electronic components and electronic assemblies, primarily serving the electronic needs of original equipment manufacturers (OEMs). CTS product lines serve major markets around the world, which principally include communications equipment, automotive and computer equipment—with a wide range of technologies and capabilities. CTS’ growth in global markets is served by worldwide operations.

In the automotive market CTS’s core product was its resistive contacting throttle position sensing device, which used the company’s proprietary position-sensing technology. Other products developed for the automotive market included exhaust emission gas recirculating sensors, pintle position sensors, fuel pedal sensors, actuators for electronic throttle controls, and suspension shock height sensors. The company also manufactured seat position sensors, accelerometer assemblies for air bag release systems, thick film substrates for fuel level sensing, and resistor networks for speedometers, cruise control, and engine control.

CTS celebrated its 100th anniversary in 1996. Under the leadership of chairman, CEO, and president Joseph P. Walker, who assumed these roles in 1988, CTS had focused on improving its manufacturing processes. CTS called its improvement process a “A Journey to Excellence.” The company began by addressing manufacturing excellence, including engineering, then added sales, marketing, and human resources, to achieve a level of operational excellence throughout the organization.

In 1997 CTS acquired DCA, which had continued to hold a significant equity stake in CTS since its failed takeover attempt ten years prior. Under the terms of the agreement, CTS began a cash tender offer for 50 percent of DCA’s stock at $55 per share. Following the acquisition, DCA would continue to operate as a division of CTS, with Joseph Walker remaining as the chairman, CEO, and president of the combined company.

With the U.S. economy gaining momentum, CTS had a good year in 1997. The company enjoyed particularly strong demand in its automotive and microelectronic segments. Moreover, its manufacturing improvement process was also resulting in more control over manufacturing and operating expenses. In late 1997 CTS completed its acquisition of DCA and reached an agreement to sell DCA’s Waring Products Division, which manufactured appliances under the Waring brand, to Conair Corp. Other DCA divisions integrated into CTS included IERC, which made heat sinks, and Reeves-Hoffman, which made crystals and oscillators. Following the acquisition CTS formed a task force to study DCA’s remaining businesses, which included small appliances, power and controlled environmental systems, and fabricated metal products and equipment, to see if they should be sold, closed, or integrated into CTS.

Following CTS’s solid financial performance in 1997, Bear, Stearns & Co., Inc. initiated coverage of CTS stock in 1998. Analysts noted that the company’s growth rate was due in part to three industry trends: electronic component integration, manufacturing services outsourcing, and increasing automotive electronic content.

In September 1998 CTS announced it would acquire the Component Products Division (CPD) of Motorola, Inc.’s Automotive, Component, Computer, and Energy Sector. This operation manufactured ceramics, quartz, oscillator, lead zirconate titanate (PZT), and surface acoustic wave (SAW) components primarily for the telecommunications market.

By the end of 1998 CTS had 18 manufacturing facilities located around the world, including Canada, Mexico, Scotland, Singapore, Taiwan, and China. During that year it opened an Interconnect Systems facility in Hudson, New Hampshire, which became ISO 9001 certified in 1999. CTS’s Automotive Products division accounted for about 30 percent of the company’s 1998 revenue.

Assuming Leadership in the Wireless Market in Late 1990s

Once CTS completed its acquisition of Motorola’s CPD unit, wireless communications products would account for about 40 percent of CTS’s annual revenue. After the acquisition was completed in early 1999, CPD became CTS Wireless Components Inc. and the parent gained a portfolio of some 300 high technology patents globally as well as manufacturing facilities in China, Taiwan, and the United States. Also during this time CTS completed the divestiture of most of the non-core businesses of DCA, while DCA’s frequency products and thermal management product lines were fully integrated into CTS’s core business.

Later in the year CTS reorganized some of its business units as part of its plan to concentrate on the communications market. Electronic Buyers’ News named CTS as the best-managed company in the passive electronic components industry in its October 18, 1999, issue. The company’s stock was also picked by Bloomberg’s Personal Finance Magazine as one of the top 100 hot stocks for 1999.

As a result of its acquisition of Motorola’s CPD unit, CTS enjoyed an 83 percent increase in revenue, from $370 million in 1998 to $677 million in 1999. The acquisition transformed CTS and positioned it as the largest manufacturer of electronic components for wireless applications in North America. The company was now a global leader for supplying components to the fast-growing mobile wireless industry and would pursue a strategy of globalization to enhance that position.

Key Dates:

1896:: Company is founded in Chicago by AJ. Briggs and his son, George, as Chicago Telephone Supply Company.
1902:: The company moves to Elkhart, Indiana.
1960:: Name is changed to CTS Corporation; it had been known informally as CTS for many years.
1962:: CTS goes public on the New York Stock Exchange.
1997:: CTS acquires Dynamics Corporation of America (DCA).
1999:: CTS acquires the Component Products Division (CPD) of Motorola.

In early 2000 CTS formed a RF (radio frequency) Integrated Modules business unit as part of CTS Wireless Components. The RF unit, based in West Lafayette, Indiana, would offer complete RF sections of a cellular phone as an integrated module. By May the CTS Wireless Components Business Group had been restructured into four business units: CTS RF Integrated Modules, CTS RF Crystal and Oscillator Products, CTS RF Ceramic and SAW Filter Products, and CTS Piezoelectric Products. CTS’s new wireless components business and its core passive electronic components business were complementary, because they both relied on quartz crystals, oscillators, and other frequency control devices.

As part of the company’s globalization strategy, CTS announced several initiatives in Asia in the first half of 2000. The CTS Wireless Components Group formed a strategic partnership with Kyocera Corp. of Japan to develop quartz crystal and other frequency control products primarily for cell phones and other wireless applications. In addition, CTS opened a branch sales office in Seoul, Korea, to focus on developing and selling wireless components to manufacturers of cell phones, pagers, and other mobile wireless devices. CTS also opened a new Interconnect Systems manufacturing facility in Tianjin, China, to support the communications infrastructure market. The new facility would operate as a manufacturing and distribution center for CTS Interconnect Systems’ backpanel and high-level systems integration business, with an initial manufacturing focus on supporting the expanding wireless base station market.

For 2000 CTS reported a 28 percent growth in revenue with record sales of $866.5 million. The company’s net earnings of $83.8 million also established a record high. CTS was ranked 16th among Business Week’s “The Info Tech 100” in June 2000 and seventh on the magazine’s list of the world’s most profitable Info Tech companies. In January 2001 CTS appointed Donald K. Schwanz as president and COO. Joseph Walker would continue as the company’s chairman and CEO. Schwanz came to CTS from Honeywell, and his immediate task at CTS would be to deal with the overall economic slowdown forecast for 2001.

Principal Subsidiaries

CTS of Canada Ltd.; CTS Corporation U.K. Ltd.; CTS Singapore Pte. Ltd.; CTS Components Taiwan Ltd.; CTS (Tainjin) Electronics Co. Ltd. (China); CTS Wireless Components Inc.

Principal Operating Units

CTS Automotive Products Division; CTS Interconnect Systems; CTS Reeves Frequency Products; CTS Resistor/Electrocomponents; CTS RF Integrated Modules; CTS RF Ceramic & SAW Filters; CTS RF Crystal & Oscillator; CTS Piezo-electronic Products.