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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the Quarterly Period Ended March 28, 2004
       OR
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the Transition Period from _______________ to _______________

Commission File Number: 1-4639

CTS CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 574-293-7511

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  X      No     

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes  X     No     

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 21, 2004:  36,073,941

    TABLE OF CONTENTS

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PART I  -  FINANCIAL INFORMATION

Item 1.   Financial Statements

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands, except per share amounts)

				Three Months Ended
				March 28, 2004				March 30, 2003
Net sales				$	122,147			$	105,769
Costs and expenses:
	Cost of goods sold				97,538				84,686
	Selling, general and administrative expenses				14,816				12,848
	Research and development expenses				4,884				5,641
		Operating earnings			4,909				2,594
Other (expense) income:
	Interest expense				(1,533	)			(1,972	)
	Interest income				102				49
	Other				(118	)			90
		Total other expense			(1,549	)			(1,833	)
		Earnings before income taxes			3,360				761
Income tax expense					840				190
		Net earnings		$	2,520			$	571
Net earnings per share — Note J
	Basic			$	0.07			$	0.02
	Diluted			$	0.07			$	0.02
Cash dividends declared per share				$	0.03			$	0.03
Average common shares outstanding:
	Basic				35,957				34,020
	Diluted				36,243				34,258

See notes to condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)

					March 28, 2004				December 31, 2003*
					(UNAUDITED)
ASSETS
Current Assets
	Cash and cash equivalents				$	32,861			$	25,346
	Accounts receivable, less allowances (2004 — $1,640; 2003 — $1,585)					83,663				72,290
	Inventories — Note C					38,676				31,925
	Other current assets					7,065				6,697
	Deferred income taxes					28,530				28,508
			Total current assets			190,795				164,766
Property, plant and equipment, less accumulated depreciation (2004 — $275,133; 2003 — $261,838)						118,148				122,481
Other Assets
	Prepaid pension asset — Note G					135,387				132,960
	Intangible assets					36,880				37,456
	Assets held for sale — Note D					16,683				17,583
	Other					6,968				7,004
			Total other assets			195,918				195,003
Total Assets					$	504,861			$	482,250
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable				$	59,120			$	52,252
	Accrued liabilities — Note D					51,670				43,437
			Total current liabilities			110,790				95,689
Long-term debt — Note F						81,200				75,880
Other long-term obligations						11,101				11,133
Deferred income taxes						5,379				5,357
Shareholders’ Equity
	Preferred stock — authorized 25,000,000 shares without par value; none issued					—				—
	Common stock — authorized 75,000,000 shares without par value; 52,639,667 shares issued at March 28, 2004 and 52,632,088 shares issued at December 31, 2003					263,048				262,748
	Additional contributed capital					21,613				21,520
	Retained earnings					264,864				263,430
	Accumulated other comprehensive earnings					529				151
						550,054				547,849
Cost of common stock held in treasury (2004 — 16,565,926 shares; 2003 — 16,565,558 shares)						(253,663	)			(253,658	)
			Total shareholders’ equity			296,391				294,191
Total Liabilities and Shareholders’ Equity					$	504,861			$	482,250
*The balance sheet at December 31, 2003, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands of dollars)

				Three Months Ended
				March 28, 2004				March 30, 2003
Cash flows from operating activities:
	Net earnings			$	2,520			$	571
	Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
		Depreciation and amortization			7,260				8,812
		Changes in assets and liabilities:
		Accounts receivable			(11,373	)			4,019
		Inventories			(6,751	)			148
		Other current assets			(369	)			1,002
		Prepaid pension asset			(2,427	)			(3,115	)
		Accounts payable and accrued liabilities			3,778				(3,540	)
		Other			622				302
		Total adjustments			(9,260	)			7,628
		Net cash provided by (used in) operations			(6,740	)			8,199
Cash flows from investing activities:
	Capital expenditures				(1,980	)			(2,220	)
	Proceeds and deposits on asset sales				11,869				3,892
		Net cash provided by investing activities			9,889				1,672
Cash flows from financing activities:
	Payments of long-term debt				(25,935	)			(10,150	)
	Proceeds from issuance of long-term debt				31,255				—
	Dividends paid				(1,169	)			(1,025	)
	Other				(49	)			249
		Net cash provided by (used in) financing activities			4,102				(10,926	)
Effect of exchange rate on cash and cash equivalents					264				(509	)
Net increase (decrease) in cash and cash equivalents					7,515				(1,564	)
Cash and cash equivalents at beginning of year					25,346				9,225
Cash and cash equivalents at end of period				$	32,861			$	7,661
Supplemental cash flow information
Cash paid during the period for:
	Interest			$	234			$	360
	Income taxes—net			$	2,312			$	1,424

See notes to condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - UNAUDITED
(In thousands of dollars)

				Three Months Ended
				March 28, 2004				March 30, 2003
Net earnings				$	2,520			$	571
Other comprehensive earnings (loss):
	Cumulative translation adjustment				347				(504	)
	Deferred gain on forward contracts				31				—
Comprehensive earnings				$	2,898			$	67

See notes to condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 28, 2004

NOTE A—Basis of Presentation

The accompanying condensed consolidated interim financial statements have been prepared by CTS Corporation (CTS or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated interim financial statements should be read in conjunction with the financial statements, notes thereto and other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

The accompanying unaudited condensed consolidated interim financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods presented.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ materially from those estimates.  The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

NOTE B—Stock-Based Employee Compensation

CTS accounts for stock-based employee compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and its related interpretations.  CTS has adopted the disclosure requirements of the Financial Accounting Standards Board’s (FASB) Financial Accounting Standard (FAS) No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.”  Had employee compensation cost for CTS’ fixed, stock-based compensation plans been determined based on the fair value method, as defined by FAS No. 123, “Accounting for Stock-Based Compensation,” CTS’ net earnings and net earnings per share would have been adjusted to the pro forma amounts indicated below:

				Three Months Ended
				March 28, 2004				March 30, 2003
($ in thousands, except per share amounts)
Net earnings, as reported				$	2,520			$	571
Add:    Stock-based employee compensation cost, net of tax, included in net earnings					—				—
Deduct:    Stock-based employee compensation cost, net of tax, if fair value based method were used					(288	)			(381	)
Proforma net earnings				$	2,232			$	190
Net earnings per share-basic, as reported				$	0.07			$	0.02
Proforma net earnings per share-basic					0.06				0.01
Net earnings per share-diluted, as reported					0.07				0.02
Proforma net earnings per share-diluted				$	0.06			$	0.01

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NOTE C—Inventories

Inventory consist of the following:

				March 28, 2004				December 31, 2003
($ in thousands)
Finished goods				$	10,076			$	8,047
Work-in-process					6,792				7,779
Raw materials					21,808				16,099
	Total inventories			$	38,676			$	31,925

Note D—Assets Held for Sale

Assets held for sale at March 28, 2004 are comprised of facilities, primarily the Longtan, Taiwan building and other machinery and equipment that has been removed from service and is to be disposed of pursuant to the Company’s restructuring activities.  The assets are held by the Components and Sensors business segment.  These assets are recorded at amounts not in excess of what management currently expects to receive upon sale, less cost of disposal. The Company routinely monitors the estimated value of all assets held for sale and records adjustments to these values as necessary. The amounts the Company will ultimately realize are dependent on numerous factors, some of which are beyond management’s ability to control, and could differ materially from the amounts currently recorded.

During the first quarter of 2004, CTS entered into an agreement to sell its Longtan, Taiwan facility. As of March 28, 2004, CTS had received cash deposits totaling $11.7 million. Included in CTS’ March 28, 2004 accrued liability balance is $11.7 million relating to these deposits. Refer also to Note K, “Subsequent Event.”

Note E—Financial Instruments

In the first quarter of 2004, CTS entered into a series of forward exchange contracts to manage its risk to fluctuations in foreign currency exchange rates between the Euro and the United Kingdom Pound. These contracts, which expire monthly in 2004, are designed to hedge anticipated foreign currency transactions. In accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” these forward contracts for forecasted transactions are designated as cash flow hedges and recorded as assets or liabilities on the balance sheet at fair value. Changes in the contracts’ fair values, which totaled $31,000 at March 28, 2004, are recognized in accumulated other comprehensive income until they are recognized in earnings at the time the forecasted transaction occurs.

Note F—Long-Term Debt

CTS has a credit agreement containing a $55 million senior, secured revolving credit facility that had an outstanding balance of $16.2 million at March 28, 2004. The credit agreement categorized this debt as senior to CTS’ $25 million convertible debentures. The debt is collateralized by substantially all U.S. assets and a pledge of 65% of the capital stock of certain non-U.S. subsidiaries. Interest rates on these borrowings fluctuate based upon LIBOR. CTS pays a commitment fee on the undrawn portion of the credit agreement. The commitment fee varies based on performance under certain financial covenants and is currently 0.375 percent per annum. The credit agreement requires, among other things, that CTS comply with a minimum fixed charge coverage, a maximum leverage ratio and a minimum tangible net worth. Failure of CTS to comply with these covenants could reduce the borrowing availability under the credit agreement. Additionally, the credit agreement limits the amounts allowed for dividends, capital expenditures and acquisitions. The credit agreement expires in July 2006.

During the first quarter of 2004, CTS paid $2 million of the industrial revenue bonds that are due in 2013. The remaining outstanding industrial revenue bonds balance of $40 million had a weighted-average interest rate of 7.5% at March 28, 2004.

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NOTE G—Retirement Plans

Net pension (income) / postretirement expense for the three months ended March 28, 2004 and March 30, 2003 includes the following components:

NOTE H—Business Segments

FAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires companies to provide certain information about their operating segments.  CTS has two reportable business segments: 1) Components and Sensors and 2) Electronics Manufacturing Services (EMS).

Components and sensors are products which perform specific electronic functions for a given product family and are intended for use in customer assemblies.  Components and sensors consist principally of automotive sensors and actuators used in commercial or consumer vehicles; electronic components used in cellular handsets, communications infrastructure and computer markets; low temperature cofired ceramic (LTCC) electronic substrates used in various communications and automotive applications; pointing sticks/cursor controls for computers and games for the computer market; terminators, including ClearONE™ terminators, used in computer and other high speed applications, switches, resistor networks and potentiometers used to serve multiple markets.

EMS includes the higher level assembly of electronic and mechanical components into a finished subassembly or assembly performed under a contract manufacturing agreement with an OEM or other contract manufacturer.  EMS also includes design of interconnect systems and complex backplanes, global supply-chain management services and related manufacturing and design services as may be required by the customer.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Company’s annual report on Form 10-K.  Management evaluates performance based upon operating earnings before interest and income taxes.

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NOTE H—Business Segments   (Continued)

Summarized financial information concerning CTS’ reportable segments is shown in the following table:

($ in thousands)		Components and Sensors				EMS				Total
First Quarter 2004
Net sales to external customers		$	63,519			$	58,628			$	122,147
Segment operating earnings		$	3,051			$	1,858			$	4,909
Total assets		$	409,257			$	95,604			$	504,861
First Quarter 2003
Net sales to external customers		$	60,325			$	45,444			$	105,769
Segment operating earnings		$	323			$	2,271			$	2,594
Total assets		$	405,649			$	69,958			$	475,607

Reconciling information between reportable segments’ operating earnings and CTS’ consolidated pre-tax income is shown in the following table:

($ in thousands)				First Quarter 2004				First Quarter 2003
Total segment operating earnings				$	4,909			$	2,594
Interest expense					(1,533	)			(1,972	)
Interest income					102				49
Other income (expense)					(118	)			90
Earnings before income taxes				$	3,360			$	761

NOTE I—Contingencies

Certain processes in the manufacture of CTS’ current and past products create hazardous waste by-products as currently defined by federal and state laws and regulations.  CTS 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.  In addition to these non-CTS sites, CTS has an ongoing practice of providing reserves for probable remediation activities at certain of its manufacturing locations and for claims and proceedings against CTS with respect to other environmental matters.  In the opinion of management, based upon presently available information relating to all such matters, either adequate provision for probable costs has been made, or the ultimate costs resulting will not materially affect the consolidated financial position, results of operations or cash flows of CTS.

Certain claims are pending against CTS with respect to matters arising out of the ordinary conduct of its business.  For all claims, in the opinion of management, based upon presently available information, either adequate provision for anticipated costs has been made by insurance, accruals or otherwise, or the ultimate anticipated costs resulting will not materially affect CTS’ consolidated financial position, results of operations or cash flows.

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NOTE J—Earnings Per Share

FAS No. 128, “Earnings per Share,” requires companies to provide a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.  The calculations below provide net earnings, average common shares outstanding and the resultant earnings per share for both basic and diluted EPS for the quarters ending March 28, 2004 and March 30, 2003.

			Net				Shares
			Earnings				(In thousands)				Per Share
($ in thousands, except per share amounts)			(Numerator)				(Denominator)				Amount
First Quarter 2004
Basic EPS			$	2,520				35,957			$	0.07
Effect of dilutive securities:
	Stock options							144
	Other							142	(1)
Diluted EPS			$	2,520				36,243			$	0.07
First Quarter 2003
Basic EPS			$	571				34,020			$	0.02
Effect of other dilutive securities								238	(1)
Diluted EPS			$	571				34,258			$	0.02

(1)

Includes 28 and 151 shares of CTS common stock for the quarters ending March 28, 2004 and March 30, 2003, respectively, to be issued to the former DCA shareholders.

The following table shows the potentially dilutive securities which have been excluded from the first quarter 2004 and 2003 dilutive earnings per share calculations because they are either anti-dilutive or the exercise price exceeds the average market price.

Three Months Ended

(Number of shares in thousands)

March 28, 2004

March 30, 2003

Stock options where the exercise price exceeds the average market price of

common shares during the period

676

1,575

Securities related to the subordinated convertible debt

1,247

1,247

NOTE K—Subsequent Event

In April 2004, CTS sold its Longtan, Taiwan facility for total proceeds of approximately $16.6 million, of which $11.7 million was received in the first quarter of 2004. The Longtan facility was included in assets held for sale on the March 28, 2004 Condensed Consolidated Balance Sheet. The total proceeds, less costs of disposal, approximate the carrying value of the asset.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

CTS is a global manufacturer of components and sensors to the automotive, communications and computer markets. The Company also offers specialized electronic manufacturing, design and supply-chain services to industrial, communications and computing infrastructure original equipment manufacturers (OEMs). Sales and marketing is accomplished through CTS sales engineers, independent manufacturers’ representatives and distributors. Sales are reported through two business segments, Components and Sensors and Electronics Manufacturing Services (EMS), which represent 52% and 48%, respectively, of CTS’ total sales in the first quarter of 2004 and 57% and 43%, respectively, in the first quarter of 2003.

As discussed in more detail throughout the MD&A

Outlook

CTS currently expects sales growth and earnings for the full year of 2004 as follows:

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Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Management believes that judgment and estimates related to the following critical accounting policies could materially affect its consolidated financial statements.

In the first three months of 2004, there have been no changes in the above critical accounting policies.

Results of Operations

Business Segment Discussion

CTS has two reportable business segments: 1) Components and Sensors and 2) Electronics Manufacturing Services. For additional information on business segments, refer to Note H - - “Business Segments.”

The Components and Sensors business segment experienced a $3.2 million sales increase in the first quarter of 2004, or 5% from the first quarter of 2003. The increase in sales was attributable primarily to automotive products. Segment operating earnings increased from $0.3 million in the first quarter of 2003 to $3.1 million in the first quarter of 2004, primarily due to a volume impact of approximately $1 million and the positive impact of improved product mix, reduced manufacturing costs, and the effects of currency changes. In total, depreciation and amortization expenses were $1.8 million less than the first quarter of 2003.

The EMS segment experienced a 2004 sales increase of $13.2 million, or 29% from the first quarter of 2003. The revenue increase resulted primarily from higher demand for communications infrastructure systems and networking equipment, partially offset by price reductions. Segment operating earnings decreased $0.4 million in the first quarter of 2004 to $1.9 million. The decreased earnings were driven by the negative effects of currency changes, initial start-up costs related to opening our EMS operation in Singapore and price reductions not fully offset by cost reductions.

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Comparison of First Quarter 2004 and First Quarter 2003

The following table highlights changes in significant components of the condensed consolidated statements of earnings for the three-month periods ended March 28, 2004 and March 30, 2003:

Net sales increased by $16.4 million in the first quarter of 2004, or 15% from the first quarter of 2003, primarily due to the EMS increase of $13.2 million, related to increased demand for communications infrastructure systems and networking equipment. In addition, Components and Sensors sales increased $3.2 million, primarily related to increased demand for automotive products.

Gross margin increased $3.5 million in the first quarter of 2004 from the first quarter of 2003, primarily due to increased sales. In addition, favorable impacts include lower depreciation expense, better product mix within the Components and Sensors segment and higher absorption of manufacturing fixed costs. CTS continues to benefit from a decreasing cost structure resulting from improved operational efficiencies. These favorable items offset the unfavorable impact of reduced pension income and a higher percent of EMS segment sales, which inherently have a lower gross margin than Components and Sensors segment sales.

Selling, general and administrative expenses were $14.8 million in the first quarter of 2004 versus $12.8 million in the prior year’s quarter. The increase was spread over many categories, including expenses for incentive compensation and professional services. As a percentage of sales, these expenses remained unchanged at 12.1%.

Research and development expenses decreased by $0.8 million to $4.9 million in the first quarter of 2004, from the first quarter of 2003, primarily due to the realignment and refocusing of research and development efforts around key business development initiatives and opportunities within the Components and Sensors business segment.  Significant ongoing research and development activities continue in Components and Sensors to support expanded applications and new product development. Research and development expenditures in the EMS business segment are typically much lower than in the Components and Sensors business segment.

Operating earnings increased $2.3 million in the first quarter of 2004 compared to the first quarter of 2003. In the first quarter of 2004, the improved gross margin of $3.5 million primarily due to increased volume and lower depreciation expense, was partially offset by higher operating expenses of $1.2 million.

Interest expense of $1.5 million decreased by $0.4 million in the first quarter of 2004 from the first quarter of 2003 primarily due to lower interest rates.

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Liquidity and Capital Resources

Overview

Cash and cash equivalents increased to $32.9 million at March 28, 2004 from $25.3 million at December 31, 2003. Total debt was $81.2 million, up $5.3 million from $75.9 million at the end of 2003. Total debt as a percentage of total capitalization was 22% in the first quarter of 2004 versus 21% at the end of 2003. During the first quarter of 2004:

Operating Activities

CTS used $6.7 million of cash in operating activities in the first quarter of 2004. Accounts receivable increased $11.4 million from December 31, 2003. Although the first quarter of 2004 sales were $10 million lower than the fourth quarter of 2003, March 2004 sales were $7 million higher than December 2003. Inventory increased $6.8 million in the first quarter of 2004 as orders increased and to temporarily support the transfer of production to a manufacturing facility closer to a CTS end customer. In addition, the prepaid pension asset increased $2.4 million in the first quarter of 2004 from December 31, 2003. These uses of cash were partially offset by cash provided through net earnings of $2.5 million, depreciation and amortization of $7.3 million and increased accounts payable and accrued liabilities of $3.8 million.

In the first quarter of 2003, cash flows provided by operations were $8.2 million. Components of cash flow from operations include positive earnings of $0.6 million, depreciation and amortization of $8.8 million and favorable changes in current assets and current liabilities of $1.9 million, partially reduced by a $3.1 million increase in the prepaid pension asset.

Investing Activities

Cash flows provided by investing activities totaled $9.9 million through the first quarter of 2004, including $11.7 million of proceeds from deposits related to the sale of the Longtan, Taiwan facility. The proceeds were partially offset by $2.0 million of capital expenditures.  In the first quarter of 2003, cash flows provided by investing activities totaled $1.7 million, including $3.9 million of proceeds from the sale of assets, partially offset by $2.2 million of capital expenditures.

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Financing Activities

Cash flows provided by financing activities were $4.1 million in the first quarter of 2004, primarily due to net proceeds from increased debt of $5.3 million partially offset by dividend payments of $1.2 million.  Cash flows used by financing activities were $10.9 million in the first quarter of 2003, consisting primarily of repayment of debt of $10.2 million and dividend payments of $1.0 million.

Capital Resources

CTS has a credit agreement containing a $55 million senior, secured revolving credit facility that had an outstanding balance of $16.2 million at March 28, 2004. The credit agreement categorized this debt as senior to CTS’ $25 million convertible debentures. The debt is collateralized by substantially all U.S. assets and a pledge of 65% of the capital stock of certain non-U.S. subsidiaries. Interest rates on these borrowings fluctuate based upon LIBOR. The interest rate under the credit agreement is equal to LIBOR plus a margin which ranges from 1.75%-2.25%, depending on the performance under certain financial covenants. The interest rate as of March 28, 2004 was 2.84 percent per annum. CTS pays a commitment fee on the undrawn portion of the credit agreement. The commitment fee varies based on performance under certain financial covenants and is currently 0.375 percent per annum. The credit agreement requires, among other things, that CTS comply with a minimum fixed charge coverage, a maximum leverage ratio and a minimum tangible net worth. Failure of CTS to comply with these covenants could reduce the borrowing availability under the credit agreement. Additionally, the credit agreement limits the amounts allowed for dividends, capital expenditures and acquisitions. Effective January 14, 2004, CTS met certain conditions under the credit agreement which allow it to expand the credit facility to $75 million, if desired in the future. The credit agreement expires in July 2006.

CTS believes cash flows from operations and available borrowings under its revolving credit facility will be adequate to fund its working capital, capital expenditures and debt service requirements.   CTS may choose to pursue additional equity and/or debt financing to fund acquisitions and/or to reduce its overall interest expense or improve its capital structure.

On December 14, 1999, CTS’ shelf registration statement on Form S-3 was declared effective by the Securities and Exchange Commission. CTS could initially offer up to $500.0 million in any combination of debt securities, common stock, preferred stock or warrants under the registration statement.  During the first quarter of 2004, CTS did not issue any securities under this registration statement.  As of March 28, 2004, CTS could offer up to $435.1 million of additional debt and/or equity securities under this registration statement.

On November 13, 2001, CTS’ Form S-3 registration statement registering two million shares of CTS common stock to be issued under CTS’ Direct Stock Purchase Plan was declared effective by the Securities and Exchange Commission.  As of March 28, 2004, CTS could issue up to approximately 49,000 additional shares of common stock under this registration statement.

*****

Forward-Looking Statements

Statements about the Company’s earnings outlook and its plans, estimates and beliefs concerning the future are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s expectations, certain assumptions and currently available information. Actual results may differ materially from those reflected in the forward-looking statements due to a variety of geopolitical, economic, health, industry and other factors which could affect the Company’s operating results, liquidity and financial condition. We undertake no obligations to publicly update or revise any forward-looking statement. Examples of factors which may affect future results include, but are not limited to: rapid technological change, general market conditions in the automotive, communications and computer industries; reliance on key customers; the ability to protect our intellectual property; pricing pressures and demand for our products; and risks associated with our international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks. Investors are encouraged to examine the Company’s 2003 Form 10-K, which more fully describes the risks and uncertainties associated with the Company’s business.

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

During the first quarter of 2004, CTS entered into a series of forward exchange contracts. Refer also to Note E, “Financial Instruments,” of the Notes to the Condensed Consolidated Financial Statements, for a discussion relating to these contracts. There have been no other material changes in CTS’ market risk since December 31, 2003.

Item 4.    Controls and Procedures

CTS maintains a set of disclosure controls and procedures designed to ensure information required to be disclosed by CTS in reports that it files or submits under the Securities Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As of March 28, 2004, the end of the quarter covered by this report, an evaluation was carried out under the supervision and with the participation of CTS’ management, including the chief executive officer and chief financial officer, of the effectiveness of CTS’ disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that CTS’ disclosure controls and procedures are effective at the reasonable assurance level referred to above. Subsequent to the date of their evaluation, there have been no significant changes in CTS’ internal controls over financial reporting or in other factors that could significantly affect these controls.

PART II  -   OTHER INFORMATION

Item 1.    Legal Proceedings

Certain processes in the manufacture of CTS’ current and past products create hazardous waste by-products as currently defined by federal and state laws and regulations.  CTS 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.  In addition to these non-CTS sites, CTS has an ongoing practice of providing reserves for probable remediation activities at certain of its manufacturing locations and for claims and proceedings against CTS with respect to other environmental matters.  In the opinion of management, based upon presently available information relating to all such matters, either adequate provision for probable costs has been made, or the ultimate costs resulting will not materially affect the consolidated financial position, results of operations or cash flows of CTS.

Certain claims are pending against CTS with respect to matters arising out of the ordinary conduct of its business. For all claims, in the opinion of management, based upon presently available information, either adequate provision for anticipated costs has been made by insurance, accruals or otherwise, or the ultimate anticipated costs resulting will not materially affect CTS’ consolidated financial position, results of operations or cash flows.

a.      Exhibits

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b.      Reports on Form 8-K

During the three-month period ending March 28, 2004, CTS filed the following reports on Form 8-K:

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SIGNATURES

Pursuant to the requirements 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.

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