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 September 26, 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)

	Indiana		35-0225010
	(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

	905 West Boulevard North, Elkhart, IN		46514
	(Address of principal executive offices)		(Zip Code)

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 October 18, 2004: 35,917,877

CTS CORPORATION AND SUBSIDIARIES

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			Page

PART I .	FINANCIAL INFORMATION

	Item 1 .	Financial Statements	1

	Condensed Consolidated Statements of Earnings
	- For the Three Months and Nine Months Ended September 26, 2004 and September 28, 2003		1

	Condensed Consolidated Balance Sheets
	- As of September 26, 2004, and December 31, 2003		2

	Condensed Consolidated Statements of Cash Flows
	- For the Nine Months Ended September 26, 2004 and September 28, 2003		3

	Condensed Consolidated Statements of Comprehensive Earnings
	- For the Three Months and Nine Months Ended September 26, 2004 and September 28, 2003		4

	Notes to Condensed Consolidated Financial Statements		5

	Item 2 .	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	13

	Item 3 .	Quantitative and Qualitative Disclosure about Market Risk	22

	Item 4 .	Controls and Procedures	22

PART II .	OTHER INFORMATION

	Item 1 .	Legal Proceedings	22

	Item 2 .	Change in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	23

	Item 6 .	Exhibits and Reports on Form 8-K	23

SIGNATURES			24

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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 Nine Months Ended

September 26, 2004 September 28, 2003
September 26, 2004 September 28, 2003

Net sales $ 129,049 $ 108,496 $ 388,820 $ 330,962

Costs and expenses:

Cost of goods sold
102,737 84,841 308,982 261,704

Selling, general and administrative expenses
16,017 14,694 47,516 42,165

Research and development expenses 4,693 5,052 14,250 16,083

Gain on sales of assets — Note D
(252 ) — (3,319 ) —

Asset impairment charge — Note E
— 4,563 — 4,563

Operating earnings (loss) 5,854 (654 ) 21,391 6,447

Other (expense) income:

Interest expense (1,118 ) (2,139 ) (4,241 ) (6,010 )

Interest income 180 75 515 225

Other 176 298 (343 ) 323

Total other expense (762 ) (1,766 ) (4,069 ) (5,462 )

Earnings (loss) before income taxes
5,092 (2,420 ) 17,322 985

Income tax expense (benefit) — Note K 1,171 (8,494 ) 3,984 (7,643 )

Net earnings
$ 3,921 $ 6,074 $ 13,338 $ 8,628

Net earnings per share — Note L

Basic $ 0.11 $ 0.17 $ 0.37 $ 0.25

Diluted $ 0.11 $ 0.17 $ 0.37 $ 0.25

Cash dividends declared per share $ 0.03 $ 0.03 $ 0.09 $ 0.09

Average common shares outstanding:

Basic 35,896 34,799 35,946 34,351

Diluted 36,401 35,352 36,299 34,729

See notes to condensed consolidated financial statements.

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

September 26, 2004 December 31, 2003*

(UNAUDITED)

ASSETS

Current Assets

Cash and cash equivalents
$ 47,925 $ 25,346

Accounts receivable, less allowances (2004 — $1,459; 2003 — $1,585)
78,850 72,290

Inventories — Note C
45,482 31,925

Other current assets
9,007 6,697

Deferred income taxes
28,516 28,508

Total current assets
209,780 164,766

Property, plant and equipment,
less accumulated depreciation (2004 — $284,821; 2003 — $261,838)
115,669 122,481

Other Assets

Prepaid pension asset — Note H
140,486 132,960

Intangible assets, net
35,721 37,456

Other assets — Note D
8,787 24,587

Total other assets
184,994 195,003

Total Assets
$ 510,443 $ 482,250

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Accounts payable
$ 59,454 $ 52,252

Accrued liabilities
43,911 43,437

Total current liabilities
103,365 95,689

Long-term debt — Note G
87,000 75,880

Other long-term obligations
11,079 11,133

Deferred income taxes
5,380 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;
52,644,935 shares issued at September 26, 2004 and
52,632,088 shares issued at December 31, 2003
263,081 262,748

Additional contributed capital
22,221 21,520

Retained earnings
273,521 263,430

Accumulated other comprehensive earnings
472 151

559,295 547,849

Cost of common stock held in treasury — Note M
(2004 — 16,751,326 shares; 2003 — 16,565,558 shares)
(255,676 ) (253,658 )

Total shareholders’ equity
303,619 294,191

Total Liabilities and Shareholders’ Equity
$ 510,443 $ 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)

Nine Months Ended

September 26, 2004 September 28, 2003

Cash flows from operating activities:

Net earnings $ 13,338 $ 8,628

Adjustments to reconcile net earnings
     to net cash provided by operating activities:

Depreciation and amortization 19,650 25,487

Asset impairment charge — 4,563

Gain on sale of assets (3,319 ) —

Changes in assets and liabilities:

    Accounts receivable (6,560 ) 990

    Inventories (13,557 ) (1,172 )

    Other current assets (1,881 ) (1,123 )

    Prepaid pension asset (7,526 ) (9,205 )

    Accounts payable and accrued liabilities 8,109 (13,199 )

Other 1,409 1,103

Total adjustments (3,675 ) 7,444

Net cash provided by operations 9,663 16,072

Cash flows from investing activities:

Capital expenditures (10,121 ) (6,206 )

Proceeds from sales of assets 19,286 4,081

Other — (129 )

Net cash provided by (used in) investing activities 9,165 (2,254 )

Cash flows from financing activities:

Payments of long-term debt (137,070 ) (92,845 )

Proceeds from issuance of long-term debt 148,190 78,495

Debt issue costs (2,229 ) (595 )

Issuance of common stock — 14,429

Purchase of treasury stock (2,005 ) —

Dividends paid (3,463 ) (3,078 )

Other 15 (47 )

Net cash provided by (used in) financing activities 3,438 (3,641 )

Effect of exchange rate on cash and cash equivalents 313 244

Net increase in cash and cash equivalents 22,579 10,421

Cash and cash equivalents at beginning of year 25,346 9,225

Cash and cash equivalents at end of period $ 47,925 $ 19,646

Supplemental cash flow information

Cash paid during the period for:

Interest $ 3,087 $ 3,638

Income taxes--net $ 5,588 $ 6,036

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 Nine Months Ended

September 26, 2004 September 28, 2003 September 26, 2004 September 28, 2003

Net earnings $ 3,921 $ 6,074 $ 13,338 $ 8,628

Other comprehensive earnings (loss):

Cumulative translation adjustment (342 ) 43 314 309

Deferred gain (loss) on forward contracts
— Note F (31 ) 20 7 (17 )

Comprehensive earnings $ 3,548 $ 6,137 $ 13,659 $ 8,920

See notes to condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS - UNAUDITED
September 26, 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.

Certain reclassifications have been made for the periods presented in the financial statements to conform to the classifications adopted in 2004.

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 Nine Months Ended

September 26, 2004 September 28, 2003 September 26, 2004 September 28, 2003

($ in thousands, except per share amounts)

Net earnings, as reported $ 3,921 $ 6,074 $ 13,338 $ 8,628

Deduct:  Stock-based employee compensation
                 cost, net of tax, if fair value
                 based method were used (334 ) (554 ) (919 ) (1,351 )

Proforma net earnings $ 3,587 $ 5,520 $ 12,419 $ 7,277

Net earnings per share-basic, as reported $ 0.11 $ 0.17 $ 0.37 $ 0.25

Proforma net earnings per share-basic 0.10 0.16 0.35 0.21

Net earnings per share-diluted, as reported 0.11 0.17 0.37 0.25

Proforma net earnings per share-diluted $ 0.10 $ 0.16 $ 0.34 $ 0.21

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NOTE C—Inventories

Inventory consist of the following:

September 26, 2004 December 31, 2003

($ in thousands)

Finished goods $ 8,120 $ 8,047

Work-in-process 10,076 7,779

Raw materials 27,286 16,099

$ 45,482 $ 31,925

NOTE D—Asset Sales

The December 31, 2003 other assets balance sheet item included $17.6 million of assets held for sale. During the first nine months of 2004, CTS sold approximately $16.5 million of assets held for sale, including its Longtan, Taiwan building. The proceeds on the assets sales approximated the carrying value. In addition, due to changes in circumstances, which were previously considered unlikely, $1.1 million of the assets held for sale at December 31, 2003 were reclassified to fixed assets during the first nine months of 2004.

During the first nine months of 2004, CTS also sold excess land located near its Canadian facility for approximately $2.7 million. Cash proceeds related to the sale approximated $2.1 million, with the remaining proceeds of $0.6 million evidenced by a secured note receivable due in May 2006. A gain of $2.7 million was recognized on the sale.

NOTE E—Asset Impairment Charge

During the third quarter of 2003, CTS recorded a $4.6 million pre-tax impairment charge to reduce the carrying value of certain assets, held by the Components and Sensors business segment, to their estimated fair value. Approximately $3.3 million of the impairment charge reflected a write-down for electronic equipment following final production of previously announced “end–of–life” products and a reassessment of the current market value for equipment held for sale. An additional $1.3 million of the impairment charge related to excess capacity on a production line following an assessment of future capacity needs.

NOTE F—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 $7,000 for the nine months ending September 26, 2004, are recognized in accumulated other comprehensive income until they are recognized in earnings at the time the forecasted transaction occurs.

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NOTE G—Long-Term Debt

At September 26, 2004, CTS had a credit agreement containing a $55 million senior, secured revolving credit facility (Credit Facility). There was $2 million outstanding under the Credit Facility at September 26, 2004. On October 12, 2004, CTS amended the Credit Facility to expand the borrowing capacity to $75 million. The amendment also extended the term of the Credit Facility by one year, to July 2007, and revised certain financial covenants. Any outstanding balances are senior to CTS’ convertible debentures. The Credit Facility 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 the facility fluctuate based upon LIBOR. CTS pays a commitment fee on the undrawn portion of the Credit Facility. The commitment fee varies based on performance under certain financial covenants and is currently .0375 percent per annum. The Credit Facility 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 Facility. Additionally, the Credit Facility limits the amounts allowed for dividends, capital expenditures, and acquisitions.

In April 2002, CTS issued $25 million of five-year, 6.5% convertible, subordinated debentures ($25 million Notes). These debentures are unsecured and convert into CTS common stock at a conversion price of $20.05 per share. At any time after the three-year anniversary of the issue date, the purchasers may accelerate the maturity of the debentures. CTS also has the right, after such three-year anniversary and under certain circumstances, to force conversion of the debentures into common stock.

In May 2004, CTS issued $60 million convertible senior subordinated debentures ($60 million Notes). These unsecured debentures bear interest at an annual rate of 2.125%, payable semiannually on May 1 and November 1 of each year through the maturity date of May 1, 2024.

The $60 million Notes are convertible, under certain circumstances, into CTS common stock at a conversion price of $15.00 per share (which is equivalent to an initial conversion rate of approximately 66.6667 shares per $1,000 principal amount of the notes). Upon conversion of the $60 million Notes, in lieu of delivering common stock, the Company may, at its discretion, deliver cash or a combination of cash and common stock.

Holders may convert the $60 million Notes at any time during a conversion period if the closing price of CTS common stock is more than 120% of the conversion price ($18.00 per common share) for at least 20 of the 30 consecutive trading days immediately preceding the first trading day of the conversion period. The conversion periods begin on February 15, May 15, August 15 and November 15 of each year. Holders may also convert the notes if certain corporate transactions occur. As of September 26, 2004, none of the conditions for conversion of the $60 million Notes were satisfied.

CTS may, at its option, redeem all or a portion of the $60 million Notes for cash at any time on or after May 1, 2009, at a redemption price equal to the principal amount of the notes plus any accrued and unpaid interest at the redemption date. Holders may require CTS to purchase for cash all or part of their notes on May 1, 2009, 2014, and 2019, or upon the occurrence of certain events, at 100% of the principle amount of the notes plus accrued and unpaid interest up to, but not including, the date of purchase.

CTS used a portion of the proceeds from the issuance of the $60 million Notes to repay $40 million of its 7.5% industrial revenue bonds that were due in 2013. Another $2 million of industrial revenue bonds were repaid with cash flows from operations in the first quarter of 2004.

In connection with the issuance of the $60 million Notes, CTS incurred $2.2 million of issuance costs, which primarily consisted of investment banker fees, legal and other professional fees. These costs are being amortized to interest expense over the five year period from May 1, 2004 through May 1, 2009.

NOTE H—Retirement Plans

Net pension (income) / postretirement expense for the three and nine months ended September 26, 2004 and September 28, 2003 include the following components:

Three Months Ended Nine Months Ended

September 26, 2004 September 28, 2003 September 26, 2004 September 28, 2003

PENSION PLANS ($ in thousands)

Service cost
$ 1,286 $ 1,235 $ 3,966 $ 3,689

Interest cost
2,801 2,721 8,447 8,177

Expected return on plan assets (1)
(6,761 ) (6,727 ) (20,287 ) (20,189 )

Amortization of unrecognized:

Transition obligation
(119 ) (140 ) (355 ) (420 )

Prior service cost
226 220 676 662

Recognized (gain) loss
173 (238 ) 493 (706 )

Net pension (income) $ (2,394 ) $ (2,929 ) $ (7,060 ) $ (8,787 )

(1) Expected return on plan assets is net of expected investment expenses and certain administrative expenses.

Three Months Ended Nine Months Ended

September 26, 2004 September 28, 2003 September 26, 2004 September 28, 2003

OTHER POSTRETIREMENT BENEFIT PLAN ($ in thousands)

Service cost
$ 9 $ 9 $ 23 $ 29

Interest cost
76 80 232 238

Net postretirement expense $ 85 $ 89 $ 255 $ 267

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NOTE I—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 and manufacture of interconnect systems and complex backplanes, 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.

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


	Components and Sensors		EMS		Total

	*($ in thousands)*
Third Quarter 2004
Net sales to external customers	$	63,229	$	65,820	$	129,049
Segment operating earnings	$	4,579	$	1,275	$	5,854
Total assets	$	416,667	$	93,766	$	510,443

Third Quarter 2003
Net sales to external customers	$	61,449	$	47,047	$	108,496
Segment operating earnings	$	1,505	$	2,404	$	3,909
Total assets	$	406,938	$	76,035	$	482,973

First Nine Months of 2004
Net sales to external customers	$	194,942	$	193,878	$	388,820
Segment operating earnings	$	16,369	$	5,022	$	21,391
Total assets	$	416,667	$	93,766	$	510,443

First Nine Months of 2003
Net sales to external customers	$	185,768	$	145,194	$	330,962
Segment operating earnings	$	3,615	$	7,395	$	11,010
Total assets	$	406,938	$	76,035	$	482,973

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Reconciling information between reportable segments and CTS’ consolidated totals is shown in the following table:

Three Months Ended Nine Months Ended

September 26, 2004 September 28, 2003 September 26, 2004 September 28, 2003

($ in thousands)

Total segment operating earnings $ 5,854 $ 3,909 $ 21,391 $ 11,010

Interest expense (1,118 ) (2,139 ) (4,241 ) (6,010 )

Other income (expense) 356 373 172 548

Asset impairment charge -
Components and Sensors — (4,563 ) — (4,563 )

Earnings before income taxes $ 5,092 $ (2,420 ) $ 17,322 $ 985

NOTE J—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.

NOTE K—Income Taxes

During the second quarter of 2004, CTS changed the estimate of its 2004 effective tax rate from 25% to 23%. The lower effective tax rate reflects the transfer of certain business operations to jurisdictions with lower statutory tax rates and the notification that manufacturing incentives in one foreign jurisdiction qualified CTS for a lower statutory rate, expiring in 2011, subject to certain conditions.

During the quarter ended September 28, 2003, CTS recorded a tax benefit of $7.9 million resulting from the reversal of reserves that were no longer required following the expiration of statutory deadlines.

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NOTE L—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 calculation below provides net earnings, average common shares outstanding and the resultant earnings per share for both basic and diluted EPS for the quarters and nine-month periods ending September 26, 2004 and September 28, 2003.


	Net		Shares
	Earnings		*(in thousands)*			Per Share
	(Numerator)		(Denominator)			Amount

	*($ in thousands, except per share amounts)*
Third Quarter 2004
Basic EPS	$	3,921		35,896		$	0.11
Effect of dilutive securities:
Equity-based compensation plans				477
Other				28	⁽¹⁾

Diluted EPS	$	3,921		36,401		$	0.11

Third Quarter 2003
Basic EPS	$	6,074		34,799		$	0.17
Effect of dilutive securities:
Equity-based compensation plans				402
Other				151	⁽¹⁾

Diluted EPS	$	6,074		35,352		$	0.17

First Nine Months of 2004
Basic EPS	$	13,338		35,946		$	0.37
Effect of dilutive securities:
Equity-based compensation plans				325
Other				28	⁽¹⁾

Diluted EPS	$	13,338		36,299		$	0.37

First Nine Months of 2003
Basic EPS	$	8,628		34,351		$	0.25
Effect of dilutive securities:
Equity-based compensation plans				227
Other				151	⁽¹⁾

Diluted EPS	$	8,628		34,729		$	0.25

⁽¹⁾

Represents shares of CTS common stock to be issued to the former DCA shareholders.

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The following table shows the potentially dilutive securities which have been excluded from the diluted earnings per share calculation for the three and nine-month periods ending September 26, 2004 and September 28, 2003 because they are either anti-dilutive, the exercise price exceeds the average market price or the conversion criteria have not been met.


	Three Months Ended				Nine Months Ended

	September 26, 2004		September 28, 2003		September 26, 2004		September 28, 2003

	*(Number of shares in thousands)*
Stock options where the exercise price exceeds the average market price of common shares during the period		761		779		736		1,262
Securities related to the $25 million Notes		1,247		1,247		1,247		1,247
Securities related to the $60 million Notes		4,000		—		2,059		—

NOTE M—Treasury Stock

In July 2004, CTS’ Board of Directors authorized a program to repurchase up to one million shares of its common stock in the open market during the next two years. This July 2004 authorization effectively canceled the board's previous stock repurchase authorization. Reacquired shares will be used to support equity-based compensation programs and for other corporate purposes. During the third quarter of 2004, CTS repurchased 183,000 shares at a total cost of $2.0 million.

NOTE N—New Accounting Pronouncement

In September 2004, the Emerging Issues Task Force (EITF) finalized Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” Contingently convertible debt instruments (commonly referred to as Co-Cos) are financial instruments that add a contingent feature to a convertible debt instrument. Co-Cos are generally convertible into common shares of the issuer after the common stock price has exceeded a predetermined threshold for a specified time period. Prior to the issuance of EITF No. 04-8, generally accepted accounting principles allowed companies to exclude the potential dilutive effect of the conversion feature from diluted earnings per share until the market price contingency was met. EITF Issue No. 04-8 requires companies to include the impact of Co-Cos in their diluted earnings per share computation regardless of whether the market price trigger has been met. EITF Issue No. 04-8 is expected to be effective for periods ending after December 15, 2004. Diluted earnings per share for prior periods must be retroactively restated to conform to the EITF Issue No. 04-8 for all periods presented where Co-Cos were outstanding. CTS’ $60 million convertible senior subordinated debentures (see Note G, "Long-term Debt,") are considered Co-Cos that will be subject to EITF Issue No. 04-8. If CTS had used the guidance in EITF Issue No. 04-8, diluted earnings per share would have been $0.10 and $0.36, respectively, for the quarter and nine-month period ending September 26, 2004.

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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 and design 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 49.0% and 51.0%, respectively, of CTS’ total sales in the third quarter of 2004 and 56.6% and 43.4%, respectively, in the third quarter of 2003.

As discussed in more detail throughout the Management’s Discussion and Analysis:

•

Sales increased $20.6 million, or 18.9%, in the third quarter of 2004 over the same period last year.

•

Gross margins, as a percentage of sales, were 20.4% in the third quarter of 2004, compared to 21.8% in the same period last year.

•

Selling, general and administrative expenses, as a percentage of sales, were 12.4% in the third quarter of 2004 versus 13.5% in the same period last year.

•

Interest expense decreased from $2.1 million in the third quarter of 2003 to $1.0 million in the third quarter of 2004.

•

Earnings per share were $0.11 in the third quarter of 2004, compared to $0.17 in the same period last year. The 2003 third quarter earnings per share of $0.17 included a favorable income tax adjustment of $0.22 per share and an asset impairment charge, after tax, of $0.10 per share.

•

Cash and cash equivalents increased $22.6 million, from $25.3 million on December 31, 2003, to $47.9 million at the end of the third quarter of 2004.

•

On October 12, 2004, the CTS $55 million credit facility was expanded to $75 million and the term was extended from July 2006 to July 2007.

Outlook

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

•

Following the first nine-month results, the Company expects the sales growth for full year 2004 to be in the 13-15% range for 2004 over 2003.

•

Net earnings per share for the full year of 2004 are expected in the range of $0.50-$0.54. The full-year estimate includes a gain of $0.06 earnings per share from the sale of excess land in Canada. This full-year estimate excludes the unfavorable impact of EITF No. 04-08 of $0.02 per share (see Note N to the financial statements).

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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.

•

Estimating inventory valuation, the allowance for doubtful accounts and other accrued liabilities

•

Valuation of long-lived and intangible assets and depreciation / amortization periods

•

Income taxes

•

Retirement plans

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

Results of Operations

Comparison of Third Quarter 2004 and Third Quarter 2003

Business Segment Discussion

Refer to Note I, “Business Segment,” for a description of the Company’s business segments.

The following table highlights the segment results for the three-month periods ended September 26, 2004 and September 28, 2003:


	Components & Sensors			Electronics Manufacturing Services			Consolidated Total

	*($ in thousands)*
Third Quarter 2004
Sales	$	63,229		$	65,820		$	129,049
Segment operating earnings		4,579			1,275			5,854
% of sales		7.2	%		1.9	%		4.5	%

Third Quarter 2003
Sales	$	61,449		$	47,047		$	108,496
Segment operating earnings		1,505			2,404			3,909
% of sales		2.4	%		5.1	%		3.6	%

While Components and Sensors business segment sales increased $1.8 million, or 2.9%, over the prior year quarter, segment operating earnings increased $3.1 million, or three times the amount of the prior year quarter. The increase is primarily from lower depreciation and amortization expense of $2.2 million, and favorable impact from product mix change of $0.8 million, Singapore cost allocation of $0.6 million incurred by EMS, contribution from incremental sales of approximately $0.5 million, and foreign exchange of $0.4 million. These favorable factors were partially offset by higher incentive compensation of $0.9 million and new product launch costs of $0.6 million.

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EMS business segment sales increased $18.8 million, or 39.9% from the prior year quarter. The revenue increase resulted primarily from higher demand for data storage systems, communications infrastructure systems and networking equipment. The operating earnings of $1.3 million decreased $1.1 million from the prior year quarter. The decrease in earnings was primarily driven by price reductions not fully offset by cost reductions of $1.0 million, unfavorable currency exchange of $0.7 million, cost allocation of $0.6 million from the Components and Sensors segment to CTS’ EMS Singapore operation, and unfavorable product mix change of $0.4 million. These unfavorable factors were partially offset by the impact of $2.2 million from higher sales.

Total Company Discussion

The following table highlights changes in significant components of the condensed consolidated statements of earnings for the three-month periods ended September 26, 2004 and September 28, 2003:


	September 26, 2004			September 28, 2003			Increase (Decrease)

	*($ in thousands)*
Net sales	$	129,049		$	108,496		$	20,553
Gross margin		26,312			23,655			2,657
% of net sales		20.4	%		21.8	%		(1.4	)%

Selling, general and administrative expenses		16,017			14,694			1,323
% of net sales		12.4	%		13.5	%		(1.1	)%
Research and development expenses		4,693			5,052			(359	)
% of net sales		3.6	%		4.7	%		(1.1	)%
Gain on sale of assets		(252	)		—			(252	)

Asset impairment charges		—			4,563			(4,563	)

Operating earnings (loss)		5,854			(654	)		6,508
% of net sales		4.5	%		(0.6	)%		5.1	%

Interest expense		1,118			2,139			(1,021	)
Earnings (loss) before income taxes		5,092			(2,420	)		7,512
Income tax expense (benefit)		1,171			(8,494	)		9,665

Net earnings	$	3,921		$	6,074		$	(2,153	)

Net sales increased $20.6 million in the third quarter of 2004, or 18.9% from the third quarter of 2003, primarily due to the EMS increase of $18.8 million, related to increased demand for data storage systems, communications infrastructure systems and networking equipment. In addition, Components and Sensors sales increased $1.8 million, primarily related to increased demand for automotive products and communications infrastructure components during the third quarter of 2004.

Gross margin increased $2.7 million in the third quarter of 2004 from the third quarter of 2003. As reported in the Business Segment Discussion, favorable factors include the impact of higher sales, lower depreciation expense, and favorable product mix at the Components and Sensors segment. These favorable items were offset partially by a higher percent of EMS segment sales, which inherently have a lower gross margin percentage than Components and Sensors segment sales, pricing, and unfavorable currency exchange at EMS.

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Selling, general and administrative expenses increased $1.3 million, primarily due to increased expenses for incentive compensation and professional services.

Research and development expenses decreased $0.4 million from the third quarter of 2003, primarily due to the realignment 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 application 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.

During the third quarter of 2003, CTS recorded a $4.6 million pre-tax impairment charge to reduce the carrying value of certain assets, held by the Components and Sensors business segment, to their estimated fair value. Approximately $3.3 million of the impairment charge reflected a write-down for electronic equipment following final production of previously announced “end–of–life” products and a reassessment of the market value for equipment held for sale. An additional $1.3 million of the impairment charge related to excess capacity on a production line following an assessment of future capacity needs.

Third quarter operating earnings increased $6.5 million compared to the prior year quarter, primarily due to higher gross margin in 2004 and asset impairment charges of $4.6 million in 2003, as noted above, partially offset by increased selling, general and administrative expenses.

Interest expense decreased $1.0 million in the third quarter, primarily due to debt refinancing efforts, which resulted in lower interest rates.

Comparison of First Nine Months of 2004 and First Nine Months of 2003

Business Segment Discussion

The following table highlights the business segment results for the nine-month periods ended September 26, 2004 and September 28, 2003:


	Components & Sensors			Electronics Manufacturing Services			Consolidated Total

	*($ in thousands)*
First Nine Months 2004
Sales	$	194,942		$	193,878		$	388,820
Segment operating earnings		16,369			5,022			21,391
% of sales		8.4	%		2.6	%		5.5	%

First Nine Months 2003
Sales	$	185,768		$	145,194		$	330,962
Segment operating earnings		3,615			7,395			11,010
% of sales		1.9	%		5.1	%		3.3	%

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During the first nine months of 2004, sales of Components and Sensors and EMS products, as a percentage of total sales, were 50.1% and 49.9% respectively. The first nine months of 2003 sales of Components and Sensors and EMS products, as a percentage of total sales, were 56.1% and 43.9%, respectively.

Components and Sensors business segment sales increased $9.2 million or 4.9% from the prior year. Operating earnings increased $12.8 million from the impact of approximately $2.6 million relating to the contribution from incremental sales, lower depreciation and amortization expense of $5.9 million, the gain of $3.3 million on the sale of assets, including $2.7 million on the sale of excess land in Canada, favorable product mix change of $1.8 million, costs of $1.5 million allocated to EMS, favorable foreign exchange of $1.1 million, and reduced manufacturing costs, partially offset by higher incentive compensation of $3.2 million and product launch cost of $2.1 million.

EMS business segment sales increased $48.7 million, or 33.5% from the prior year primarily due to higher demand for communications infrastructure systems, data storage systems, and networking equipment. The operating earnings of $5.0 million decreased $2.4 million from the prior year period. The decrease in earnings was driven by cost allocation of $1.5 million from the Components and Sensors segment to EMS Singapore operation, unfavorable currency exchange of $2.3 million, price reductions not fully offset by cost reductions of $3.2 million, $0.4 million impact of product mix, and slightly higher depreciation of $0.3 million, partially benefited by the favorable impact of higher sales volume.

Total Company Discussion

The following table highlights changes in significant components of the condensed consolidated statements of earnings for the nine-month periods ended September 26, 2004 and September 28, 2003:


	September 26, 2004			September 28, 2003			Increase (Decrease)

	*($ in thousands)*
Net sales	$	388,820		$	330,962		$	57,858
Gross margin		79,838			69,258			10,580
% of net sales		20.5	%		20.9	%		(0.4	)%

Selling, general and administrative expenses		47,516			42,165			5,351
% of net sales		12.2	%		12.7	%		(0.5	)%
Research and development expenses		14,250			16,083			(1,833	)
% of net sales		3.7	%		4.9	%		(1.2	)%
Gain on sale of assets		(3,319	)		—			(3,319	)

Asset impairment charges		—			4,563			(4,563	)

Operating earnings		21,391			6,447			14,944
% of net sales		5.5	%		1.9	%		3.6	%

Interest expense		4,241			6,010			(1,769	)
Earnings before income taxes		17,322			985			16,337
Income tax expense (benefit)		3,984			(7,643	)		11,627

Net earnings	$	13,338		$	8,628		$	4,710

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Net sales increased $57.9 million for the first nine months of 2004, or 17.5% from the first nine months of 2003. The increase in sales is primarily due to the higher demand within our EMS segment for communications infrastructure systems, data storage systems, and networking equipment of $48.7 million. Components and Sensors sales increased $9.2 million, primarily related to increased demand for automotive products and communications infrastructure components during the nine-month period of 2004.

Gross margin increased $10.6 million, or 15.3%, for the first nine months of 2004. As reported in the Business Segment Discussion, the 2004 gross margin dollar improvement was primarily due to higher sales, lower depreciation expense, favorable product mix at the Components and Sensors segment, and a decreasing cost structure. These favorable factors were partially offset by a higher percentage of lower margin EMS segment sales, as well as pricing and unfavorable currency exchange at EMS.

Selling, general and administrative expenses increased $5.4 million, primarily due to higher expense for incentive compensation and professional services. The first nine months of 2004 included the gain of $3.3 million on the sale of assets, primarily $2.7 million on the sale of excess land in Canada.

Research and development expenses of $14.3 million decreased $1.8 million from the first nine months of 2003, primarily due to realignment 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 application 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.

During the third quarter of 2003, CTS recorded a $4.6 million pre-tax impairment charge to reduce the carrying value of certain assets, held by the Components and Sensors business segment, to their estimated fair value. Approximately $3.3 million of the impairment charged reflected a write-down for electronic equipment following final production of previously announced “end-of-life” products and a reassessment of the market value for equipment held for sale. An additional $1.3 million of the impairment charge related to excess capacity on a production line following an assessment of future capacity needs.

Operating earnings of $21.4 million increased $14.9 million compared to the first nine months of 2003, primarily due to the higher gross margin, the gain on the sale of excess land in Canada in 2004, and asset impairment charges in 2003, partially offset by higher operating expenses to support higher sales.

Interest expense of $4.2 million decreased $1.8 million, primarily due to debt refinancing efforts, which resulted in lower interest rates.

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Liquidity and Capital Resources

Overview

Cash and cash equivalents increased to $47.9 million at September 26, 2004 from $25.3 million at December 31, 2003. Total debt was $87.0 million, up from $75.9 million at the end of 2003. Total debt as a percentage of total capitalization was 22.3% at the end of the third quarter of 2004, compared with 20.5% at the end of 2003.

During the first nine months of 2004:

•

CTS completed the sale of the Longtan, Taiwan facility, and received net cash proceeds of $16.4 million. CTS also completed the sale of excess land in Canada, and received $2.1 million, with the remaining $0.6 million in a note receivable due May 2006.

•

In May, CTS issued $60.0 million convertible senior subordinated notes ($60 million Notes) due 2024. The net proceeds of $57.8 million were used to repay, in full, the outstanding principal of industrial revenue bonds and reduce amounts outstanding under its Credit Facility.

•

On October 12, 2004, the $55 million Credit Facility was expanded to $75 million and the term was extended from July 2006 to July 2007.

Working capital increased $37.3 million in the first nine months of 2004, primarily driven by a $22.6 million increase in cash and cash equivalents, an increase in accounts receivable of $6.6 million due to higher sales, an increase in inventory of $13.6 million to support higher sales and the new EMS operation in Singapore, partially offset by an increase of accounts payable of $7.2 million associated with higher sales.

Free Cash Flow

The following table summarizes free cash flow for the Company:


	Nine Months Ended

	September 26, 2004		September 28, 2003

	*($ in millions)*
Net cash provided by operations	$	9.7	$	16.1
Net cash provided by (used in) investing activities		9.1		(2.3	)

Free cash flow	$	18.8	$	13.8

Free cash flow is a non-GAAP financial measure which CTS defines as net cash provided by operations plus net cash provided by (used in) investing activities. The most directly comparable GAAP financial measure is net cash provided by operations. Management believes that free cash flow provides useful information to investors regarding the Company’s ability to generate cash from business operations that is available for internal growth, service of debt principal, dividends, share repurchases and acquisitions and other investments. Management uses free cash flow as one measure to monitor and evaluate the performance of the Company.

During the first nine months of 2004, net cash provided by operations was $9.7 million, after funding the working capital required for business growth. Within net cash provided by investing activities, capital expenditures of $10.1 million were more than offset by the proceeds from the sales of the Longtan, Taiwan building and excess land in Canada.

During the first nine months of 2003, net cash provided by operations was $16.1 million after funding the working capital required for business growth. The capital expenditures of $6.2 million were partially offset by the proceeds from the sale of assets, primarily TCXO production assets.

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Operating Activities

Cash flows provided by operations were $9.7 million in the first nine months of 2004. Components of cash flows from operations include earnings of $13.3 million and depreciation and amortization of $19.7 million, partially offset by a gain of $3.3 million on sale of assets and unfavorable changes in assets and liabilities of $20.0 million. The unfavorable changes in assets and liabilities were primarily due to increased accounts receivable and inventory to support higher sales and the new EMS operation in Singapore, as well as increased prepaid pension asset.

For the nine months ended September 2003, cash flow from operations was $16.1 million. Positively impacting cash flow from operations were net earnings of $8.6 million and adjustments to reconcile earnings of $30.0 million, primarily from depreciation and amortization of $25.5 million and asset impairment charge of $4.6 million. Changes in assets and liabilities reduced cash flow from operations by $22.6 million, primarily in the prepaid pension asset and accounts payable and accrued liabilities.

Investing Activities

Cash flows provided by investing activities totaled $9.2 million in the first nine months of 2004, including $16.4 million of net proceeds from the sale of the Longtan, Taiwan facility and $2.1 million from the sale of excess land in Canada, partially offset by $10.1 million of capital expenditures. Through the first nine months of 2003, cash flows used in investing activities totaled $2.3 million in the first nine months of 2003, including $6.2 million of capital expenditures, partially offset by $4.1 million of proceeds from the sale of assets.

Financing Activities

Cash flows provided by financing activities for the first nine months of 2004 were $3.4 million, consisting primarily of $57.8 million proceeds from the $60 million Notes due 2024, $42.0 million repayment of the 7.5% industrial revenue bond, net payment of $6.9 million of long-term debt, $2.0 million purchase of treasury stock, and $3.5 million in dividend payments. In the first nine months of 2003, cash flows used for financing activities were $3.6 million in 2003, consisting primarily of net repayment of debt of $14.4 million and stock dividends of $3.1 million, partially offset by proceeds from the issuance of common stock of $14.4 million.

Capital Resources

The following table shows the long-term borrowings and related average interest rates as of September 26, 2004 and December 31, 2003:


	September 26, 2004					December 31, 2003

	Balance ($)		Average interest rate (%)			Balance ($)		Average interest rate (%)

	*($ in millions)*
$55 million Credit Facility*	$	2.0		3.7	%	$	8.9		3.1	%
Industrial Revenue Bonds		—		—			42.0		7.5
Convertible Debentures Due 2007		25.0		6.5			25.0		6.5
Convertible Debentures Due 2024		60.0		2.1			—		—

Total long-term debt	$	87.0		3.4	%	$	75.9		6.7	%

* The Credit Facility was expanded to $75 million on October 12, 2004.

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At September 26, 2004, CTS had a credit agreement containing a $55 million Credit Facility. The outstanding balances under the Credit Facility at September 26, 2004 was $2.0 million. On October 12, 2004, CTS amended the Credit Facility to expand the borrowing capacity to $75 million. The amendment also extended the term of the Credit Facility by one year, to July 2007, and revised certain financial covenants. Any outstanding balances would be senior to CTS’ convertible debentures. The Credit Facility 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 the facility fluctuate based upon LIBOR. The interest rate as of September 26, 2004 was 3.66% per annum. CTS pays a commitment fee on the undrawn portion of the Credit Facility. The commitment fee varies based on performance under certain financial covenants and is currently 0.375 percent per annum. The Credit Facility requires, among other things, that CTS comply with a minimum fixed charge coverage, a maximum leverage ratio and a minimum tangible net worth covenants. Failure of CTS to comply with these covenants could reduce the borrowing availability under the Credit Facility. Additionally, the Credit Facility limits the amounts allowed for dividends, capital expenditures and acquisitions.

During the second quarter of 2004, CTS issued the $60 million Notes due 2024. The debt is an unsecured senior subordinated obligation of CTS. The notes bear interest at a rate of 2.125% per year and will be convertible, under certain circumstances, into CTS common stock, at the option of the holder, at a price of $15.00 per share, which is equivalent to an initial conversion rate of approximately 66.6667 shares per $1,000 principal amount of the notes. The conversion price represents a 36.24% premium over the closing price of CTS common stock on May 5, 2005. The offering was closed on May 11, 2004. With the proceeds, CTS repaid outstanding debt, including its industrial revenue bonds of $40 million due in 2013 at a weighted average interest rate of 7.5% and reduced its outstanding Credit Facility.

CTS believes cash flows from operations and available borrowings under its Credit Facility will be adequate to fund its working capital and capital expenditure 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 July 9, 2004, CTS’ Board of Directors authorized the repurchase of up to one million shares of its outstanding shares of common stock during the next two years. Under this program, CTS purchased 183,000 shares at a total cost of $2.0 million during the third quarter 2004. The repurchased shares are held as treasury stock and are available for equity-based compensation programs and for other corporate purposes.

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 September 26, 2004, CTS could issue up to approximately 48,200 additional shares of common stock under this registration statement.

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 nine months of 2004, CTS did not issue any securities under this registration statement. As of September 26, 2004, CTS could offer up to $435 million of additional debt and/or equity securities under this registration statement.

Effect of Recent Accounting Pronouncement

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*****

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 Current Report on form 8-K, filed May 6, 2004, Exhibit 99.01, which more fully describes the risks and uncertainties associated with the Company’s business.

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 F, "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 September 26, 2004, the end of the period 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

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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table summarizes the repurchases of CTS common stock made by the Company during the quarter ended September 26, 2004:




					(c)		(d)
					Total Number		Maximum Number
					of Shares		of Shares
	(a)		(b)		Purchased as Part of		That May Yet Be
	Total Number of		Average Price		Plans or Programs		Purchased Under the
Period	Shares Purchased		Paid per Share		*(1)*		Plans or Programs

June 28, 2004 – July 25, 2004		—		—		—		1,000,000

July 26, 2004 – August 22, 2004		148,300	$	10.82		148,300		851,700

August 23, 2004 – September 26, 2004		34,700	$	11.53		34,700		817,000


Total		183,000	$	10.95		183,000

⁽¹⁾

On July 13, 2004, CTS’ Board of Directors authorized a program to repurchase up to one million shares of its common stock in the open market. The authorization expires June 30, 2006. The previous share repurchase plan was canceled in July 2004.

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

10(a)

CTS Corporation 2004 Omnibus Long-Term Incentive Plan, Incentive Stock Option Agreement and Restricted Stock Unit Agreement.

31(a)

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b)

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32(a)

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32(b)

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b. Reports on Form 8-K

During the three-month period ending September 26, 2004, CTS filed the following reports on Form 8-K:

•

Report dated July 9, 2004, under Item 5., Other Events and Regulation FD Disclosure, containing a press release announcing the Board of Directors had authorized a systematic program for the repurchase of up to one million shares of its outstanding shares of common stock.

•

Report dated July 21, 2004, under Item 12., Results of Operations and Financial Condition, containing a press release announcing financial results for the second quarter of 2004.

•

Report dated August 2, 2004, under Item 9., Regulation FD Disclosure, containing a copy of material to be used in an investor presentation.

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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.

CTS Corporation			CTS Corporation

/s/ Richard G. Cutter III			/s/ Vinod M. Khilnani

Richard G. Cutter III Vice President, Secretary and General Counsel			Vinod M. Khilnani Senior Vice President and Chief Financial Officer

Dated: October 19, 2004

Form 10-Q
Third Quarter 2004

EXHIBIT 10(a)

CTS CORPORATION
2004 OMNIBUS LONG-TERM INCENTIVE PLAN

SECTION 1. PURPOSE: The purpose of the CTS Corporation Omnibus Long-Term Incentive Plan is to provide certain employees and consultants of CTS Corporation and its Affiliates (as hereinafter defined) and members of the Board (as hereinafter defined) with the opportunity to receive stock-based and other long-term incentive grants in order to attract and retain qualified individuals and to align their interests with those of shareholders.

SECTION 2. EFFECTIVE DATE: This Plan will become effective as of March 3, 2004, subject to the approval of the shareholders in accordance with the Company’s by-laws and the laws of the State of Indiana at the Annual Meeting to be held on April 28, 2004. Unless sooner terminated as provided herein, the Plan shall terminate ten years from March 3, 2004. After the Plan is terminated, no future Awards may be granted under the Plan, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions.

SECTION 3. DEFINITIONS: As used in this Plan, unless the context otherwise requires, each of the following terms shall have the meaning set forth below.

(a)

“Affiliate” shall mean any entity that, directly or indirectly, controls, is controlled by, or is under common control with, the Company.

(b)

“Award” shall mean a grant of an Option, SAR, Restricted Stock Award, Performance Award, or Other Stock Award pursuant to the Plan, which may, as determined by the Committee, be in lieu of other compensation owed to a Participant.

(c)

“Award Agreement” shall mean an agreement, either in written or electronic format, in such form and with such terms and conditions as may be approved by the Committee, which evidences the terms and conditions of an Award.

(d)

“Board of Directors” or “Board” shall mean the board of directors of the Company.

(e)

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any references to a particular section of the Code shall be deemed to include any successor provision thereto.

(f)

“Committee” shall mean the Compensation Committee or such other committee of the Board of Directors, which shall consist solely of two or more members of the Board who are “outside directors” within the meaning of Section 162(m) of the Code, “non-employee directors” within the meaning of Securities and Exchange Commission Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, and independent directors as defined by any applicable stock exchange rule or any such successor provision thereto.

(g)

“Company” shall mean CTS Corporation, an Indiana corporation.

(h)

“Consultant” shall mean any person engaged by the Company or an Affiliate to render services to such entity as a consultant or advisor.

(i)

“Employee” shall mean an employee of the Company or any Affiliate.

(j)

“Exercise Price” shall mean an amount, as determined by the Committee, at which an Option or SAR can be exercised by a Participant, which amount shall not be less than the Fair Market Value of a Share on the date such Award is granted, unless such Option or SAR is granted pursuant to an assumption or substitution of another option in a manner that satisfies the requirements of Section 424(a) of the Code.

(k)

“Fair Market Value” shall mean, unless otherwise determined by the Committee, the closing stock price for a Share as reported on a national securities exchange if the Shares are then being traded on such an exchange. If no closing price was reported for such date, the closing price on the last preceding day on which such a price was reported shall be used.

(1)

“Incentive Stock Option” shall mean an Option which is intended to meet the requirements set forth in Section 422 of the Code.

(m)

“Nonqualified Stock Option” shall mean an Option not intended to qualify as an Incentive Stock Option.

(n)

“Option” shall mean the right to purchase a Share granted pursuant to Section 8, which may take the form of either an Incentive Stock Option or a Nonqualified Stock Option and which shall not have a term of more than 10 years.

(o)

“Other Stock Award” shall mean an Award of Shares or Awards that are valued in whole or in part, or that are otherwise based on, Shares, including but not limited to dividend equivalents or amounts which are equivalent to any federal, state, local, domestic, or foreign taxes relating to an Award, which may be payable in Shares, cash, other securities, or any other form of property as the Committee shall determine, subject to the terms and conditions set forth by the Committee and granted pursuant to Section 12.

(p)

“Participant” shall mean an Employee, Consultant, or member of the Board selected by the Committee to receive Awards under the Plan.

(q)

“Performance Awards” shall mean Awards of Performance Shares or Performance Units.

(r)

“Performance Goal(s)” shall mean the level or levels of Performance Measures established by the Committee pursuant to Section 7.

(s)

“Performance Measures” shall mean any of the following performance criteria, either alone or in any combination, and may be expressed with respect to the Company or one or more operating units or groups, as the Committee may determine: free cash flow; free cash flow from operations; total earnings; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; earnings from continuing operations; net asset turnover; inventory turnover; debt ratios; operating expense; inventory turns; net earnings; operating earnings; gross operating margin, gross margin percentage; return on equity; capital expenditures; cost of quality; on-time delivery; return on net assets; return on total assets; return on capital; return on investment; return on sales; gross sales, net sales; market share; net market share; economic value added; expense reduction levels; stock price; working capital; controllable working capital and total shareholder return. Performance Measures may be determined on an absolute basis or relative to internal goals or relative to levels attained in prior years or related to other companies or indices or as ratios expressing relationships between two or more Performance Measures. Additionally, Performance Measures may be defined to exclude certain types or categories of extraordinary, unusual or non-recurring items; changes in applicable laws, regulations or accounting principles; currency fluctuations; discontinued operations; non-cash items, such as amortization, depreciation or reserves; or any recapitalization, restructuring, asset impairment, reorganization, merger, acquisition, divestiture, consolidation, spin-off, split-up, combination, liquidation, dissolution, sale of assets, gain or loss on asset sales, or other similar corporate transaction. The Committee shall provide how any Performance Measure shall be adjusted to the extent necessary to prevent dilution or enlargement of any Award as a result of extraordinary events or circumstances, as determined by the Committee, or to exclude the effects of extraordinary, unusual, or non-recurring items; changes in applicable laws, regulations, or accounting principles; currency fluctuations; discontinued operations; non-cash items, such as amortization, depreciation, or reserves; or any recapitalization, restructuring, asset impairment, reorganization, merger, acquisition, divestiture, consolidation, spin-off, split-up, combination, liquidation, dissolution, sale of assets, gain or loss on asset sales, or other similar corporate transaction; provided, however, with respect to a person who is or may be a “covered employee” within the meaning of Section 162(m) of the Code, that no such adjustment will be made if the effect of such adjustment would cause the Award to fail to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code.

(t)

“Performance Share” shall mean an Award denominated in Shares, which is earned during a specified period subject to the terms and conditions as determined by the Committee and granted pursuant to Section 11.

(u)

“Performance Period” shall mean a period established by the Committee pursuant to Section 7 at the end of which one or more Performance Goals are to be measured.

(v)

“Performance Unit” shall mean an Award denominated in units having a value in dollars or such other currency, as determined by the Committee, which is earned during a specified period subject to the terms and conditions as determined by the Committee and granted pursuant to Section 11.

(w)

“Plan” shall mean the CTS Corporation Omnibus Long-Term Incentive Plan, as amended and restated from time to time.

(x)

“Restricted Stock” shall mean an Award of Shares, subject to such terms and conditions as determined by the Committee and granted pursuant to Section 10.

(y)

“Restricted Stock Award” shall mean an Award consisting of Restricted Stock or Restricted Stock Units.

(z)

“Restricted Stock Unit” shall mean an Award consisting of a bookkeeping entry representing an amount equivalent to the Fair Market Value of one Share on any given date, payable in cash or Shares, and representing an unfunded and unsecured obligation of the Company, except as otherwise provided by the Committee, subject to such terms and conditions as determined by the Committee and granted pursuant to Section 10.

(aa)

“Shares” shall mean shares of common stock, without a par value, of the Company.

(bb)

“Stock Appreciation Right” or “SAR” shall mean an Award, which represents the right to receive the difference between the Fair Market Value of a Share on the date of exercise and an Exercise Price, payable in cash or Shares, subject to such terms and conditions as determined by the Committee and granted pursuant to Section 9 and which shall not have a term of more than 10 years.

SECTION 4. ADMINISTRATION: Subject to the express provisions of this Plan, the Committee shall have authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable for the administration of the Plan. In exercising its discretion, the Committee may use such objective or subjective factors as it determines to be appropriate in its sole discretion. The determinations of the Committee pursuant to its authority under the Plan shall be conclusive and binding. The Committee may delegate to one or more officers of the Company the authority, subject to the terms and conditions as the Committee shall determine, to grant Awards to employees who are not officers or members of the Board as defined in Section 16 of the Securities Exchange Act of 1934, as amended.

SECTION 5. SHARES AVAILABLE FOR AWARDS

(a)

Subject to adjustment as provided in Section 5(g), the maximum number of Shares available for issuance under the Plan shall be 6,500,000.

(b)

If any Shares are subject to an Award that is forfeited, expires, or is otherwise terminated without the issuance of Shares, such Shares shall again be available for Awards under the Plan. Any Shares that are: (i) tendered by the Participant or retained by the Company as full or partial payment to the Company for the purchase of an Award or to satisfy tax withholding obligations in connection with an Award; or (ii) reacquired by the Company on the open market using proceeds received by the Company from the purchase price of an Award shall be available for Awards under the Plan. Upon payment of Shares upon the exercise of a SAR, the number of Shares available for issuance under the Plan shall be reduced only by the number of actual Shares issued in such payment.

(c)

Unless otherwise determined by the Committee, Awards that are designed to operate in tandem with other Awards shall not be counted against the maximum number of Shares available under Section 5(a) in order to avoid double counting.

(d)

Notwithstanding the foregoing, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate number of Shares stated in Section 5(a), subject to adjustment as provided in Section 5(g) to the extent that such adjustment does not affect the ability to grant or the qualification of Incentive Stock Options under the Plan.

(e)

To the extent any Award is settled in cash, the number of Shares available for issuance under the Plan pursuant to Section 5(a) shall be reduced by an amount equal to the quotient of: (i) the dollar amount of such cash payment, reduced by any amount tendered by the Participant or retained by the Company to satisfy tax withholding obligations in connection with the Award; divided by (ii) the Fair Market Value of a Share on the date of the cash payment.

(f)

Any Shares issued under the Plan shall consist, in whole or in part, of authorized and unissued Shares, Shares purchased in the open market or otherwise, Shares in treasury, or any combination thereof, as the Committee or, as appropriate, the Board may determine.

(g)

In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, or similar corporate transaction, as determined by the Committee, the Committee may, in such manner as it may deem equitable and to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, adjust the number and type of Shares available for Awards under the Plan, the number and type of Shares subject to outstanding Awards, and the Exercise Price with respect to any Award; provided, however, that any fractional Share resulting from an adjustment pursuant to this Section 5(g) shall be disregarded. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for any or all outstanding Awards under this Plan such alternative consideration as it may determine to be equitable and may in connection therewith require the surrender of all or part of any Award to be replaced.

SECTION 6. ELIGIBILITY: The Committee from time to time may designate which Employees, Consultants, and members of the Board shall become Participants under the Plan.

SECTION 7. CODE SECTION 162(m) PROVISIONS

(a)

Notwithstanding any other provision of the Plan, if the Committee determines at the time an Award is made to a Participant that such Participant is or may be for the tax year in which the Company would claim a tax deduction in connection with the Award, a Covered Employee (as that term is defined in Section 162(m) of the Code), the Committee shall provide that this Section 7 is applicable to such Award under such terms and conditions as the Committee may specify.

(b)

Notwithstanding any other provision of the Plan other than Section 5(g), if this Section 7 is applicable to a particular Award, no Participant receiving such an Award shall be granted: (i) Options or SARs with respect to more than 500,000 Shares in the aggregate within any fiscal year of the Company; (ii) Performance Shares which could result in such Participant receiving more than 125,000 Shares for each full fiscal year of the Company contained in the Performance Period of a particular Award, provided, however, that, if any other Awards of Performance Shares are outstanding for such Participant for a given fiscal year, such Share limitation shall be reduced for each such given fiscal year by the Shares that could be received by the Participant under all such Awards, divided, for each such Award, by the number of full fiscal years of the Company applicable to each such outstanding Award; or (iii) Performance Units which could result in such Participant receiving more than $2,000,000 for each full fiscal year of the Company contained in the Performance Period of a particular Award, provided, however, that, if any other Awards of Performance Units are outstanding for such Participant for a given fiscal year, such dollar limitation shall be reduced for each such given fiscal year by the amount that could be received by the Participant under all such Awards, divided, for each such Award, by the number of full fiscal years of the Company applicable to each such outstanding Award; provided, however, that the limitations set forth in this Section 7(b) shall be subject to adjustment under Section 5(g) of the Plan only to the extent that such adjustment does not affect the status of any Award intended under this Section 7 to qualify as “performance-based compensation” under Section 162(m) of the Code. If an Option is granted in tandem with a SAR, such that exercise of the Option or SAR with respect to one Share cancels the tandem Option or SAR, respectively, with respect to such Share, the tandem Option and SAR with respect to such Share shall be counted as covering only one Share for purposes of applying the limitation set forth in this Section 7(b).

(c)

The Committee shall have the authority to impose such other restrictions on Awards subject to this Section 7 as it may deem necessary or appropriate to ensure that such Awards meet the requirements for “performance-based compensation” under Section 162(m) of the Code.

SECTION 8. OPTIONS: Subject to the terms and conditions of the Plan, the Committee may grant Options to Participants on such terms and conditions as the Committee may prescribe in an Award Agreement, including, but not limited to, the Exercise Price; vesting schedule; method of payment of the Exercise Price; treatment upon termination of employment; treatment upon certain corporate transactions or events; and other terms and conditions that the Committee may deem appropriate.

SECTION 9. STOCK APPRECIATION RIGHT: Subject to the terms and conditions of the Plan, the Committee may grant SARs to Participants on such terms and conditions as the Committee may prescribe in an Award Agreement, including, but not limited to, the Exercise Price; vesting schedule; form of payment; treatment upon termination of employment; treatment upon certain corporate transactions or events; and other terms and conditions that the Committee may deem appropriate.

SECTION 10. RESTRICTED STOCK AWARD: Subject to the terms and conditions of the Plan, the Committee may grant Restricted Stock Awards to Participants on such terms and conditions as the Committee may prescribe in an Award Agreement, including, but not limited to, the vesting schedule; purchase price, if any; deferrals allowed or required; treatment upon termination of employment; treatment upon certain corporate transactions or events; and other terms and conditions that the Committee may deem appropriate.

SECTION 11. PERFORMANCE AWARDS: Subject to the terms and conditions of the Plan, the Committee may grant Performance Awards to Participants on such terms and conditions as the Committee may prescribe in an Award Agreement, including, but not limited to, the performance period; performance criteria; treatment upon termination of employment; treatment upon certain corporate transactions or events; and other terms and conditions that the Committee may deem appropriate.

SECTION 12. OTHER STOCK AWARDS: Subject to the terms and conditions of the Plan, the Committee may grant Other Stock Awards to Participants on such terms and conditions as the Committee may prescribe in an Award Agreement, including, but not limited to, the vesting schedule, if any; purchase price, if any; deferrals allowed or required; treatment upon termination of employment; treatment upon certain corporate transactions or events; and other terms and conditions that the Committee may deem appropriate.

SECTION 13. PROHIBITION ON REPRICING: The Committee shall not reduce the Exercise Price of any outstanding Option or SAR, whether through amendment, cancellation, replacement, or any other means, without the approval of shareholders. This Section 13 shall not be construed to apply: (i) to the Options or SARs granted pursuant to an assumption or substitution of another option in a manner that satisfies the requirements of Section 424(a) of the Code; or (ii) to an adjustment made pursuant to Section 5(g) of the Plan.

SECTION 14. WITHHOLDING: The Committee may make such provisions and take such steps as it may deem necessary and appropriate for the withholding of any taxes that the Company is required by law or regulation of any governmental authority, whether federal, state, local, domestic, or foreign, to withhold in connection with the grant, exercise, payment, or removal of restrictions of an Award, including, but not limited to, requiring the Participant to remit to the Company an amount sufficient to satisfy such withholding requirements in cash or Shares or withholding cash or Shares due or to become due with respect to the Award at issue.

SECTION 15. POSTPONEMENT OF ISSUANCE AND DELIVERY: The issuance and delivery of any Shares under this Plan may be postponed by the Company for such period as may be required to comply with any applicable requirements under any applicable listing requirement of any national securities exchange or any law or regulation applicable to the issuance and delivery of Shares, and the Company shall not be obligated to issue or deliver any Shares if the issuance or delivery of such Shares shall constitute a violation of any provision of any law or regulation of any governmental authority or any national securities exchange.

SECTION 16. NO RIGHT TO AWARDS: No Employee, Consultant, or member of the Board shall have any claim to be granted any Award under the Plan, and there is no obligation for uniform treatment of Employees, Consultants, or members of the Board under the Plan. The terms and conditions of Awards need not be the same with respect to different Participants.

SECTION 17. NO RIGHT TO EMPLOYMENT OR DIRECTORSHIP: The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ or as a Consultant of the Company or an Affiliate or any right to remain as a member of the Board, as the case may be. Termination of the services of an Employee, a Consultant, or a member of the Board shall not give rise to any liability or any claim under the Plan, unless otherwise provided in the Plan or an Award Agreement.

SECTION 18. NO RIGHTS AS A SHAREHOLDER: A Participant shall have no rights as a shareholder with respect to any Shares covered by an Award until the date of the issuance of such Shares.

SECTION 19. SEVERABILITY: If any provision of the Plan or any Award is, becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or such Award shall remain in full force and effect.

SECTION 20. NO TRUST OR FUND CREATED: Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent any person acquires a right to receive payments from the Company or an Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

SECTION 21. HEADINGS: Headings are given to the Sections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provisions thereof.

SECTION 22. NONASSIGNABILITY: Unless otherwise determined by the Committee, no Participant or beneficiary may sell, assign, transfer, discount, or pledge as collateral for a loan, or otherwise anticipate any right to payment under the Plan other than by will or by the applicable laws of descent and distribution.

SECTION 23. INDEMNIFICATION: In addition to such other rights of indemnification as members of the Board or the Committee or officers or employees of the Company or an Affiliate to whom authority to act for the Board or Committee is delegated may have, such individuals shall be indemnified by the Company to the maximum extent permitted by law and the Company’s by-laws.

SECTION 24. FOREIGN JURISDICTIONS: The Committee may adopt, amend, or terminate arrangements, not inconsistent with the intent of the Plan, to make available tax or other benefits under the laws of any foreign jurisdiction to Participants subject to such laws or to conform with the laws and regulations of any such foreign jurisdiction.

SECTION 25. TERMINATION AND AMENDMENT:

Subject to the approval of the Board, where required, the Committee may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided, however, that no action shall be taken by the Board or the Committee without the approval of shareholders that would

(a)

Increase the maximum number of Shares that may be issued under the Plan, except as provided in Section 5(g);

(b)

Change the class of eligible Participants;

(c)

Permit the repricing of outstanding Options or SARs, as provided in Section 13; or

require approval of the Company’s shareholders under any applicable law, regulation, stock exchange listing rule, or other rule.

Notwithstanding the foregoing, no termination or amendment of the Plan may, without the consent of the applicable Participant, terminate or adversely affect any right or obligation under an Award previously granted under the Plan.

SECTION 26. APPLICABLE LAW: This Plan shall be governed by and construed in accordance with the laws of the State of Indiana, without regard to its principles of conflict of laws.

INCENTIVE STOCK OPTION
CTS CORPORATION 2004 OMNIBUS LONG-TERM INCENTIVE PLAN:
EMPLOYEE STOCK OPTION AGREEMENT

THIS EMPLOYEE STOCK OPTION AGREEMENT (hereafter, “Agreement”) made this ____ day of ______________, (hereinafter, “Option Date”) by and between CTS Corporation, an Indiana corporation (hereinafter, the “Company”), and _________, an employee of the Company or a subsidiary or division of the Company (hereinafter, “Employee”).

WHEREAS, the Company desires to create an additional incentive for the Employee to continue his or her services with the Company and to stimulate his or her interest in the growth and profitability of the Company, and

WHEREAS, the Company desires to increase the Employee’s personal participation in the success of the Company through the acquisition of an equity interest in the Company;

W I T N E S S E T H

Section 1: Option Grant

Subject to the terms set forth in this Agreement and in the Company’s 2004 Omnibus Long-Term Incentive Plan (the “Plan”) the Company hereby grants to the Employee the right and option to purchase all or any part of an aggregate of ________Shares on the terms and conditions set forth below (hereinafter the “Option”). Unless the context clearly provides otherwise, the capitalized terms in this Agreement shall have the meaning ascribed to such terms under the Plan.

Section 2: Purchase Price

The purchase price per Share subject to this Option shall be $______, the Fair Market Value per Share on the date this Option is granted.

Section 3: Option Exercise Period

Except as provided in Section 7, this Option is not exercisable until one year after the Option Date. This Option is exercisable in four substantially equal cumulative annual installments commencing on ____________. This Option and all rights hereunder shall expire on __________. This Option will be treated as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the maximum extent permitted by law.

Section 4: Payment

Payment for this Option must be made at the time of exercise and may be made in cash or in previously acquired Company Common Stock, which has been held for at least six months, or a combination thereof. If payment is made in whole or part by previously acquired Company Common Stock, then the value per share of such stock is the Fair Market Value on the date the Option is exercised. Payment may be made by surrender of shares or by attestation by submission of the prescribed Attestation Form. Subsequent to the use of previously owned shares of Company Common Stock as consideration for the exercise of all or a part of this Option, the shares so utilized may not be used again in payment for the exercise of this Option or any other option for Company stock for a period of one year.

Section 5: Taxes and Withholding

The Company shall have the right to deduct from any compensation due the Employee from the Company any federal, state, local or foreign taxes required by law to be withheld in connection with the exercise of this Option. It shall be a condition to the exercise of this Option that the Grantee shall pay such taxes or make provisions that are satisfactory to the Company for the payment thereof.

The Employee may, at his or her election, pay such withholding taxes in cash or by having the Company retain Shares otherwise deliverable upon exercise of this Option in an amount sufficient to satisfy the amount of tax required to be withheld. The determination of the number of Shares retained for this purpose shall be based on the Fair Market Value of the Shares on the exercise date. Any fractional Share resulting from such calculation shall be settled in cash. No Shares shall be transferred to the Employee hereunder until such time as all applicable withholding taxes have been satisfied. Withholding taxes shall be calculated based on the Fair Market Value of the Shares on the exercise date.

Section 6: Nontransferability of Option

This Option may not be assigned or transferred by the Employee other than by will or by the laws of descent and distribution, and is exercisable, during the Employee’s lifetime, only by him or her. Any attempt by the Employee to assign or transfer this Option will be null, void and without effect.

Section 7: Separation from Employment or Change of Control

In the event of the termination of employment of the Employee with the Company for any reason other than death, disability or qualified retirement as used herein, he or she may exercise the Option only to the extent permitted by the Option terms on the date of termination, and only within the three month period immediately following Employee’s date of termination. All shares subject to this Option which are not exercisable as of the Employee’s date of termination under such circumstances will be canceled.

In the event of the termination of employment of the Employee with the Company due to death or Disability (as defined below), this Option will continue to vest on its schedule and remain exercisable for one year following termination or, if sooner, until the Option expires. All shares subject to this Option which are not exercisable and/or have not been exercised as of the one year anniversary of Employee’s termination due to death or Disability will be canceled. “Disability” means (i) for U.S. employees, that the Employee is entitled to long-term disability benefits under the Company’s long-term disability policy applicable to the Employee and (ii) for non-U.S. employees, that the Employee meets the criteria established by Company policy.

In the event of the termination of employment of the Employee with the Company due to Employee’s qualified retirement (as used herein, a qualified retirement means that Employee’s date of termination occurs after completing at least five years of service and attaining age 62), this Option will continue to vest on its schedule and will remain exercisable for one year following the date on which the final installment of this Option becomes exercisable. All shares subject to this Option which have not been exercised as of the one year anniversary of the vesting of the final installment of this Option will be canceled.

ANY OTHER PROVISION OF THIS AGREEMENT NOTWITHSTANDING, TO THE EXTENT THAT THIS OPTION IS EXERCISED FOLLOWING THE EXPIRATION OF A PERIOD OF THREE MONTHS (OR TWELVE MONTHS IN THE EVENT OF TERMINATION DUE TO TOTAL AND PERMANENT DISABILITY) FROM THE DATE OF EMPLOYEE’S TERMINATION OR TO THE EXTENT THAT THE AGGREGATE FAIR MARKET VALUE OF STOCK FOR WHICH THIS OPTION BECOMES EXERCISABLE FOR THE FIRST TIME IN ANY CALENDAR YEAR EXCEEDS $100,000, THIS OPTION WILL NOT QUALIFY FOR TREATMENT AS AN INCENTIVE STOCK OPTION UNDER SECTION 422 OF THE CODE.

Section 8: Adjustments

If and to the extent that the number of Shares shall be increased or reduced in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, or similar corporate transaction, the number and kinds of shares subject to the Option awarded hereunder may be adjusted by the Committee, in its sole discretion. In the event of any such transaction, the Committee may provide in substitution for the Option granted hereunder such alternative consideration as it may determine to be equitable.

Section 9: Governing Law

This Agreement shall be construed in accordance with and governed by the laws of the State of Indiana.

Section 10: Rights Not Conferred

Nothing contained in the Plan or in this Agreement shall confer upon the Employee any right with respect to continued employment by the Company or any subsidiary thereof or interfere in any way with the right of the Company to terminate the employment of the Employee at any time. The Employee has no rights as a shareholder of the Company with respect to shares subject to this Option until such shares are issued upon exercise.

Section 11: Consideration for Option

In consideration for the grant of this Option, Employee acknowledges and agrees as follows:

Option gain and unexercised options will be forfeited if Employee engages in certain activities. If, at any time during Employee’s term of employment or within one year after termination of Employee’s employment with the Company, Employee engages in any activity in competition with any activity of the Company, or contrary or harmful to the interests of the Company, including, but not limited to: (i) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company; or (ii) disclosing or misusing any confidential information or material concerning the Company or relating to any of its businesses, then (A) this Option shall terminate effective on the date on which Employee enters into such activity, unless terminated sooner by operation of another term or condition of this Option, or the Plan, and (B) any option gain realized by Employee from any exercise of this Option, during the six month period prior to the termination of Employee’s employment with the Company or after Employee’s employment with the Company ends, shall be paid by Employee to the Company.

By accepting this Agreement, Employee consents to a deduction from any amounts the Company may owe him or her from time to time, to the extent of the amount Employee owes the Company under this Section. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount Employee owes, calculated as set forth above, Employee agrees to pay immediately the unpaid balance to the Company.

Section 12: Binding Effect

This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.

Section 13: Amendment

Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Employee under this Agreement, without the Employee’s consent.

Section 14: Severability

If any provision of this Agreement is held to be invalid, illegal or unenforceable, that will not affect or impair, in any way, the validity, legality or enforceability of the remainder of this Agreement.

IN WITNESS WHEREOF, Employee has signed this Employee Stock Option Agreement, and the Company has caused this Employee Stock Option Agreement to be signed by a duly authorized officer of the Company, as of the date first written above.

——————————————————
Employee

CTS CORPORATION

by
——————————————————

CTS CORPORATION
RESTRICTED STOCK UNIT AGREEMENT

THIS AGREEMENT is made as of the ___th day of ________, ________ (the “Grant Date”) between CTS CORPORATION, an Indiana corporation (the “Company”), and _____________________ (the “Grantee”).

1. Grant . Subject to the terms set forth in this Agreement and in the Company’s 2004 Omnibus Long-Term Incentive Plan (the “Plan”), the Company hereby grants to the Grantee _________ Restricted Stock Units. Upon vesting as described below, each Restricted Stock Unit shall entitle the Grantee to one Share. Unless the context clearly provides otherwise, the capitalized terms in this Agreement shall have the meaning ascribed to such terms under the Plan.

2. Vesting; Termination of Employment . On each of the first five anniversaries of the Grant Date (each such date, a “Vesting Date”), the number of Restricted Stock Units equal to twenty percent (20%) multiplied by the initial number of Restricted Stock Units specified in Section 1 of this Agreement shall vest and become nonforfeitable, subject to the Grantee’s remaining in the continuous employ of the Company and subject to the following provisions;

(a)

If the Grantee’s termination of employment with the Company occurs by reason of death or Disability, all Restricted Stock Units granted hereunder shall vest and become nonforfeitable on the date of such death or Disability. “Disability” means (i) for U.S. employees, that the Grantee becomes entitled to long-term disability benefits under the Company’s long-term disability policy applicable to the Grantee and (ii) for non-U.S. employees, that the Grantee meets the criteria established by Company policy.

(b)

Unless the Committee determines otherwise in its sole discretion, if the Grantee’s employment with the Company terminates for any reason not specified in paragraph (a) above, all Restricted Stock Units granted hereunder which have not vested as of the date of such termination of employment shall be permanently forfeited on such termination date.

3. Settlement of Restricted Stock Units . Restricted Stock Units shall be settled solely in Shares. On __________, ___________, ____________, ___________ and _____________ (each a “Settlement Date”) the Company shall transfer to the Grantee one share for each Restricted Stock Unit vesting as of the Vesting Date immediately preceding that date. As soon as practicable after the Grantee’s termination of employment due to death or Disability, the Company shall transfer to the Grantee one Share for each Restricted Stock Unit vesting as of such date and such date of transfer shall be deemed to be a Settlement Date. The Company may, at its election, either (i) deliver to the Grantee a certificate representing the number of Shares transferred to the Grantee as of that Settlement Date; or (ii) assist the Grantee in establishing a brokerage account and credit to that account the number of Shares transferred to the Grantee as of that Settlement Date.

Notwithstanding the foregoing, the Grantee may elect to defer any Settlement Date to a later date (“Deferral Date”). The selection of a Deferral Date may have important tax consequences. The Grantee is advised to consult an independent tax professional before making this election. Elections to defer a Settlement Date must be made on the form provided by the Company and pursuant to procedures established by the Company from time to time. An election to defer any Settlement Date must be made at least one year in advance of such Settlement Date. If the first Settlement Date occurs within one year of the Grant Date, an election to defer such Settlement Date may be made within 30 days of the Grant Date. The Grantee’s deferral election shall become irrevocable one year in advance of the Deferral Date. However, the Committee may disregard any deferral election made by a Grantee, if it determines that, due to changes in law or other circumstances, an election will not operate to defer income tax recognition until the date Shares are received by the Grantee. Notwithstanding any deferral election by the Grantee, the Settlement Date for all vested Restricted Stock Units shall occur as soon as practicable following the Grantee’s termination of employment, unless otherwise determined by the Committee. The Committee may require the deferral of the settlement of any Restricted Stock Units granted hereunder to the extent necessary to avoid the loss of the Company’s deduction corresponding thereto pursuant to Section 162(m) of the Code. The Company’s obligation will be merely that of an unfunded and unsecured promise of the Company to deliver Shares in the future, and the rights of the Grantee will be no greater than that of an unsecured general creditor. No assets of the Company will be held as collateral security for the obligations of the Company hereunder, and all assets of the Company will be subject to the claims of the Company’s creditors. The deferral of the settlement of Restricted Stock Units hereunder and the delivery of Shares in connection therewith shall be subject to the claims and appeals procedures set forth in the CTS Corporation Pension Plan; provided, however, that for purposes of this provision, the term “Administrator” or “Plan Administrator” shall mean the Committee.

4. Tax Withholding . The Company shall have the right to deduct from any compensation due the Grantee from the Company any federal, state, local or foreign taxes required by law to be withheld in connection with the issuance of Shares or vesting of any Restricted Stock Unit pursuant to this Agreement. To the extent that the amounts payable to the Grantee are insufficient for such withholding, it shall be a condition to the issuance of Shares or vesting of the Restricted Stock Units, as the case may be, that the Grantee shall pay such taxes or make provisions that are satisfactory to the Company for the payment thereof.

The Grantee may, at his or her election, pay such withholding taxes in cash or by having the Company retain Shares otherwise deliverable on the Settlement Date in an amount sufficient to satisfy the amount of tax required to be withheld. In the event the Grantee elects a Deferral Date under Section 3, the Grantee shall pay in cash to the Company on or before the associated Vesting Date an amount equal to the amount of employment taxes required to be withheld on that Vesting Date. The determination of the number of Shares retained for this purpose shall be based on the Fair Market Value of the Shares on the Settlement Date (or Deferral Date if applicable). In the event that the retention of Shares to satisfy withholding taxes would otherwise result in the delivery of a fractional Share, the Company will round down to the next whole Share and apply the value of the fractional Share to the recipient’s tax obligations or, in the alternative, the Company may make such other arrangements to avoid the issuance of a fractional Share as may be permitted by law. No Shares shall be transferred to the Grantee hereunder until such time as all applicable withholding taxes have been satisfied. Employment tax withholding shall be calculated based on the Fair Market Value of the Shares on the applicable Vesting Date and income tax withholding shall be calculated based on the Fair Market Value of the Shares on the Settlement Date (or Deferral Date, if applicable).

5. Rights Not Conferred . Nothing contained in the Plan or in this Agreement shall confer upon the Grantee any right with respect to continued employment by the Company or any subsidiary thereof or interfere in any way with the right of the Company to terminate the employment of the Grantee at any time. The Grantee shall have none of the rights of a stockholder with respect to the Restricted Stock Units, including the right to receive dividends or vote stock, until such time, if any, that Shares are delivered to the Grantee in settlement thereof.

6. Agreement Not Assignable . This Agreement and the Restricted Stock Units awarded hereunder are not transferable or assignable by the Grantee; provided that no provision herein shall prevent the transfer of such Restricted Stock Units or the Shares related thereto by will or by the laws of descent or distribution in the event of the Grantee’s death.

7. Adjustments . If and to the extent that the number of Shares shall be increased or reduced in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, or similar corporate transaction, the number and kinds of shares subject to the Restricted Stock Units awarded hereunder may be adjusted by the Committee, in its sole discretion. In the event of any such transaction, the Committee may provide in substitution for the Restricted Stock Units granted hereunder such alternative consideration as it may determine to be equitable.

8. Governing Law . This Agreement shall be construed in accordance with and governed by the laws of the State of Indiana.

9. Consideration for Grant . In consideration for the grant of the Restricted Stock Units hereunder, the Grantee acknowledges and agrees that, if, at any time during the Grantee’s term of employment or within one year after termination of the Grantee’s employment with the Company, the Grantee engages in any activity in competition with any activity of the Company, or contrary or harmful to the interests of the Company, including, but not limited to: (i) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company; or (ii) disclosing or misusing any confidential information or material concerning the Company or relating to any of its businesses, then (x) any non-vested Restricted Stock Units granted hereunder shall immediately be forfeited (unless earlier forfeited by operation of another term of this Agreement), (y) any deferred, vested Restricted Stock Units shall immediately be forfeited; and (z) Grantee shall pay to the Company an amount equal to the total Fair Market Value of Shares delivered to Grantee on any Settlement Date(s) (or Deferral Date, if applicable) within the six month period prior to such event. For this purpose, Fair Market Value shall be calculated as of each applicable Settlement Date (or Deferral Date, if applicable). By accepting this Agreement, Grantee consents to a deduction from any amounts the Company may owe him or her from time to time, to the extent of the amount Grantee owes the Company under this Section. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount Grantee owes, calculated as set forth above, Grantee agrees to pay immediately the unpaid balance to the Company in cash.

10. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however , that no amendment shall adversely affect the value or number of the Grantee’s vested Restricted Stock Units without the Grantee’s written consent.

11. Administration. The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

12. Effect on Other Employee Benefit Plans . The value of the Restricted Stock Units granted pursuant to this Agreement shall not be included as compensation, earnings, salary or other similar terms used when calculating the Grantee’s benefits under any employee benefit plan sponsored by the Company or any subsidiary, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any of the Company’s employee benefit plans.

13. Severability . If any provision of the Plan or this Agreement is, becomes, or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or award hereunder under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or award, such provision shall be stricken as to such jurisdiction or award, and the remainder of the Plan or Agreement shall be in full force and effect.

14. Construction . The Restricted Stock Units granted hereunder are being issued pursuant to Section 10 of the Plan (“Restricted Stock Award”) and are subject to the terms of the Plan. A copy of the Plan has been given to the Grantee, and additional copies of the Plan are available upon request during normal business hours at the principal executive offices of the Company. To the extent that any provision of this Agreement violates or is inconsistent with an express provision of the Plan, the Plan provision shall govern and any inconsistent provision in this Agreement shall be of no force or effect.

15. Binding Effect . This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.

——————————————————
Grantee's Signature

——————————————————
Grantee's Name (Print or Type)

CTS CORPORATION

By:
——————————————————

Form 10-Q
Third Quarter 2004

EXHIBIT 31(a)

CERTIFICATION

I, Donald K. Schwanz, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CTS Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 19, 2004		/s/ Donald K. Schwanz

		Donald K. Schwanz, Chairman, President and Chief Executive Officer

Form 10-Q
Third Quarter 2004

EXHIBIT 31(b)

CERTIFICATION

I, Vinod M. Khilnani, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CTS Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

(c)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 19, 2004		/s/ Vinod M. Khilnani

		Vinod M. Khilnani Senior Vice President and Chief Financial Officer

Form 10-Q
Third Quarter 2004

EXHIBIT 32(a)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of CTS Corporation (the Company) on Form 10-Q for the quarter ended September 26, 2004, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: October 19, 2004	/s/ Donald K. Schwanz
	Donald K. Schwanz Chairman, President and Chief Executive Officer


	A signed original of this written statement required by Section 906 has been provided to CTS Corporation and will be retained by CTS Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Form 10-Q
Third Quarter 2004

EXHIBIT 32(b)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: October 19, 2004	/s/ Vinod M. Khilnani
	Vinod M. Khilnani Sr. Vice President and Chief Financial Officer


	A signed original of this written statement required by Section 906 has been provided to CTS Corporation and will be retained by CTS Corporation and furnished to the Securities and Exchange Commission or its staff upon request.


			September 26, 2004			December 31, 2003*

			(UNAUDITED)
ASSETS
Current Assets
	Cash and cash equivalents		$	47,925		$	25,346
	Accounts receivable, less allowances (2004 — $1,459; 2003 — $1,585)			78,850			72,290
	Inventories — Note C			45,482			31,925
	Other current assets			9,007			6,697
	Deferred income taxes			28,516			28,508

		Total current assets		209,780			164,766
Property, plant and equipment, less accumulated depreciation (2004 — $284,821; 2003 — $261,838)				115,669			122,481
Other Assets
	Prepaid pension asset — Note H			140,486			132,960
	Intangible assets, net			35,721			37,456
	Other assets — Note D			8,787			24,587

		Total other assets		184,994			195,003

Total Assets			$	510,443		$	482,250

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable		$	59,454		$	52,252
	Accrued liabilities			43,911			43,437

		Total current liabilities		103,365			95,689
Long-term debt — Note G				87,000			75,880
Other long-term obligations				11,079			11,133
Deferred income taxes				5,380			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; 52,644,935 shares issued at September 26, 2004 and 52,632,088 shares issued at December 31, 2003			263,081			262,748
	Additional contributed capital			22,221			21,520
	Retained earnings			273,521			263,430
	Accumulated other comprehensive earnings			472			151

				559,295			547,849
Cost of common stock held in treasury — Note M (2004 — 16,751,326 shares; 2003 — 16,565,558 shares)				(255,676	)		(253,658	)

		Total shareholders’ equity		303,619			294,191

Total Liabilities and Shareholders’ Equity			$	510,443		$	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.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

CTS CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS

SIGNATURES

EXHIBIT 10(a)

CTS CORPORATION 2004 OMNIBUS LONG-TERM INCENTIVE PLAN

SECTION 5. SHARES AVAILABLE FOR AWARDS

SECTION 7. CODE SECTION 162(m) PROVISIONS

SECTION 25. TERMINATION AND AMENDMENT:

EXHIBIT 31(a)

CERTIFICATION

EXHIBIT 31(b)

CERTIFICATION

EXHIBIT 32(a)

EXHIBIT 32(b)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

CTS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

CTS CORPORATION
2004 OMNIBUS LONG-TERM INCENTIVE PLAN