CTS CORP

Previous wording

We manufacture sensors, actuators and connectivity components in North America, Europe, and Asia. CTS provides engineered products to OEMs and tier one suppliers in the aerospace and defense, industrial, medical, and transportation markets.

Current wording

We manufacture sensors, actuators and connectivity components in North America, Europe, and Asia. CTS provides engineered products to OEMs and tier one suppliers in the aerospace and defense, industrial, medical, and transportation markets, and the U.S. Government.

Previous wording

Net sales were $550,422 for the year ended December 31, 2023, a decrease of $36,447, or 6.2% from 2022. The decline in net sales was primarily driven by decreased volume of industrial and commercial vehicle products. Net sales to the non-transportation markets decreased $34,203 or 12.1%, while net sales to the transportation markets decreased $2,245 or 0.8%.

Current wording

Net sales were $515,771 for the year ended December 31, 2024, a decrease of $34,651, or 6.3%, from 2023. The decline in net sales was primarily driven by a decreased volume of transportation products, which were down $51,077, or 16.9%. Net sales to the diversified end markets increased $16,425, or 6.6%. The SyQwest acquisition added net sales of $14,448 in 2024, while the acquisition of maglab AG ("Maglab") added net sales of $1,755 in 2023.

Previous wording

Gross margin was $190,859 for the year ended December 31, 2023, a decrease of $19,679 or 9.3% from the year ended December 31, 2022. The decrease in gross margin was driven by lower sales volumes as well as changes in foreign exchange rates of $6,247 primarily due to the U.S. Dollar appreciating compared to the Chinese Renminbi and Peso.

Current wording

Gross margin was $189,150 for the year ended December 31, 2024, a decrease of $1,709, or 0.9%, from the year ended December 31, 2023. The decrease in gross margin was primarily driven by lower sales volumes partially offset by the favorable impact of changes in end market mix, operational improvements as well as favorable impacts in foreign exchange rates of $1,102 primarily due to the U.S. Dollar appreciating compared to the Peso.

Previous wording

Selling, general and administrative ("SG&A") expenses were $83,816, or 15.2% of sales for the year ended December 31, 2023, versus $91,520 or 15.6% of sales in 2022. The decrease in SG&A expenses was primarily driven by lower incentive compensation associated with lower financial performance as well as cost reduction measures implemented due to challenging market conditions.

Current wording

Selling, general and administrative ("SG&A") expenses were $88,285, or 17.1% of sales for the year ended December 31, 2024, versus $83,816 or 15.2% of sales in 2023. The increase in SG&A expenses was primarily driven by increased incentive compensation and the SyQwest acquisition.

Previous wording

Research and development (“R&D”) expenses were $24,918, or 4.5% of sales in 2023 compared to $24,100, or 4.1% of sales in 2022, in line with our commitment to continue investing in research and product development to drive organic growth.

Current wording

Research and development expenses were $23,388, or 4.5% of sales in 2024, compared to $24,918, or 4.5% of sales in 2023, in line with our commitment to continue investing in research and product development to drive organic growth.

Previous wording

Restructuring charges were $7,074, or 1.3% of net sales in 2023, compared to $1,912, or 0.3% of net sales in 2022. The restructuring charges in the year ended December 31, 2023 were primarily related to costs associated with our plant closure and consolidation activities. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

Current wording

Restructuring charges were $4,697, or 0.9% of net sales in 2024, compared to $7,074, or 1.3% of net sales in 2023. The restructuring charges in the year ended December 31, 2024, were primarily related to costs associated with our plant closure and consolidation activities and severance expenses related thereto. See Note 9, “Costs Associated with Exit and Restructuring Activities,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

Previous wording

Interest income increased due to investments of available cash into short-term, cash equivalent, high yield deposit accounts.

Current wording

Interest income decreased due to lower investments of available cash into short-term, cash equivalent, high-yield deposit accounts as a result of the SyQwest acquisition. Interest expense increased due to higher borrowings to fund the SyQwest acquisition.

Previous wording

Other expense, net for 2023 is primarily driven by foreign currency losses primarily related to the Chinese Renminbi offset partially by income from the qualified replacement plan assets.

Current wording

Other expense, net for 2024 is primarily driven by foreign currency translation losses primarily related to the Chinese Renminbi offset partially by income from the qualified replacement plan assets.

Previous wording

The effective income tax rate in 2023 was 19.5% compared to 26.2% in the prior year. The decrease is primarily attributed to 2023 tax benefits associated with foreign tax credits related to a 2023 tax law change, research and development credits, and lower discrete tax impacts associated with executive incentive compensation and pension termination costs.

Current wording

The effective income tax rate in 2024 was 18.4% compared to 19.5% in the prior year. The decrease is primarily due to a change in mix of earnings taxed at lower rates.

Previous wording

Cash and cash equivalents were $163,876 at December 31, 2023 and $156,910 at December 31, 2022, of which $99,940 and $90,244, respectively, were held outside the United States. Total debt as of December 31, 2023 and December 31, 2022 was $67,500 and $83,670, respectively.

Current wording

Cash and cash equivalents were $94,334 at December 31, 2024 and $163,876 at December 31, 2023, of which $92,944 and $99,940, respectively, were held outside the United States. Total debt as of December 31, 2024 and December 31, 2023 was $91,253 and $67,500, respectively.

Previous wording

Net cash provided by operating activities was $121,197 during the year ended December 31, 2022. Components of net cash provided by operating activities included net earnings of $59,575, depreciation and amortization expense of $29,753, other net non-cash items totaling $10,260, and a net cash inflow from changes in assets and liabilities of $21,609 primarily driven by $34,016 received from the U.S. pension plan termination.

Current wording

Net cash provided by operating activities was $99,289 during the year ended December 31, 2024. Components of net cash provided by operating activities included net earnings of $58,114, depreciation and amortization expense of $30,922, other net non-cash items totaling $2,907, and a net cash inflow from changes in assets and liabilities of $7,346 primarily driven by reductions in inventories.

Previous wording

Net cash provided by operating activities was $88,811 during the year ended December 31, 2023. Components of net cash provided by operating activities included net earnings of $60,532, depreciation and amortization expense of $28,710, other net non-cash items totaling $3,108, offset by a net cash outflow from changes in assets and liabilities of $(3,539) primarily driven by reductions in accounts payable and accrued payroll and benefits as a result of lower sales and incentive compensation accruals.

Current wording

Net cash provided by operating activities was $88,811 during the year ended December 31, 2023. Components of net cash provided by operating activities included net earnings of $60,532, depreciation and amortization expense of $28,710, other net non-cash items

Previous wording

Net cash used in investing activities for the year ended December 31, 2022 was $111,188, driven by the acquisition payments for the TEWA and Ferroperm acquisitions of $96,855 and capital expenditures of $14,333. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Current wording

Net cash used in investing activities for the year ended December 31, 2024 was $140,556, driven by $121,912 of acquisition payments for the SyQwest acquisition and capital expenditures of $18,643. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Previous wording

Net cash used in investing activities for the year ended December 31, 2023 was $18,097, driven by capital expenditures of $14,738 and $3,359 of acquisition payments, primarily from the Maglab acquisition as well as final working capital adjustments from the TEWA and Ferroperm acquisitions. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Current wording

Net cash used in investing activities for the year ended December 31, 2023 was $18,097, driven by capital expenditures of $14,738 and $3,359 of acquisition payments, primarily for the Maglab acquisition as well as final working capital adjustments from the TEWA Temperature Sensors SP. Zo.o and Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S) acquisitions. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Previous wording

Net cash provided by financing activities for the year ended December 31, 2022, was $4,336. The net cash inflow was the result of net cash from debt of $33,638 associated with completed acquisitions, partially offset by treasury stock purchases of $21,447, dividend payments of $5,131, taxes paid on behalf of equity award participants of $1,524, and contingent consideration payments of $1,200.

Current wording

Net cash used by financing activities for the year ended December 31, 2024, was $27,935. The net cash outflow was the result of treasury stock purchases of $42,596, dividend payments of $4,885, taxes paid on behalf of equity award participants of $3,131 and contingent consideration payments of $1,076, partially offset by borrowings net of payments of $23,753.

Previous wording

CTS CORPORATION 25 on our net leverage ratio. Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. We use interest rate swaps to convert a portion of our revolving credit facility's outstanding balance from a variable rate of interest to a fixed rate. The contractual rate of these arrangements ranges from 1.49% to 2.49%.

Current wording

Borrowings in U.S. dollars under the Revolving Credit Facility bear interest, at a per annum rate equal to the applicable Term SOFR rate (but not less than 0.0%), plus the Term SOFR adjustment, and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. We use interest rate swaps to convert a portion of our revolving credit facility's outstanding balance from a variable rate of interest to a fixed rate. The contractual rate of these arrangements ranges from 1.49% to 2.49%.

Previous wording

Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating, our financial performance, and global credit market conditions, as well as a broad range of other factors. In addition, we have $99,940 of foreign cash balances and our ability to repatriate these funds timely and in a tax efficient manner may be restricted. See “Item 1A. Risk Factors” for additional discussion of risks that our business faces.

Current wording

Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit quality, our financial performance, and global credit market conditions, as well as a broad range of other factors. In addition, we have $92,944 of foreign cash balances and our ability to repatriate these funds timely and in a tax efficient manner may be restricted. See Item 1A. "Risk Factors” for additional discussion of risks that our business faces.

Previous wording

Long-term debt, including interest – Outstanding principal on our Revolving Credit Facility was $67,500 at December 31, 2023, with no amounts payable within 12 months. Additionally, we have minimum contractual future interest payments on our hedged borrowings under our Revolving Credit Facility estimated to be $4,655 through maturity, with approximately $1,955 payable within 12 months based on the December 31, 2023 exchange rate. We may paydown certain portions of these obligations early. As of December 31, 2023, we had interest rate swaps that fix interest costs on $50,000 of our long-term debt through December 2026 and a cross-currency swap on $17,500 of our long-term debt through June 2027. See Note 13, “Debt” and Note 14, “Derivatives,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further details of our debt and hedging activities.

Current wording

Long-term debt, including interest – Outstanding principal on our Revolving Credit Facility was $91,253 at December 31, 2024, with no amounts payable within 12 months. Additionally, we have minimum contractual future interest payments on our hedged borrowings under our Revolving Credit Facility estimated to be $10,150 through maturity, with approximately $5,190 payable within 12 months based on the December 31, 2024 exchange rate. We may paydown certain portions of these obligations early. As of December 31, 2024, we had interest rate swaps that fix interest costs on $50,000 of our long-term debt through December 2026 and a cross-currency swap on $12,500 of our long-term debt through June 2027. See Note 13, “Debt,” and Note 14, “Derivatives,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further details of our debt and hedging activities.

Previous wording

Operating lease payments – We enter into various noncancelable lease agreements for land, buildings and equipment used in our operations. Operating lease obligations were $37,856, with $6,215 payable within 12 months. See Note 12, “Leases,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

Current wording

Operating lease payments – We enter into various noncancelable lease agreements for land, buildings and equipment used in our operations. Operating lease obligations were $25,839 with $4,719 payable within 12 months. See Note 12, “Leases,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

Previous wording

Retirement obligations – Expected future contributions relating to our defined benefit postretirement plans were $5,781, with $750 payable in 12 months. See Note 7, “Retirement Plans,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

Current wording

Retirement obligations – Expected future contributions relating to our defined benefit postretirement plans were $4,897, with $609 payable in 12 months. See Note 7, “Retirement Plans,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

Previous wording

For 2023, we elected to perform the qualitative assessment. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2023. We will monitor future results and will perform a test if indicators trigger an impairment review.

Current wording

For 2024, we elected to perform the quantitative assessment. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2024. We will monitor future results and will perform a test if indicators trigger an impairment review.

Previous wording

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage our underlying businesses.

Current wording

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage our underlying businesses.

Previous wording

Provisions for estimated warranty expenses are made at the time products are sold. The expense and corresponding accrual primarily relate to our products sold to our transportation markets. These estimates are established using a quoted industry rate and are based on customer specific circumstances. We adjust our warranty reserve for any known or anticipated warranty claims as new information becomes available. We evaluate our warranty obligations at least quarterly and adjust our accruals if it is probable that future costs will be different than our current reserve.

Current wording

Provisions for estimated warranty expenses are made at the time products are sold. The expense and corresponding accrual primarily relate to our products sold to our transportation market. These estimates are established using a quoted industry rate and are based on customer specific circumstances. We adjust our warranty reserve for any known or anticipated warranty claims as new information becomes available. We evaluate our warranty obligations at least quarterly and adjust our accruals if it is probable that future costs will be different than our current reserve.

Previous wording

Over the last three years, product warranty reserves have ranged from 0.4% to 2.7% of net sales. We believe our reserve level is appropriate considering all facts and circumstances surrounding any outstanding quality claims and our historical experience selling our products to our customers.

Current wording

Over the last three years, product warranty reserves have ranged from 0.3% to 0.4% of net sales. We believe our reserve level is appropriate considering all facts and circumstances surrounding any outstanding quality claims and our historical experience selling our products to our customers.

Previous wording

Over the last three years, our reserves for excess and obsolete inventories have ranged from 13.7% to 17.4% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the inventories.

Current wording

Over the last three years, our reserves for excess and obsolete inventories have ranged from 14.8% to 20.7% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the inventories.