Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Overview
CTS Corporation ("CTS", "we", "our" or "us") is a leading designer and manufacturer of products that Sense, Connect and Move. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products, technologies and talent within these categories.
We manufacture sensors, actuators and connectivity components in North America, Europe, and Asia. CTS provides highly engineered products to OEMs and tier one suppliers in the aerospace and defense, industrial, medical, and transportation markets, and the U.S. Government.
There is an increasing proliferation of sensing and motion applications within various markets we serve. In addition, the increasing connectivity of various devices to the internet results in greater demand for communication bandwidth and data storage, increasing the need for our connectivity products. Our success is dependent on the ability to execute our strategy to support these trends. We are subject to challenges including periodic market softness, competition from other suppliers, changes in technology, and the ability to add new customers, launch new products or penetrate new markets.
Results of Operations: Year Ended December 31, 2025 versus Year Ended December 31, 2024
(Amounts in thousands, except percentages and per share amounts):
The following table highlights changes in significant components of the Consolidated Statements of Earnings for the years ended December 31, 2025, and December 31, 2024:
Years Ended December 31, Percent of Net Sales
Diluted earnings per share:
Diluted net earnings per share $ 2.19 $ 1.81
Net sales were $541,318 for the year ended December 31, 2025, an increase of $26,562, or 5.2%, from 2024. Net sales to the diversified end markets increased $42,998, or 16.3%. We achieved growth in the aerospace & defense and medical end markets and saw continued recovery in the industrial end market. The acquisition of SyQwest, LLC ("SyQwest") added net sales of $22,329 and $13,433 in 2025 and 2024, respectively. Net sales to the transportation end market decreased $16,436 or 6.6%, primarily driven by lower volumes of our commercial vehicle related products and our customers' loss of market share in China.
Gross margin was $208,026 for the year ended December 31, 2025, an increase of $20,471, or 10.9%, from the year ended December 31, 2024. The increase in gross margin was primarily driven by continued operational improvements and an improved mix of sales by end market.
CTS CORPORATION26
Table of Contents
Selling, general and administrative ("SG&A") expenses were $98,720, or 18.2% of sales for the year ended December 31, 2025, versus $88,285 or 17.2% of sales in 2024. The increase in SG&A expenses was primarily driven by higher amortization expense in 2025 from the SyQwest acquisition and a one-time charge related to the potential settlement of prior period costs with the U.S. Environmental Protection Agency (the "EPA").
Research and development expenses were $25,268, or 4.7% of sales in 2025, compared to $23,388, or 4.5% of sales in 2024. We continue to invest in research and product development to drive long-term organic growth.
Restructuring charges were $1,396, or 0.3% of net sales in 2025, compared to $4,697, or 0.9% of net sales in 2024. The restructuring charges in the year ended December 31, 2025 were primarily related to changes to adjust our business in response to demand changes across certain locations and products. 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.
Other income and expense items are summarized in the following table:
Years Ended December 31,
Other income (expense), net 3,304 (2,650 )
Total other income (expense), net $ 1,129 $ (2,604 )
Interest income decreased due to lower investments of available cash as a result of the SyQwest acquisition. Other income for 2025 is driven by foreign currency translation gains primarily related to the Euro and Mexican Peso, and a prior period adjustment recorded related to the SyQwest acquisition. See Note 1 “Summary of Significant Accounting Policies” in the Notes to the Condensed Consolidated Financial Statements in this Annual Report on Form 10-K for further information.
Years Ended December 31,
The effective income tax rate in 2025 was 22.0% compared to 18.4% in the prior year. The increase in the effective income tax rate is primarily attributable to a change in mix of earnings taxed at higher rates and the impact of the One Big Beautiful Bill Act (the "OBBBA"). See Note 19 “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements in this Annual Report on Form 10-K for further information.
Liquidity and Capital Resources
We have historically funded our capital and operating needs primarily through cash flows from operating activities, supported by available credit under our Revolving Credit Facility (as defined below). We believe that cash flows from operating activities and available borrowings under our Revolving Credit Facility will be adequate to fund our working capital needs, capital expenditures, investments, and debt service requirements for at least the next twelve months and for the foreseeable future thereafter. However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions.
Cash and cash equivalents were $82,295 at December 31, 2025 and $94,334 at December 31, 2024, of which $75,943 and $92,944, respectively, were held in our foreign affiliates. Total debt as of December 31, 2025 and December 31, 2024 was $57,500 and $92,300, respectively.
Cash Flows from Operating Activities
Net cash provided by operating activities was $102,105 during the year ended December 31, 2025. Components of net cash provided by operating activities included net earnings of $65,317, depreciation and amortization expense of $34,538, other net non-cash items totaling $750, and a net cash inflow from changes in assets and liabilities of $3,694 primarily driven by increases in accrued expenses and other liabilities, accounts payable and accrued payroll partially offset by an increase in accounts receivable.
Net cash provided by operating activities was $98,242 during the year ended December 31, 2024. Components of net cash provided by operating activities included net earnings of $55,472, 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 $8,941 primarily driven by reductions in inventories.
CTS CORPORATION27
Table of Contents
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 was $18,514, driven by capital expenditures of $15,731 and contributions to short-term investments of $2,783.
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 $18,644. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Cash Flows from Financing Activities
Net cash used by financing activities for the year ended December 31, 2025, was $98,438. The net cash outflow was the result of debt payments net of borrowings of $34,800, treasury stock purchases of $56,178, dividend payments of $4,750, and taxes paid on behalf of equity award participants of $2,710.
Net cash used by financing activities for the year ended December 31, 2024, was $26,888. The net cash outflow was the result of treasury stock purchases of $42,596, dividend payments of $4,885, and 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 $24,800.
Capital Resources
Long-term debt was comprised of the following:
As of December 31,
Amount available, subject to covenant restrictions $ 240,860 $ 306,060
Weighted-average interest rate 5.48 % 6.41 %
On November 24, 2025, we entered into a new five-year revolving credit agreement (the “Revolving Credit Facility”) with a group of banks for a total credit facility availability of $300,000 which may be increased by up to $125,000, subject to the administrative agent's approval. The new Revolving Credit Facility matures on November 24, 2030 and modified the financial and non-financial covenants to provide the Company additional flexibility. The new Revolving Credit Facility is unsecured and replaced the prior $400,000 revolving credit facility, which would have expired on December 15, 2026.
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 2.45%.
The Revolving Credit Facility includes a swing line sublimit of $20,000, a letter of credit sublimit of $20,000 and an alternative currency sublimit of $150,000. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.175% to 0.25% based on our net leverage ratio. We were in compliance with all debt covenants at December 31, 2025.
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 $75,943 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.
As of December 31, 2025, our material cash requirements for our known contractual and other obligations were as follows:
•
Long-term debt, including interest – Outstanding principal on our Revolving Credit Facility was $57,500 at December 31, 2025, 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 $12,035 through maturity, with approximately $2,721 payable within 12 months based on the December 31, 2025 exchange rate. We may paydown certain portions of these obligations early. As of December 31, 2025, 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 $7,500 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.
CTS CORPORATION28
Table of Contents
•
Operating lease payments – We enter into various noncancelable lease agreements for land, buildings and equipment used in our operations. Operating lease obligations were $25,294 with $3,453 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.
•
Retirement obligations – Expected future contributions relating to our defined benefit postretirement plans were $3,178, with $421 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.
We have no off-balance sheet arrangements that have a material current effect or are reasonably likely to have a material future effect on our financial condition or changes in our financial condition.
Acquisitions
On July 29, 2024, we acquired 100% of the outstanding membership interests of SyQwest for $121,912 in cash subject to additional earnout payments based on future performance. The acquisition was funded from both cash on hand and borrowings under our previous revolving credit facility.
Critical Accounting Policies and Estimates
The Securities and Exchange Commission ("SEC") has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Goodwill, Intangibles and Other Long-Lived Assets
Purchase Accounting
We use the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed are recognized as goodwill. The valuations of the acquired assets and liabilities assumed will impact the determination of future operating results. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, revenue growth rates, discount rates, customer attrition rates, asset lives, contributory asset charges, and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors.
Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of the Company’s intent to do so. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination.
Impairment Assessment – Goodwill
Goodwill of a reporting unit is tested for impairment on the first day of its fiscal fourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include, but are not limited to, the following:
•
Significant decline in market capitalization relative to net book value,
•
Significant adverse change in regulatory factors or in the business climate,
•
Unanticipated competition,
•
More-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of,
•
Testing for recoverability of a significant asset group within a reporting unit, and
•
Allocation of a portion of goodwill to a business to be disposed.
If we believe that one or more indicators of impairment have occurred, we perform an impairment test.
CTS CORPORATION29
Table of Contents
We have the option to perform a qualitative assessment (commonly referred to as a "step zero" test) to determine whether further quantitative analysis for impairment of goodwill and indefinite-lived intangible assets is necessary. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and our own overall financial and share price performance, among other factors. If, after assessing the totality of events or circumstances we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, we do not need to perform a quantitative analysis.
If a quantitative assessment is required, we estimate the fair value of each reporting unit using a combination of discounted cash flow analysis and market-based valuation methodologies. Determining fair value using a quantitative approach requires significant judgment, including judgments about projected revenues, cash flows over a multi-year period, discount rates and estimated valuation multiples. The discount rate applied to our forecasts of future cash flows is based on our estimated weighted average cost of capital. In assessing the reasonableness of our determined fair values, we evaluate our results against our market capitalization. Changes in these estimates and assumptions could materially affect the determination of fair value and impact the goodwill impairment assessment.
For 2025, we elected to perform the qualitative assessment on two of our reporting units, and the quantitative assessment on our third reporting unit. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2025. We will monitor future results and will perform a test if indicators trigger an impairment review.
Impairment Assessment – Other Intangible Assets and Other Long-Lived Assets
We evaluate the impairment of identifiable intangibles and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered that may trigger an impairment review consist of, but are not limited to, the following:
•
Significant decline in market capitalization relative to net book value,
•
Significant underperformance relative to expected historical or projected future operating results,
•
Significant changes in the manner of use of the acquired assets or the strategy for the overall business, and
•
Significant negative industry or economic trends.
If we believe that one or more indicators of impairment have occurred, we perform a recoverability test by comparing the carrying amount of an asset or asset group to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of our consolidated income tax provision.
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.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Accounting Standards Codification (“ASC”) 740 states that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of its technical merits. We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Revenue Recognition
We recognize revenue in accordance with the Financial Accounting Standards Board’s (“FASB”) ASC 606, Revenue from Contracts with Customers, net of estimated reserves. Our revenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for price adjustments. We base these estimates on the most likely value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded.
CTS CORPORATION30
Table of Contents
Revenue is recognized as performance obligations are satisfied and the customer obtains control of the products. A portion of our contracts allow the customers to unilaterally terminate the contract for convenience, take control of any work in process, and pay us for costs incurred plus a reasonable profit. Revenue from these contracts is generally recognized over time as the work progresses, either as products are produced or services are rendered, because we generally do not have an alternative use for the completed assets produced and we have an enforceable right to payment for performance completed to date.
Significant estimates and assumptions are made in estimating total revenues, costs, and profit for each performance obligation. We generally estimate revenue for these contracts using the costs incurred by the Company as we have determined that this method is the most representative of the Company's cumulative efforts relative to the total expected efforts to satisfy the performance obligations. These estimates require significant judgment and are subject to change during the performance of the contract and may affect contract profitability.
Product Warranties
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.
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.
Inventories
We value our inventories at the lower of the actual cost to purchase or manufacture using the first-in, first-out ("FIFO") method, or net realizable value. We review inventory quantities on hand and record a provision for excess and obsolete inventory based on historical consumption trends as well as forecasts of product demand including related production requirements. Once reserves are established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory. Our reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, market conditions, and product life cycles. Changes in actual demand or market conditions could adversely impact our reserve calculations.
Over the last three years, our reserves for excess and obsolete inventories have ranged from 17.4% to 20.7% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the inventories.
Environmental Contingencies
U.S. GAAP requires a liability to be recorded for contingencies when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. We record environmental contingent loss accruals on an undiscounted basis. Significant judgment is required to determine the existence and amounts of our environmental liabilities. We regularly consult with attorneys and consultants to determine the relevant facts and circumstances before we record a liability. Changes in the estimates on which the accruals are based, unanticipated government enforcement action, or changes in health, safety, environmental, and chemical control regulations and testing requirements could, and have, resulted in higher or lower costs.
Recent Accounting Pronouncements
The information set forth under Note 1, "Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(in thousands, except percentages)
Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates, interest rates and commodity prices. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes, and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.
CTS CORPORATION31
Table of Contents
Interest Rate Risk
We are exposed to risk of changes in interest rates on our Revolving Credit Facility. There was $57,500 and $92,300 outstanding under our Revolving Credit Facility at December 31, 2025 and 2024, respectively. As of December 31, 2025, we had interest rate swaps that fix interest costs on $50,000 of our long-term debt through December 2026 and a cross-currency interest rate swap on $7,500 of our long-term debt through June 2027. A 100-basis point change in interest rates would not materially impact our total interest expense.
Foreign Currency Risk
We are exposed to foreign currency exchange rate risks. Our significant foreign subsidiaries are located in China, Czech Republic, Denmark, Mexico, and Taiwan. During 2025, net sales from outside the U.S. were approximately 44% of total net sales. During 2024, net sales from outside the U.S. were approximately 42% of total net sales.
The Company’s foreign exchange exposures result primarily from the sale of products in foreign currencies, foreign currency denominated purchases, and employee-related and other costs of running operations in foreign countries. Changes in foreign exchange rates could affect the Company’s sales, costs, balance sheet values and earnings; therefore, we have entered into foreign currency forward contracts with notional values of $17,239 and $45,331 as of December 31, 2025 to hedge our exposure against the Euro and Mexican Peso, respectively.
In addition, we entered into a cross-currency interest rate swap agreement on June 27, 2022 that synthetically swapped $25,000 of variable rate debt to Krone denominated variable rate debt. Upon completion of the Ferroperm acquisition on June 30, 2022, the transaction was designated as a net investment hedge for accounting purposes and will mature on June 30, 2027. Accordingly, any gains or losses on this derivative instrument will be included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted or liquidated. Interest payments received for the cross currency-swap interest rate swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense in the Condensed Consolidated Statements of Earnings. The assumptions used in measuring fair value of the cross-currency interest rate swap are considered level 2 inputs, which are based upon the Krone to United States Dollar exchange rate market. At December 31, 2025, we had a net unrealized loss of $1,719 in accumulated other comprehensive income (loss).
Commodity Price Risk
Many of our products require the use of raw materials that are produced in only a limited number of regions around the world or are available from only a limited number of suppliers. Our most significant raw materials and purchased components include conductive inks and contactors, passive connectivity components, integrated circuits and semiconductors, certain rare earth elements ("REEs"), ceramicpowders, plastic components, molding compounds, printed circuit boards and assemblies, quartz blanks and crystals, wire harness assemblies, copper, brass, silver, gold,platinum, lead, aluminum, titanium and steel-based raw materials and components.
Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price increases for these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or net realizable value.
As the Company is exposed to significant changes in these commodity prices, we actively monitor these exposures and may take various actions from time to time to mitigate any negative impacts relating thereto.
CTS CORPORATION32
Table of Contents
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CTS Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of CTS Corporation (an Indiana corporation) and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 24, 2026 expressed an unqualified opinion.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matterscommunicated below are mattersarising from the current period audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relateto accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersbelow, providing separate opinionson the critical audit mattersor on the accounts or disclosures to which they relate.
Over time revenue recognition – estimation of costs at completion
As described in Note 2 to the consolidated financial statements, the Company has certain customer contracts that allow the customers to unilaterally terminate the contract for convenience, take control of any work in process, and pay the Company for costs incurred plus a reasonable profit. Revenue from these contracts is generally recognized over time as the work progresses, either as products are produced or services are rendered, because the Company does not have an alternative use for the completed assets produced, and the Company has an enforceable right to payment for performance completed to date. The accounting for these contracts requires significant management judgment with respect to the estimation of costs at completion for each performance obligation. We have identified the Company’s estimation of costs at completion for its over time revenue contracts as a critical audit matter.
The principal consideration for our determination that the estimation of costs at completion is a critical audit matter is the significant degree of management judgment required to evaluate the estimated labor and material costs for each contract, which are assumptions with a high level of estimation uncertainty and susceptibility to potential management bias.
CTS CORPORATION33
Table of Contents
Our audit procedures related to the critical audit matter included the following, among others. We tested the Company’s assumptions for labor hours and materials to be incurred for a selection of in-process contracts as follows:
•
Inspected a sample of underlying contracts to obtain an understanding of the contractual requirements and deliverables and the nature of the costs necessary to fulfill those contracts;
•
Agreed a sample of actual labor and material costs incurred to supporting documentation, verifying the costs were accurate and classified to the appropriate contracts;
•
Recalculated revenue recognized to date through comparison of actual costs incurred to date as a percentage of the estimated total contract costs at completion, and applied that percentage to the underlying contract price; and
•
Evaluated the Company’s ability to accurately estimate costs at completion through 1) an evaluation of the competence and experience of the key operational executive who is responsible for developing the estimated costs at completion and 2) the selection of completed contracts in order to compare the Company’s initial estimated costs and profit margin to the actual costs and profit margin at the completion of the contracts.
Quantitative goodwill impairment assessment
The Company’s consolidated goodwill balance was $209.6 million as of December 31, 2025. As described in Note 1 and Note 8 to the consolidated financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually. A quantitative impairment assessment was performed as of October 1, 2025 for one of the Company’s three reporting units. The goodwill balance for this reporting unit amounts to $48.8 million. The quantitative impairment assessment involves the comparison of the fair value of a reporting unit to its carrying value. The Company determines the fair value of the reporting unit using a combination of discounted cash flow analysis and a market-based valuation methodology, which requires significant management judgment. We have identified the quantitative goodwill impairment assessment as a critical audit matter.
The principal consideration for our determination that the quantitative goodwill impairment assessment is a critical audit matter is the significant auditor judgment required to evaluate the reporting unit’s forecasted revenues and EBITDA and the Company’s selection of the discount rate.
Our audit procedures related to the critical audit matter included the following, among others:
•
Tested the design and operating effectiveness of the key controls over the Company’s quantitative goodwill impairment assessment, including controls over the development of the significant assumptions such as the forecasted revenues, EBITDA, and the discount rate;
•
Evaluated a selection of the customer contracts to support the reasonableness of the reporting unit’s forecasted revenues that pertain to recurring contracts;
•
Corroborated management’s probability evaluation of future contract awards by inspecting correspondence with third parties, evaluating publicly available information, and reviewing subsequent information to identify evidence consistent with management’s forecasted revenues for the future contract awards;
•
Evaluated the forecasted revenues and EBITDA for the reporting unit by comparing the forecasted growth assumptions to both current and historical results, as well as forecasted industry trends; and
•
Assessed the Company’s discount rate for the reporting unit by comparing it against a discount rate independently developed using publicly available market data for comparable peers and evaluating management’s sensitivity analysis over the selected company specific risk premium.
Specialists were involved in evaluating the valuation methodology and significant assumptions such as the discount rate.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Chicago, Illinois
February 24, 2026
CTS CORPORATION34
Table of Contents
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands, except per share amounts)
Years Ended December 31,
Other income (expense):
Net earnings per share:
Cash dividends declared per share $ 0.16 $ 0.16 $ 0.16
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION35
Table of Contents
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
(in thousands)
Years Ended December 31,
Other comprehensive earnings (loss) :
Changes in fair market value of derivatives, net of tax 5,525 (3,836 ) (505 )
Changes in unrealized pension cost, net of tax 69 575 120
Cumulative translation adjustment, net of tax 12,420 (5,269 ) 5,320
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION36
Table of Contents
CTS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
December 31,
ASSETS
Current Assets
Other assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accrued expenses and other liabilities 37,283 35,361
Long-term operating lease obligations 21,841 21,120
Long-term pension obligations 3,698 3,931
Commitments and Contingencies (Note 11)
Shareholders' Equity
Accumulated other comprehensive income (loss) 13,748 (4,266 )
Total Liabilities and Shareholders' Equity $ 764,311 $ 765,427
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION37
Table of Contents
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Non-cash inventory charges — 2,087 —
Pensions and other post-retirement plan expense 168 302 135
Restructuring non-cash charges — — 1,484
Change in fair value of contingent consideration liability (3,575 ) (1,765 ) 200
(Gain) loss on foreign currency hedges, net of cash (320 ) (575 ) 154
Goodwill prior period adjustment (2,194 ) — —
Changes in assets and liabilities, net of acquisitions:
Accrued expenses and other liabilities 5,141 (5,077 ) (2,815 )
Pension and other post-retirement plans (147 ) (227 ) (110 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired — (121,912 ) (3,359 )
Short-term investments (2,783 ) — —
CASH FLOWS FROM FINANCING ACTIVITIES:
Taxes paid on behalf of equity award participants (2,710 ) (3,131 ) (3,263 )
Contingent consideration payments — (1,076 ) —
Effect of exchange rate on cash and cash equivalents 2,808 (340 ) 1,651
Net (decrease) increase in cash and cash equivalents (12,039 ) (69,542 ) 6,966
Supplemental cash flow information:
Non-cash financing and investing activities:
Capital expenditures incurred not paid $ 1,726 $ 2,332 $ 2,038
Excise taxes on purchase of treasury stock incurred not paid $ 517 $ 382 $ 359
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION38
Table of Contents
CTS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(in thousands, except share and per share amounts)
Changes in fair market value of derivatives, net of tax — — — (505 ) — (505 )
Changes in unrealized pension cost, net of tax — — — 120 — 120
Cumulative translation adjustment, net of tax — — — 5,320 — 5,320
Cash dividends of $0.16 per share — — (5,003 ) — — (5,003 )
Issued shares on vesting of restricted stock units 2,466 (5,729 ) — — — (3,263 )
Changes in unrealized pension cost, net of tax — — — 575 — 575
Cumulative translation adjustment, net of tax — — — (5,269 ) — (5,269 )
Cash dividends of $0.16 per share — — (4,853 ) — — (4,853 )
Issued shares on vesting of restricted stock units 2,710 (5,896 ) — — — (3,186 )
Changes in fair market value of derivatives, net of tax — — — 5,525 — 5,525
Changes in unrealized pension cost, net of tax — — — 69 — 69
Cumulative translation adjustment, net of tax — — — 12,420 — 12,420
Cash dividends of $0.16 per share — — (4,701 ) — — (4,701 )
Issued shares on vesting of restricted stock units 3,003 (5,713 ) — — — (2,710 )
The accompanying notes are an integral part of the consolidated financial statements.
CTS CORPORATION39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for share and per share data)
NOTE 1 — Summary of Significant Accounting Policies
Description of Business: CTS Corporation ("CTS", "we", "our", "us" or the "Company") is a global manufacturer of sensors, connectivity components, and actuators operating as a single reportable business segment. We operate manufacturing facilities located throughout North America, Asia and Europe and service major markets globally.
Principles of Consolidation: The consolidated financial statements include the accounts of CTS and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 reporting period. Actual results could differ materially from those estimates.
Cash and Cash Equivalents: All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.
Accounts Receivable and Allowance for Credit Losses: Accounts receivable consists primarily of amounts due from normal business activities. We maintain an allowance for credit losses for estimated uncollectible accounts receivable. Our reserves for estimated credit losses are based upon historical experience, specific customer collection issues, current conditions and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual terms of our receivables and other financial assets. Accounts are written off against the allowance account when they are determined to no longer be collectible.
Concentration of Credit Risk: Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and trade receivables. Our cash and cash equivalents, at times, may exceed federally insured limits. Cash and cash equivalents are deposited primarily in banking institutions with global operations. We have not experienced any losses in such accounts. We believe we are not exposed to any significant credit risk related to cash and cash equivalents.
Trade receivables subject us to the potential for credit risk with major customers. We sell our products to customers principally in the aerospace and defense, industrial, medical, and transportation markets, primarily in North America, Europe, and Asia. We perform ongoing credit evaluations of our customers to minimize credit risk. We do not require collateral.
Our net sales to significant customers as a percentage of total net sales were as follows:
Year Ended December 31,
No other customer accounted for 10% or more of total net sales during these periods.
Inventories: We value our inventories at the lower of the actual cost to purchase or manufacture using the first-in, first-out ("FIFO") method, or net realizable value. We review inventory quantities on hand and record a provision for excess and obsolete inventory based on historical consumption trends as well as forecasts of product demand including related production requirements. Once reserves are established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory. Our reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, market conditions, and product life cycles. Changes in actual demand or market conditions could adversely impact our reserve calculations.
CTS CORPORATION40
Table of Contents
Property, Plant and Equipment: Property, plant and equipment is stated at cost, less accumulated depreciation. Depreciation is computed primarily over the estimated useful lives of the various classes of assets using the straight-line method. Useful lives for buildings and improvements range from 10 to 45 years, machinery and equipment from three to 15 years, and software from two to 15 years. Depreciation on leasehold improvements is computed over the lesser of the lease term or estimated useful lives of the assets. Amounts expended for maintenance and repairs are charged to expense as incurred. Major overhauls that extend the useful lives of existing assets are capitalized. Upon disposition, any related gains or losses are included in operating earnings.
Income Taxes: We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with Accounting Standards Codification ("ASC") Topic 740 on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of Earnings. Accrued interest and penalties are included in the related tax liability line in the Consolidated Balance Sheets.
See Note 19, "Income Taxes," for further information.
Goodwill and Indefinite-lived Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the net assets acquired in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other, goodwill is not amortized, but instead is tested for impairment annually or more frequently if circumstances indicate a possible impairment may exist. Absent any interim indicators of impairment, the Company tests for goodwill impairment as of the first day of its fourth fiscal quarter of each year.
Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2025.
Other Intangible Assets and Long-lived Assets: We account for long-lived assets (excluding indefinite-lived intangible assets) in accordance with the provisions of ASC 360, Property, Plant, and Equipment. This statement requires that long-lived assets, which includes fixed assets and finite-lived intangible assets, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment test is warranted, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount in which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Intangible assets (excluding indefinite-lived intangible assets) consist primarily of technology, customer lists and relationships, patents, and trade names. These assets are recorded at cost and are usually amortized on a straight-line basis over their estimated lives. We assess useful lives based on the period over which the asset is expected to contribute to cash flows.
Revenue Recognition: Product revenue is recognized upon the transfer of promised goods to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods net of reserves. We follow the five step model to determine when this transfer has occurred: 1) identify the contract(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation.
CTS CORPORATION41
Table of Contents
Research and Development: Research and development ("R&D") costs include expenditures for search and investigation aimed at discovery of new knowledge to be used to develop new products or processes or to significantly enhance existing products or production processes. R&D costs also include the implementation of new knowledge through design, testing of product alternatives, or construction of prototypes. We expense all R&D costs as incurred, net of customer reimbursements for sales of prototypes and non-recurring engineering charges.
We create prototypes and tools related to R&D projects. A prototype is defined as a constructed product not intended for production resulting in a commercial sale. We also incur engineering costs related to R&D activities. Such costs are incurred to support activities to improve the reliability, performance and cost-effectiveness of our existing products and to design and develop innovative products that meet customer requirements for new applications. Furthermore, we may engage in activities that develop tooling machinery and equipment for our customers.
We occasionally enter into agreements with our customers whereby we receive a contractual guarantee based on achieving milestones to be reimbursed for the costs we incur in the product development process or to construct molds, dies, and other tools that are used to make many of the products we sell. The costs we incur are included in other current assets on the Consolidated Balance Sheets until reimbursement is received from the customer. Reimbursements received from customers are netted against such costs and included in our Consolidated Statements of Earnings if the amount received is in excess of the costs that we incur. The following is a summary of amounts to be received from customers as of December 31, 2025 and 2024:
As of December 31,
Financial Instruments: We use forward contracts to mitigate currency risk related to forecasted foreign currency revenue and costs. These forward contracts are designed as cash flow hedges. At least quarterly, we assess the effectiveness of these hedging relationships based on the total change in their fair value using regression analysis. In addition, we use interest rate swaps to convert a portion of our revolving credit facility's variable rate of interest into a fixed rate. As a result of the use of these derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected major financial institutions based upon their credit ratings and other factors and by using netting agreements. Our established policies and procedures for mitigating credit risk on principal transactions include reviewing and establishing limits for credit exposure and continually assessing the creditworthiness of counterparties.
We estimate the fair value of our cash, cash equivalents, accounts receivable and accounts payable at cost due to the short-term nature of these instruments. Please refer to Note 13, "Debt," and Note 15, "Accumulated Other Comprehensive Income (Loss) ," for information on the method of determining fair value for our debt and financial derivatives, respectively.
Stock-Based Compensation: We recognize expense related to the fair value of stock-based compensation awards, consisting of restricted stock units ("RSUs"), cash-settled restricted stock units, and performance share units ("PSUs") in the Consolidated Statements of Earnings.
The grant date fair values of our service-based and performance-based RSUs are the closing price of our common stock on the date of grant. Our RSU awards primarily have a graded vesting schedule. We recognize expense on a straight-line basis over the requisite service period for each separately vesting tranche of the award as if the award was, in substance, multiple awards. Compensation expense for PSUs is measured by determining the fair value of the award using the closing share price on the grant date and is recognized ratably from the grant date to the vesting date for the number of awards expected to vest. The amount of compensation expense recognized for PSUs is dependent upon a quarterly assessment of the likelihood of achieving the performance conditions and is subject to adjustment based on management's assessment of the Company's performance relative to the target number of shares performance criteria. Forfeitures are recorded as they occur.
See Note 17, "Stock-Based Compensation," for further information.
Earnings Per Share: Basic earnings per share excludes any dilution and is computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding for the period.
CTS CORPORATION42
Table of Contents
Diluted earnings per share is calculated by dividing net earnings by the weighted average shares outstanding assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised, and restricted stock units were settled for common shares during the period. In addition, dilutive shares include any shares issuable related to performance share units for which the performance conditions would have been met as of the end of the period and therefore would be considered contingently issuable. If the common stock equivalents have an anti-dilutive effect, they are excluded from the computation of diluted earnings per share. If there is a net loss for the period, then basic earnings per share equals diluted earnings per share.
Our antidilutive securities consist of the following:
Years Ended December 31,
Foreign Currencies: The financial statements of the majority of our non-U.S. subsidiaries are remeasured into U.S. dollars using the U.S. dollar as the functional currency with all remeasurement adjustments included in the determination of net earnings.
Foreign currency gains / losses recorded in the Consolidated Statements of Earnings includes the following:
Years Ended December 31,
The assets and liabilities of our non-U.S. dollar functional subsidiaries are translated into U.S. dollars at the current exchange rate at period end, with the resulting translation adjustments made directly to the "accumulated other comprehensive income (loss)" component of shareholders' equity. Our Consolidated Statements of Earnings accounts are translated at the average rates during the period.
Shipping and Handling: All fees billed to the customer for shipping and handling are classified as a component of net sales. All costs associated with shipping and handling are classified as a component of cost of goods sold or operating expenses, depending on the nature of the underlying purchase.
Sales Taxes: When applicable, we classify sales taxes on a net basis in our consolidated financial statements.
Immaterial Correction of Prior Period Errors
As reported in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025, the Company identified immaterial prior period errors in the consolidated financial statements related to the acquisition of SyQwest, LLC (“SyQwest”) as well as the foreign currency impact on certain long-term debt payments. The errors related to the SyQwest acquisition were due to errors with the calculation of revenue and cost of goods sold both prior to and subsequent to the acquisition date of July 29, 2024. The Company assessed the materiality of this change on prior period consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality” (ASC Topic 250, Accounting Changes and Error Corrections). Based on this assessment, the Company concluded that these error corrections were material in the first quarter of 2025, but were not material to any previously presented consolidated financial statements. Accordingly, the Company corrected the previously reported immaterial errors for the year ended December 31, 2024 in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025.
The financial reporting periods affected by this error include the Company’s previously reported audited consolidated financial statements for the fiscal year ended December 31, 2024 and the Company’s previously reported interim unaudited consolidated financial statements for the three and nine months ended September 30, 2024. The Company is presenting the corrected 2024 amounts in this Annual Report on Form 10-K on a year-to-date basis. A summary of the immaterial corrections to the Company’s previously reported audited and unaudited consolidated financial statements follows.
CTS CORPORATION43
Table of Contents
Corrected Consolidated Statement of Earnings for the Year Ended December 31, 2024 (in thousands):
Year Ended Year Ended
Previously Reported Corrections As Corrected
Other income (expense):
Earnings per share:
Basic weighted – average common shares outstanding: 30,408 30,408
Effect of dilutive securities 309 309
Diluted weighted – average common shares outstanding: 30,717 30,717
Corrected Consolidated Balance Sheet as of December 31, 2024 (in thousands):
Previously Reported Corrections As Corrected
ASSETS
Current Assets
Other Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Shareholders’ Equity
CTS CORPORATION44
Table of Contents
Corrected Consolidated Statement of Cash Flows for the Year Ended December 31, 2024 (in thousands):
Year Ended Year Ended
Previously Reported Corrections As Corrected
CASH FLOWS FROM OPERATING ACTIVITIES:
Changes in assets and liabilities, net of acquisitions:
Accrued expenses and other liabilities (5,255 ) 178 (5,077 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Corrected Fair Value of SyQwest Assets Acquired and Liabilities Assumed:
Accounts receivable $ 770
Other current assets 1,475
Property, plant and equipment 985
Other assets 684
Fair value of assets acquired 134,553
Less fair value of liabilities acquired (6,536 )
During the fourth quarter of 2025, the Company identified additional immaterial prior period errors related to the acquisition of SyQwest. The errors related to the calculation of revenue and cost of goods sold that originated prior to the acquisition date of July 29, 2024 and continued through 2025. The Company assessed the materiality of this change on prior period consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality” (ASC Topic 250, Accounting Changes and Error Corrections). Based on this assessment, the Company concluded that these error corrections are not material to the current or previously presented consolidated financial statements. Accordingly, the Company corrected the immaterial errors during the period ending December 31, 2025 impacting Revenue, Cost of goods sold, Other income (expense) and Goodwill resulting in decreased earnings before taxes of $893. The correction includes a $2,194 adjustment to Goodwill related to errors originating prior to the acquisition date.
Accounting Pronouncements Recently Adopted
ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the reconciliation of the effective tax rate, as well as disclosure of income taxes paid, disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of this ASU impacts our income tax disclosures, but has no impact on our results of operations, cash flows, or financial condition. We adopted the guidance in our 2025 annual reporting on a retrospective basis. See Note 19, "Income Taxes," for further information.
CTS CORPORATION45
Table of Contents
Recently issued accounting pronouncements not yet adopted
ASU No. 2024-03, “Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses”
In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires additional information about certain expenses in the notes to the financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The standard can be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adopting ASU 2024-03.
ASU No. 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets”
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows for a practical expedient election to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset in the development of a reasonable and supportable forecast as part of estimating expected credit losses. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact of electing the practical expedient under ASU 2025-05.
ASU No. 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which is intended to improve the operability and application of guidance related to capitalized software development costs. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-06.
NOTE 2 – Revenue Recognition
CTS designs and manufactures sensors, actuators, and electronic components for original equipment manufacturers and the U.S. Government. For each contract with a customer, we determine the transaction price based on the consideration expected to be received by the Company in exchange for performing its obligations under the applicable contract. We allocate the transaction price to each distinct performance obligation to deliver a good or service, or a collection of goods and/or services, based on the relative standalone selling prices. We usually expect payment from our customers within 30 to 90 days from the shipping date or invoicing date, depending on our terms with the customer. None of our contracts as of December 31, 2025 or 2024 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as contract assets or liabilities. Contract assets will be reviewed for impairment when events or circumstances indicate that they may not be recoverable.
To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the most likely value method based on an analysis of historical experience and current facts and circumstances, which may require significant judgment. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
Our revenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for product returns, price adjustments, and stock rotation adjustments. We base these estimates on the most likely value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded.
Approximately 96% of our revenue is derived from contracts for sales of commercial products, which generally contain a single performance obligation. We generally recognize revenue at a point in time on the delivery date based on the shipping terms stipulated in the contract.
We also design, manufacture, and test products for certain customers under contracts that allow the customers to unilaterally terminate the contract for convenience, take control of any work in process, and pay us for costs incurred plus a reasonable profit. Revenue from these contracts is generally recognized over time as the work progresses, either as products are produced or services are rendered, because we generally do not have an alternative use for the completed assets produced and we have an enforceable right to payment for performance completed to date. These contracts may contain a single or multiple performance obligations. The accounting for these contracts involves applying significant judgment with respect to estimating total revenues, costs and profit for each performance obligation. We generally estimate revenue for these contracts using the costs incurred by the Company as we have determined that this method is the most representative of the Company's cumulative efforts relative to the total expected efforts to satisfy the performance obligations. Approximately 4% of the Company's revenue is recognized over time.
CTS CORPORATION46
Table of Contents
At December 31, 2025, we estimated that $8,628 in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period for contracts greater than one year. We expect to recognize 6,072 and 2,556 of the Company's unsatisfied (or partially unsatisfied) performance obligations as revenue in 2026 and 2027, respectively.
See Note 11, "Commitments and Contingencies" for information about our product warranties.
Contract Assets and Liabilities
Contract assets and liabilities included in our Condensed Consolidated Balance Sheets are as follows:
As of December 31,
Contract Assets
Total Contract Assets $ 6,688 $ 4,104 $ —
Contract Liabilities
Total Contract Liabilities $ (1,633 ) $ (910 ) $ —
The Company recognized $478 of revenue that was included in the contract liability balance at December 31, 2024.
Disaggregated Revenue
The following table presents revenues disaggregated by the major end markets we serve:
Years EndedDecember 31,
NOTE 3 - Business Acquisitions
Maglab AG Acquisition
On February 6, 2023, we acquired 100% of the outstanding shares of maglab AG ("Maglab"). Maglab has deep expertise in magnetic system design and current measurement solutions for use in e-mobility, industrial automation, and renewable energy applications. Maglab's domain expertise coupled with CTS’ commercial, technical and operational capabilities position us to advance our status as a recognized innovator in current sensing.
The final purchase price of $7,717 was allocated to the fair values of assets and liabilities acquired as of February 6, 2023. The purchase price was increased by $3 for the final settlement of net working capital during the second quarter of 2023.
CTS CORPORATION47
Table of Contents
The following table summarizes the final consideration paid, the fair values of the assets acquired and the liabilities assumed as of the date of acquisition:
Consideration Paid
Cash paid, net of cash acquired of $14 $ 4,153
Contingent consideration 3,564
Purchase price $ 7,717
Fair Values atFebruary 6, 2023
Accounts receivable $ 348
Inventory 43
Other current assets 41
Property, plant and equipment 35
Intangible assets 2,860
Fair value of assets acquired 8,324
Less fair value of liabilities acquired (607 )
Purchase price $ 7,717
Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.
The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:
CarryingValue WeightedAverageAmortizationPeriod
Customer lists/relationships $ 2,800 13.0
Technology and other intangibles 60 3.0
All contingent consideration is payable in cash and is based on success factors related to the integration process as well as upon the achievement of annual revenue and customer order targets through the fiscal year ending December 31, 2025. The Company recorded $3,564 as the acquisition date fair value of the contingent consideration based on the estimate of the probability of achieving the performance targets. This amount was also reflected as an addition to the purchase price. The contingent consideration had a maximum payout of $6,300. See Note 18, "Fair Value Measurements," for more information on contingent consideration.
Supplemental pro forma disclosures are not included as the amounts are deemed to be immaterial.
SyQwest, LLC Acquisition
On July 29, 2024, we acquired 100% of the outstanding membership interests of SyQwest, a leading designer and manufacturer of a broad set of sonar and acoustic sensing solutions primarily for naval applications. The SyQwest acquisition is expected to strengthen our strategy and scale in the defense end market.
The purchase price of $128,017, which includes changes in working capital, was allocated to the fair values of assets and liabilities acquired as of July 29, 2024.
The following tables summarize the purchase price, the fair values of the assets acquired and the liabilities assumed as of the date of the acquisition of SyQwest:
Consideration Paid
Cash paid, net of cash acquired of $1,410 $ 121,912
Contingent consideration 6,105
CTS CORPORATION48
Table of Contents
Accounts receivable $ 770
Other current assets 1,475
Property, plant and equipment 985
Other assets 684
Fair value of assets acquired 134,553
Less fair value of liabilities acquired (6,536 )
Goodwill represents the value the Company expects to be created by combining the operations of the acquired business with the Company’s operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.
The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:
CarryingValue WeightedAverageAmortizationPeriod
Customer lists/relationships $ 68,500 15.0
Technology and other intangibles 7,600 10.9
The Company recorded a $2,087 step-up of inventory to its fair value as of the acquisition date. The step-up was amortized as a non-cash charge to cost of goods sold as the acquired inventory was sold with the entire amount recognized in the year ended December 31, 2024.
All contingent consideration is payable in cash and is based on the achievement of certain project and earnings metrics through the fiscal year ending December 31, 2026. The Company recorded $6,105 as the acquisition date fair value of the contingent consideration based on the estimate of the probability of achieving the performance targets. This amount is also reflected as an addition to the purchase price and is recorded within other long-term obligations within the Condensed Consolidated Balance Sheets. The contingent consideration has a maximum payout of $15,000. See Note 18, "Fair Value Measurements," for more information on contingent consideration.
Supplemental pro forma disclosures are not included as the amounts are deemed to be immaterial.
NOTE 4 — Accounts Receivable, net
The components of accounts receivable, net are as follows:
As of December 31,
Less: Allowance for credit losses (910 ) (730 ) (931 )
CTS CORPORATION49
Table of Contents
NOTE 5 — Inventories, net
Inventories, net consist of the following:
As of December 31,
NOTE 6 — Property, Plant and Equipment, net
Property, plant and equipment, net is comprised of the following:
As of December 31,
Land and land improvements $ 399 $ 399
Property, plant and equipment, net $ 89,741 $ 94,357
Depreciation expense recorded in the Consolidated Statements of Earnings includes the following:
For the Years Ended
NOTE 7 — Retirement Plans
As of December 31, 2025, we have two active noncontributory defined benefit pension plans ("Pension Plans") covering less than 1% of our active employees. These Pension Plans consist of a U.S. supplemental retirement plan ("SERP") and a Taiwan pension plan. The SERP is comprised entirely of participants who are former employees of the Company.
We also provide post-retirement life insurance benefits for certain retired employees. Domestic employees who were hired prior to 1982 and certain former union employees are eligible for life insurance benefits upon retirement. We fund life insurance benefits through term life insurance policies and intend to continue funding all of the premiums on a pay-as-you-go basis.
We recognize the funded status of a benefit plan in our consolidated balance sheets. The funded status is measured as the difference between plan assets at fair value and the projected benefit obligation. We also recognize, as a component of other comprehensive earnings, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit/cost.
The measurement dates for the Pension Plans for our U.S. and non-U.S. locations and the post-retirement life insurance plan were December 31, 2025 and 2024.
CTS CORPORATION50
Table of Contents
The following table provides a reconciliation of the benefit obligation, plan assets, and the funded status of the pension plans for U.S. and non-U.S. locations at the measurement dates.
U.S.Pension Plan Non-U.S.Pension Plan
Change in projected benefit obligation:
Service cost — — 13 13
Foreign exchange impact — — 61 (91 )
Change in plan assets:
Assets at fair value at January 1 $ — $ — $ 1,310 $ 1,199
Actual return on assets — — 114 117
Foreign exchange impact — — 61 (77 )
Assets at fair value at December 31 $ — $ — $ 1,566 $ 1,310
The following table provides a reconciliation of the benefit obligation, plan assets, and the funded status of the post-retirement life insurance plan at those measurement dates.
Post-RetirementLife Insurance Plan
Accumulated benefit obligation $ 3,508 $ 3,683
Change in projected benefit obligation:
Projected benefit obligation at January 1 $ 3,683 $ 4,145
Service cost 1 1
Actuarial (gain) loss (226 ) (515 )
Projected benefit obligation at December 31 $ 3,508 $ 3,683
Change in plan assets:
Assets at fair value at January 1 $ — $ —
Other — —
Assets at fair value at December 31 $ — $ —
The components of the accrued cost of the domestic and foreign pension plans are classified in the following lines in the Consolidated Balance Sheets at December 31:
U.S. Pension Plan Non-U.S. Pension Plan
Accrued expenses and other liabilities (89 ) (98 ) — —
Long-term pension obligations (556 ) (631 ) 32 (14 )
The components of the accrued cost of the post-retirement life insurance plan are classified in the following lines in the Consolidated Balance Sheets at December 31:
CTS CORPORATION51
Table of Contents
Post-RetirementLife Insurance Plan
Accrued expenses and other liabilities $ (422 ) $ (457 )
Long-term pension obligations (3,086 ) (3,226 )
We have also recorded the following amounts to accumulated other comprehensive income (loss) for the U.S. and non-U.S. pension plans, net of tax:
U.S.Pension Plan Non-U.S.Pension Plan
UnrecognizedLoss UnrecognizedLoss
Amortization of retirement benefits, net of tax (19 ) (99 )
Net actuarial gain (loss) (31 ) (38 )
Foreign exchange impact — (75 )
Amortization of retirement benefits, net of tax (19 ) (30 )
Net actuarial gain (loss) (1 ) —
Foreign exchange impact — 63
We have recorded the following amounts to accumulated other comprehensive income (loss) for the post-retirement life insurance plan, net of tax:
UnrecognizedGain
Amortization of retirement benefits, net of tax 48
Net actuarial gain (loss) (361 )
Amortization of retirement benefits, net of tax 106
Net actuarial gain (loss) (187 )
The accumulated actuarial gains and losses included in other comprehensive earnings are amortized in the following manner:
The component of unamortized net gains or losses related to our non-qualified pension plan is amortized based on the future life expectancy of the plan participants (estimated to be approximately nine years at December 31, 2025), because all of the participants in those plans are former employees who are now retired. The component of unamortized net gains or losses related to our post-retirement life insurance plan is amortized based on the future life expectancy of the plan participants (estimated to be approximately six years at December 31, 2025), because substantially all of the participants in those plans are former employees who are now retired.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those pension plans with accumulated benefit obligation in excess of the fair value of plan assets is shown below:
As of December 31,
Projected benefit obligation $ 2,179 $ 2,054
Accumulated benefit obligation $ 1,768 $ 1,758
Fair value of plan assets $ 1,566 $ 1,310
CTS CORPORATION52
Table of Contents
Net pension expense includes the following components:
Years EndedDecember 31, Years EndedDecember 31,
U.S. Pension Plans Non-U.S. Pension Plan
Service cost $ — $ — $ — $ 13 $ 13 $ 22
Expected return on plan assets(1) — — — (25 ) (20 ) (13 )
Weighted-average actuarial assumptions(2)
Benefit obligation assumptions:
Rate of compensation increase N/A N/A N/A 4.00 % 3.00 % 3.00 %
Pension income/expense assumptions:
Expected return on plan assets(1) N/A N/A N/A 1.75 % 1.63 % 1.75 %
Rate of compensation increase N/A N/A N/A 3.00 % 3.00 % 5.00 %
(1)
Expected return on plan assets is net of expected investment expenses and certain administrative expenses.
(2)
During the fourth quarter of each year, we review our actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted.
Net post-retirement expense includes the following components:
Post-RetirementLife Insurance Plan
Years Ended December 31,
Service cost $ 1 $ 1 $ 1
Amortization of unrecognized gain (139 ) (62 ) (336 )
Weighted-average actuarial assumptions(1)
Benefit obligation assumptions:
Rate of compensation increase N/A N/A N/A
Pension income/post-retirement expense assumptions:
Rate of compensation increase N/A N/A N/A
(1)
During the fourth quarter of each year, we review our actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted.
The fair value of assets in the non-U.S. pension plan are 100% categorized as cash and cash equivalents, which use Level 1 inputs in the fair value determination.
We expect to make $89 of contributions to the U.S. plans and $168 of contributions to the non-U.S. plan during 2026.
CTS CORPORATION53
Table of Contents
Expected benefit payments under the Pension Plans and the postretirement benefit plan, for the five years subsequent to 2025 (i.e., 2026-2030, inclusive), and in the aggregate for the five years thereafter (i.e., 2031-2035, inclusive) are as follows:
U.S.Pension Plan Non-U.S.Pension Plan Post-RetirementLifeInsurancePlan
Defined Contribution Plans
We sponsor a 401(k) plan that covers substantially all of our U.S. employees as well as offer similar defined contribution plans to employees at certain foreign locations. Contributions and costs for such plans were generally determined as a percentage of the covered employee's annual salary.
Effective January 1, 2022, in connection with the U.S. plan termination process, we amended our 401(k) plan and transitioned to a non-elective contribution for all U.S. employees that is also determined as a percentage of the covered employee's salary, provides for immediate vesting and is provided regardless of whether the individual employee contributes to the applicable plan. In addition, we began offering a Roth 401(k) option to employees.
Expenses related to defined contribution plans include the following:
Years Ended December 31,
NOTE 8 — Goodwill and Other Intangible Assets
Other Intangible Assets
Other intangible assets, net consisted of the following components:
Other intangible assets:
Amortization expense for the year ended December 31, 2025 $ 16,160
CTS CORPORATION54
Table of Contents
GrossCarrying Amount AccumulatedAmortization NetAmount
Other intangible assets:
Amortization expense for the year ended December 31, 2024 $ 13,348
Amortization expense for the year ended December 31, 2023 $ 11,024
The changes in the gross carrying amounts of intangible assets were primarily due to foreign exchange impacts.
The estimated amortization expense for the next five years and thereafter is as follows:
Amortizationexpense
Total future amortization expense $ 153,562
Goodwill
Changes in the net carrying amount of goodwill were as follows:
Total
Increase due to acquisitions 46,600
Foreign exchange impact (2,934 )
Foreign exchange impact 6,113
Increase due to prior period adjustment $ 2,194
Refer to Note 3, "Business Acquisitions," for further information on the increase in the net carrying amount of goodwill due to acquisitions. Refer to Note 1, "Summary of Significant Accounting Policies," for further information on the prior period adjustment to Goodwill.
We performed our annual impairment test as of October 1, 2025, our measurement date, and concluded that there was no impairment in any of our reporting units. The fair value estimates used in the goodwill impairment analysis required significant judgment. The Company's fair value estimates for the purposes of determining the goodwill impairment charge are considered Level 3 fair value measurements. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenues and operating margins and assumptions about the overall economic climate and the competitive environment for the business.
NOTE 9 — Costs Associated with Exit and Restructuring Activities
Restructuring charges are reported as a separate line within operating earnings in the Consolidated Statements of Earnings. Total restructuring charges were:
Years Ended December 31,
CTS CORPORATION55
Table of Contents
During the year ended December 31, 2025, we incurred total restructuring charges of $1,396, comprised of $1,291, $68 and $37 in workforce reduction, building and equipment relocation costs, and asset impairment and other charges, respectively. The remaining restructuring liability associated with these actions was $192 and $659 at December 31, 2025 and December 31, 2024, respectively.
During the first quarter of 2023, we announced the closure of our Juarez manufacturing facility. As a part of this activity, operations
from the Juarez plant were consolidated into our expanded Matamoros facility (collectively, the "Matamoros Consolidation"). The
Matamoros Consolidation was substantially complete as of December 31, 2024. As a result, our restructuring charges decreased significantly during the year ended December 31, 2025.
The following table displays the restructuring liability activity for all plans for the year ended December 31, 2025:
Restructuring liability at January 1, 2025 $ 798
Restructuring charges 1,396
Restructuring liability at December 31, 2025 $ 192
The total liability of $192 is included in accrued expenses and other liabilities at December 31, 2025.
NOTE 10 — Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities are as follows:
December 31,